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Argentina Seeks US, IMF Economic Aid

A top Argentine official is in Washington to discuss his government's plans for lifting Argentina out of its economic crisis and to press for assistance from international lending agencies. The trip comes as the new government of President Eduardo Duhalde appears to have moved away from policies that put it on a collision course with the Bush administration.

Traditionally, Argentina has had a contentious relationship with the United States, extending back into the 19th century when Buenos Aires and Washington were rivals for influence in the Americas. Relations continued to be cool for most of the 20th century, and only changed dramatically when President Carlos Menem took office in 1989.

For ten years under Mr. Menem, Argentina became Washington's closest ally in Latin America.

Argentina participated in the 1991 Gulf war and later provided troops for peacekeeping operations in Haiti, Bosnia, and other places around the world. Mr. Menem's pro-U.S. stance came under fire from segments of his Peronist party, named after populist dictator Juan Domingo Peron who had kept Washington at a distance when he ruled Argentina in the 1940s and early 1950s.

Mr. Menem's successor, Fernando de la Rua of the Radical party, maintained a similarly close relationship with the United States. But bilateral relations changed after Mr. de la Rua was forced to resign in late December following bloody riots and protests over his failed economic policies.

Argentina's current President, Eduardo Duhalde, comes from the traditional wing of the Peronist party that is cool to relations with Washington. With Argentina bankrupt and in a deep recession, Mr. Duhalde has called for a return to protectionism and criticized U.S.-backed free-market economic policies which he said had ruined Argentina.

One of Mr. Duhalde's first moves was to devalue the currency by over 30 percent. His government also declared it would maintain Argentina's debt payment moratorium.

With his support, Argentina's legislative assembly passed an economic emergency law which ordered banks to repay dollar-denominated accounts in dollars, while converting loans up to $100,000 to cheaper devalued pesos. The aim was to spare Argentine savers and borrowers as much pain as possible from the devaluation. But the banks, including foreign banks, loudly objected.

Argentine foreign policy specialist, Carlos Escude, says these policies were viewed as hostile toward foreign investors and were putting Argentina on a collision course with the United States. Mr. Escude, who teaches at Di Tella University in Buenos Aires, says such a situation would have proved untenable for Argentina.

"It's impossible for a country as vulnerable as Argentina, as lacking in strategic importance as Argentina, as indebted as Argentina, to engage in this sort of confrontation with the world, the international financial community, political centers in the United States and Europe, without paying huge costs," he said. "If we would have continued heading in that direction we would have been isolated financially, commercially we would not have been able to import a single spare part ...and we would have seen our life styles change completely and erode and deteriorate."

A turning point may have come with President Bush's address on January 16, in which he warned Latin America not to stray from the path of free markets. Mr. Bush, who spoke at the Organization of American States, said Argentina and the nations of the hemisphere need to strengthen their commitment to free market reform, not weaken it. The American president went on to say his government will help Argentina once it comes up with a "sound and sustainable" economic plan.

Foreign policy expert Escude says the message from Washington was clear, and caused the Duhalde government to reverse some policies that were opposed by the banks.

"This was very much a stiff warning to Argentina coined in diplomatic terms, diplomatic terms which allowed the Argentine government to take a step back without losing face but which everyone understood, and the government understood it," he said. "This is the reason why that immediately afterwards the government did indeed take one major step back which was to decide that deposits would be "pesified". So I think we were moving toward a collision with the Bush administration and now we are backtracking."

A few days after Mr. Bush's speech, the Duhalde government declared dollar deposits in banks will have to be returned in pesos because there are not enough dollars in the financial system. Government officials also said the country would probably drop its dual exchange rate system which the International Monetary Fund had strongly objected to.

These moves, while courting more domestic unrest, seemed aimed at placating the Bush administration and the IMF. But it is not clear if this will be enough to persuade Washington to help Argentina. The Duhalde government is seeking a $15 billion emergency loan to help the country recover from the crisis and the impact of the devaluation.

Foreign policy expert Escude warns that if Argentina does not receive a substantial aid package, the resulting domestic turmoil could spread to other countries.

"If Argentina moves away from its confrontation with the powers that be and it is not offered assistance, the breakdown of Argentine society is such there could be the contagion of turmoil from here to Brazil and further north," he said. "Turmoil would lead to either chaos, anarchy, civil war and the FARC, the insurgent guerrillas of Colombia would be tempted to turmoil could degenerate into something much worse."

This is likely to be at least part of the message that Argentine Foreign Minister Carlos Ruckauf will deliver when he meets Tuesday with Secretary of State Colin Powell.

To underscore this, thousands of Argentines took to the streets on Friday to protest against the consequences of the financial crisis and to call for relief from the impact of the devaluation. It was the largest protest since Mr. Duhalde took office early this year and it was seen as a warning signal of more unrest to come if the Duhalde government is unable to start showing results soon.