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Argentines Gauge Impact of IMF Loan - 2001-08-24

Argentines are gauging the impact of the new loans granted to their cash-strapped nation Tuesday by the International Monetary Fund. There is uncertainty about whether the latest package will help steer the country back on the course of economic growth.

There was initial euphoria over the announcement late Tuesday night that the IMF, after 12 straight days of negotiations, had approved an additional $8 billion in loans for South America's second-largest economy. But by Thursday, that excitement had dimmed. Political analyst Ricardo Rouvier says only a quarter of his fellow Argentines think the loan agreement will improve the country's economic situation. Market reaction was also muted, with the Merval index of leading shares, which rose over 8 percent on Wednesday, retreating nearly 3 percent on Thursday. Economy Minister Domingo Cavallo warned: "There will be no miracles."

Nevertheless, Mr. Cavallo says the additional aid will restore Argentines' confidence the country can pull itself out of the crippling recession that has sent unemployment rates soaring to above 16 percent.

Mr. Cavallo says the extra funds will be used to safeguard Argentines' bank deposits and he invited them to re-deposit their money. In July, the nation's banks lost almost $6 billion in deposits. Businesses and families, fearful of a possible devaluation or government seizure of their accounts, withdrew their funds.

Even with the additional IMF loans, Argentines remain skeptical of the government's repeated promises not to default on the $130 billion foreign debt or to devalue the Argentine peso - currently pegged at one to one with the dollar. Their confidence is not helped by reports in the mainstream media that President Fernando De la Rua, Mr. Cavallo and other top-ranking officials have dollars stashed away in overseas bank accounts.

Argentina's leaders characterize the IMF loan as a new dawn for Argentina, much as they did with the December 2000 $40 billion loan package and the June 2001 $29.5 billion bond-swap. In both previous cases, early gains were later wiped away, as the country refused to show any signs of economic revitalization.

This time, President De la Rua says he is optimistic about the possibility of creating a new Argentina.