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[DEBATE] : Argentina to IMF: Goodbye and Good Riddance!

Date:

Mon, 19 Dec 2005 12:00:14 -0500

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'Goodbye and good riddance'

 

The economics may be questionable but the decision by Argentina's

president to pay off the IMF has broad public support, writes Oliver

Balch

 

The Guardian

Monday December 19, 2005

 

 

Four years ago, crisis-hit Argentinians took to the streets shouting

"out with them all". Now they have seen part of their wish come true.

In a surprise statement late last week, the Argentinian president,

Néstor Kirchner, announced that his government would settle its

outstanding $9.8bn debt (£5.5bn) with the IMF by the end of the year.

 

Speaking in front of a packed hall of businessmen, political supporters

and trade unionists, Mr Kirchner blamed the lender for "failed

political regimes and monetary systems".

 

Article continues

"The result has been exclusion, poverty, destitution and the

destruction of our production apparatus", the leftwing president said.

 

Argentina's relationship with the IMF has been strained since it

defaulted on almost $100bn of foreign debt in December 2001. The

decision caused a huge flight of capital from the country and threw it

into economic and political chaos.

 

"Goodbye and good riddance", said Buenos Aires' resident Gabriela

Garcia on hearing of the plan to pay off the country's IMF debt lump

sum.

 

Early this year, Mr Kirchner's administration managed to renegotiate

its debt with the majority of its creditors. The deal saw the country's

overall foreign debt cut from $193bn to $125bn.

 

As for the $9.8bn owed to the IMF, the government had originally agreed

to pay it off in regular instalments over the next three years.

Instead, parliamentarians will meet this week to agree a one-off

repayment package. The outstanding debt will be paid from Central Bank

dollar reserves.

 

Argentina's dollar reserves dropped to $9.2bn in the immediate

aftermath of the 2001 crash, but have bounced back to a more healthy

$27bn, thanks larges to high prices for commodities such as soya.

Argentina has posted growth rates of over 9% for the last two years.

 

Help is also on hand from oil-rich Venezuela, which recently purchased

around $1bn in new Argentine government bonds. Venezuela's firebrand

president, Hugo Chávez, is reported to have pledged an additional $2bn

to assist Argentina's attempt to rid itself of the IMF.

 

Although the country will not cancel its membership to the lending

organisation, most Argentinians welcome the prospect of waving goodbye

to the lender's presence in domestic affairs. Like the president, many

blame the IMF's neo-liberal recipe of market reforms and public

spending cuts for the economic crisis.

 

"We have extricated ourselves from a monster hanging over us. This

debt, although we've said it was illegitimate, is a debt all the same,"

said Estela de Carlotto, a spokeswoman for Grandmothers of the Plaza de

Mayo, an influential human rights group.

 

The official view from Washington was also positive. The head of the

IMF, Rodrigo Rato, praised Argentina's early repayment but he also

warned about challenges ahead.

 

"We remain ready to assist the Argentine authorities in any way that

would help them address these challenges," he said.

 

Behind the scenes, the IMF is no doubt glad to see its major Latin

American liabilities reduced. Earlier last week, Brazil also announced

its plans to settle its £15.5bn bill with the multilateral lender.

 

The market reacted less positively to the news from Argentina. Many

analysts interpreted the move as a populist political gesture and a

worrying swing towards future economic unorthodoxy. The Argentine peso

fell to a four-year low of 3.11 against the dollar at one stage on

Friday, before closing the week at 3.03 - a fall of 0.74% on the

previous day.

 

"Keeping a good faith relationship with the IMF doesn't pay in Latin

America and Kirchner want to signal independence. For investors, that

signals perhaps even less control over populist policies", said

Christian Kopf, an emerging markets expert at DWS.

 

Some economists are also sceptical about the long-term economic impact

of the decision. Financial experts note that the interest charged by

the IMF is lower than that charged on Argentina's other outstanding

loans.

 

Concerns have also been raised over the country's ability to maintain

the value of the peso at a time when inflation is running at around

11%. To date, the central bank has been purchasing dollars to keep the

currency stable at around the three pesos mark.

 

The effective withdrawal of the IMF from Argentina is also a worry for

those bondholders who rejected the government's renegotiation plans

back in February.

 

Resolving the $20bn held by these creditors had been one of the main

points of contention between the Argentinian government and the IMF.

 

Foreign companies will also lose an important ally with the departure

of the IMF. The lender has for months been putting pressure on Buenos

Aires to review private utility rates, which remain frozen at a third

of their pre-crisis level.

 

Mr Kirchner will not be unduly concerned about foreign disquiet. A

weekend poll shows 73% of domestic opinion behind the pay-off.

 

"There are some big decisions that ought to be taken so that the

autonomy of the people can be regained once and for all," said Luis

D'Elia, a pro-government leader of Argentina's unemployed worker

movement. "This is one of them."

 

Š Oliver Balch is a Buenos Aires-based freelance journalist

specialising in sustainable development and Latin American affairs

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