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IMF Director Calls for New Policies in Argentina, China - 2004-09-21


The managing director of the International Monetary Fund says Argentina has a long way to go before it re-establishes trust with investors, following that country's $100 billion default in 2002.

IMF chief Rodrigo de Rato says president Nestor Kirchner's decision to suspend its relationship with the IMF, combined with his refusal to negotiate with Argentinians who hold massive amounts of debt, are steps in the wrong direction.

"Argentina has to have a policy of reducing its vulnerability, and also it has to have a policy to regain not only credibility for a financial arrangement with its creditors but also to regain credibility for future investment in Argentina, in the utility sector, in the financial sector, in the industrial sector," he said. "And to do that, the stability of the law and friendly environment - legal, political and social for new investment - domestic and international - is going to be essential for Argentina to regain rates of growth like the ones we've seen in the past two years."

Argentinian economic forecasts predict a primary budget surplus, without including debt payments, of about three percent next year. Mr. de Rato says Argentina needs to demonstrate continuous growth in its troubled economy in order to reassure the international community.

In August, Argentina suspended its relationship with the IMF. Argentina says it wants to focus on restructuring its record debt, 14-billion dollars of which it owes to the IMF.

Speaking at the private Council on Foreign Relations in New York, Mr. de Rato also renewed his call for China to make the move to a flexible currency.

"Our position regarding the need for the Chinese authorities to contemplate right now - and we believe this is a good moment for them, given the strength of their economic situation - to move to a more flexible environment of exchange rates is our policy," he said. "We have recommended that to the Chinese authorities, and we do recommend that to the Chinese authorities."

The U.S. government is also urging the Chinese to change the way the yuan is valued against the dollar, because officials say the current system is creating a massive U.S. trade deficit. China says it will make adjustments toward a flexible market system, but the changes will take time.

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