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Argentina Reacts to IMF Warnings


Argentina is counting on a massive loan package of up to $15 billion from the International Monetary Fund to help pull the country out of its deep economic crisis. But this help may not appear soon - judging from comments by top IMF officials this week. The IMF's position has provoked a strong reaction among Argentine officials and politicians.

Cautionary comments from top IMF officials this week, about the prospects of a massive loan package, have hit Argentina like a cold shower.

Warnings by these same officials that Argentines face further suffering as the country struggles to emerge from its crisis also came like a blow - with Argentine officials and politicians angrily criticizing the IMF for insensitivity.

Argentine Cabinet Chief Jorge Capitanich says no one should be telling Argentines about suffering - adding that the Argentine people have suffered enough because of what he called an "unprecedented" financial crisis.

Leading provincial governors of the ruling Peronist party were even harsher. Buenos Aires governor Felipe Sola told reporters it appears the IMF wants to push Argentina out of the international system, and turn the country into what he called: an "Afghanistan or Albania."

The governor of Santa Fe, Nestor Kirchner, a prominent Peronist party member, also rejected the IMF statements. "While Argentina needs to have a relationship with all international entities, the IMF needs to address Argentina in a different manner, and we need to reject this attitude of paternalism and of almost aggression towards us," he said.

The reaction was in response to comments by IMF head, Horst Koehler, who said in Europe this week that Argentina has no way out of its current crisis without further suffering. He said while the IMF is willing to help Argentina, the government needs to come up with a "sound fiscal policy."

His deputy, Anne Krueger, went even further by saying the prospects for a $15 billion loan that Argentina is seeking are slim. Speaking in Australia Tuesday, Ms. Krueger said the IMF already has provided more than $20 billion to Argentina. But she added the Fund is ready to continue helping the South American nation once the government comes up with sustainable recovery plan.

The government of President Eduardo Duhalde wants up to $15 billion in disbursements from the IMF to help carry the country through its currency devaluation and efforts to emerge from its economic crisis. President Duhalde, who took office January 1 following the resignations of two of his predecessors, devalued the peso under a two-tier exchange rate system earlier this month.

Until then, the peso had been pegged one-to-one to the U.S. dollar for almost 11 years - a system that brought financial stability after a period of hyperinflation. But the so-called "convertibility system" was increasingly viewed as unsustainable by many economists and the IMF, as Argentina sunk into debt and failed to emerge from its nearly four-year recession.

Economist Ricardo Delgado of the Buenos Aires consulting firm, Ecolatina, says an IMF emergency package is key to helping Argentina avoid hyperinflation and eventual economic collapse. "This whole scheme will come down like a house of cards if the IMF does not respond to Argentina's request for additional aid," he said.

Mr. Delgado said much will depend on the kind of government spending plan President Duhalde comes up with, though he warned that it would be a mistake if the IMF demands further fiscal austerity from a country that is still in the midst of a painful recession.

An IMF technical team is in Buenos Aires, meeting with Economy Ministry officials and examining the government's accounts. Press reports say the IMF team is urging the government to make further spending cutbacks as a way to return to fiscal solvency.

President Duhalde has been meeting with provincial governors, key members of Congress, and others as his government prepares a new budget. Mr. Duhalde, a former Peronist governor and Senator, has pledged to help those most severely affected by the economic crisis - and is reported to be resisting any attempt to cut back spending for emergency social programs. Unemployment in Argentina is over 18 percent, and one-third of its 36 million people live in poverty - this in a nation that once had the highest standard of living in Latin America.

But some economists are pessimistic about the prospects of a recovery, even with the help of the IMF. Aldo Abram, of the consulting firm Exante, says removing the peso from its fixed peg to the dollar was a serious mistake, and will inevitably lead to hyperinflation. Because of this, he says, there is not enough time for the Duhalde government to come up with a budget and negotiate a new accord with the IMF.

"I think there is a problem of time here, because I don't think we'll have the possibility to negotiate an accord over a sustainable plan in the following two or three months. We will take two months at least for that," he said. "The problem is we are heading too fast toward hyperinflation, and that's not sustainable. Hyperinflation is not the basis of a sustainable plan. So if we have hyperinflation we don't have a sustainable plan, and if we don't have a sustainable plan then we have a problem because we won't have the $15 billion from the IMF. This is something contradictory, we are taking the medicine that the IMF has recommended to us, and because of that we will have the hyperinflation that will mean that we will not have a sustainable plan to give us the $15 billion. It's a problem."

The IMF did send a signal of its willingness to help Argentina, when last week it gave the government an extra year to pay back a loan of almost $1 billion that was due this year. Another $9 billion remains to be disbursed by the IMF under a loan agreement last year.

But the Fund has clearly adopted a wait-and-see attitude until the Duhalde government comes up with what the IMF considers a credible recovery plan. It remains to be seen how long this will take, and whether Argentines - whose angry demands for solutions brought down two governments last month - will give President Duhalde the time he says he needs to show he is making progress in pulling the country out of its crisis.

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