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Argentina Economy Forecast to Contract Again - 2002-07-20

A team of economists is coming to Argentina Monday to help the government complete a new loan agreement with the International Monetary Fund. Argentina's economy is in a poor shape and getting worse.

A new report is forecasting Argentina's economy will contract for a fifth consecutive year in 2003. London-based Latin America Consensus Forecasts says Argentina's economy will shrink a whopping 15 percent this year.

The group of so called wise men going to Argentina includes Andrew Crockett, the head of the Bank for International Settlements and three well-known former central bankers. They hope to resolve outstanding differences between Argentina's government and the IMF. These include the role of Argentina's central bank and the lack of control over spending of central resources by provincial governments.

Some analysts are suggesting Argentina should return to a monetary system of tying the peso to the U.S. dollar, a policy the government had adopted in the 1990 under former Peronist President Carlos Menem.

Analyst Louis Goodman said this might be a good idea, but the system would have to be more flexible. "If Argentina were to return to a dollarization, they should set the currency at a rate that's realistic. The way it was set when Menem was president overvalued the peso by about 40 percent when the dollarization took place. And then the privatizations that took place during Menem's presidency hid what the real dynamics of the economy were. So it would have to take place and be managed in a way that was realistic vis-ŕ-vis Argentina's economy."

Argentina has been cut off from outside funds since it defaulted on $140 billion of external loans in December.

The visit by the "wise men" comes eight months before presidential elections, in which Mr. Menem is emerging as a favorite. Anti-corruption crusader Elisa Carrio appears to be his main opponent.