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What's needed is a changed Argentina & IMF


Council On Hemispheric Affairs - Argentina: Grim News

* What is needed is a drastically changed Argentina; what is even more needed is a new IMF

The Argentine government defaulted yesterday on its scheduled $805 million in debt payments to the World Bank, the country's only remaining extant creditor after its catastrophic default last January on its $140 billion foreign debt. President Eduardo Duhalde's decision to authorize only a nominal $80 million in interest payments to be paid to the World Bank is a doomed attempt to propitiate hard-hearted international lending institutions while striving to buy time to strike a private deal with the IMF, a normally arrogant institution which now finds itself as embattled as the Argentine government, due to its traditional insensitivity to the plight of the non-G-7 world.

Duhalde's action-or lack thereof-is all but certain to compromise Argentina's international credit-worthiness in the short to medium term.

While this could halt in its tracks what little progress the Argentine economy has managed to make this year-while generating even more political and social upheaval at home by prolonging the country's status as an economic pariah-it still may be more desirable to take this path rather than risk an internal explosion that could consign the nation to civil strife or even civil war.

What could have been Had Argentina and the IMF successfully negotiated a deal to refinance
Argentina's foreign debt by November 14, it would have paved the way for a similar agreement with the World Bank and other lending institutions, which would have boosted investor confidence and eased some of the pressure on the country's cash-strapped economy. As his recent statements show, Roberto Lavagna, Argentina's Minister of Economy, was perhaps being overly optimistic in claiming that an agreement with the IMF was in its final stages. If this was Lavagna's thinking, he was proving himself to be foolishly unrealistic, because it would take far more than an $80 million payoff to the World Bank to clinch the deal. IMF officials Anne Krueger and Anoop Singh, however, appeared not to share Lavagna's irrational confidence.

For one, they wanted Argentina to put an end to amparos, in which citizens have successfully removed their funds from otherwise frozen bank accounts by arguing their cases in court, because the two senior IMF staffers consider the regulations under which such litigation can be carried out to be essentially detrimental to monetary reform. Though the actual success rate of such amparos is minimal, Argentines can resort to few other recourses to access their money, and Duhalde's administration, long in a deadlock with the government's judicial branch, cannot force the Supreme Court to overturn its decisions which allow such a process.

IMF officials, doubting that the meager performance of the Argentine economy in recent months will generate real growth, are advocating increases in utility rates to help stimulate a budgetary surplus, but the Argentine Congress and Ministry of Justice will likely oppose any rise in taxes or service rates as politically untenable. But there is another grim fact of life that Duhalde must face: that as a leader with single-digit popularity ratings, he cannot expect to long remain in office if he imposes additional burdens on a population already being faced with an unemployment rate approaching 30 percent, widespread starvation, an unraveling of civil society and the virtual disappearance of the middle class.

A voiceless Buenos Aires The IMF has taken a particularly hard-line stance against the Argentine
central bank, calling for the government to downsize the institution and implement stricter financial policies to control its often questionable activities. While that notoriously corrupt institution well deserves this kind of public thrashing, it ill-behooves the IMF, an institution that never had a word of reproach over the killings of thousands of innocent civilians during the period of the "dirty war," to feel emboldened to call for more sacrifices by an already desperate populace. Also, even if the Duhalde
administration was willing to carry out such reforms, it lacks the support in Congress to push such action. Furthermore, elections, scheduled for May 2003, may install a president even more hostile to the IMF's neo-liberal prescriptions.

"Democracy is hanging by its fingertips in Argentina," notes Richard McCormack, former U.S. Under-Secretary of State for Economic Affairs.

"Sufficient moneys from outside and sustainable economic policies are needed to assist growth." But merely tinkering with the country's fiscal and monetary knobs are not likely to do the job if they in any way add to the already insupportable daily burdens facing Argentines. Ernesto Aldo Isuani, a professor with the Facultad Latinoamericano de Ciencias Sociales (FLACSO,) contends that economic growth should not be considered the only way to alleviate Argentina's social crisis, stressing that improving education and expanding social policies are essential for reducing poverty. If anything, the aforementioned almost understates what is an alarming situation.

Even more so, Argentina requires a radical departure from its present almost vanished policy of tending to the basic human needs of the population. Argentine political movements, currently divided into dozens of small, self-interested factions, would also do well to form broad, but binding alliances so that a wide sweep of social concerns could be represented. An additional benefit from this would be that the nation would be speaking with a single voice abroad, which is mandatory if Buenos Aires is to be
successful in generating the additional clout derived from being seen as a nation that was victimized by an international financial system that has its own priorities.

While Argentina has been skewered by a global fiscal and monetary system managed by the G-7 nations, this doesn't mean that it is not blameworthy for its own multiple self-inflicted wounds, most notably a smugness, a persisting neo-Nazi strain in its political culture, moral relativism that can tolerate such a sleazy politician as ex-President Carlos Menem in its pantheon of heroes, and a propensity for massive corruption that has proven ruinous to the country.

This analysis was prepared by Larry Birns, director of COHA, and Katherine Ruddick, research associate.

The Council on Hemispheric Affairs, founded in 1975, is an independent, non-profit, non-partisan, tax-exempt research and information organization. It has been described on the Senate floor as being "one of the nation's most respected bodies of scholars and policymakers."

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