The head of the IMF's delegation to Argentina was recently cornered outside his hotel room by reporters from a popular, muck-raking television show. They handed him a set of large, plastic Halloween vampire teeth. "We found these lodged in President Duhalde's neck," they told him, "and wanted to return them to you."
Such views of the IMF are commonly held in Argentina, and contrast sharply with those expressed in Washington media and policy circles. Here, the debate has been about whether the IMF should "help" Argentina, which is suffering from four years of economic depression, a collapse of its currency and banking system, and default on its public debt. The doves say yes, the country is desperate; the hawks say no, not until the government demonstrates more willingness to "reform."
Both sides are misreading the actual situation. The IMF is not offering any help to the Argentine economy. Even if an agreement is reached, there will be no new money—only enough to pay the Fund and other official creditors such as the World Bank.
Furthermore, Argentina is not facing a simple choice of whether to accept or refuse this "help." It is much worse than that. The IMF is using its power as head of an international creditors' cartel to prolong Argentina's agony. Credit from the World Bank, from European governments, and even the day-to-day credit that businesses need to conduct international trade are being held up until the IMF gives the ok.
This distinction is crucial. Imagine that someone is drowning, and a passerby does nothing to save him. This would be morally reprehensible. But what if the drowning man is trying to claw his way onto the shore, and the passerby kicks him and pushes him back into the river?
The latter case is much worse, not only from a moral but a practical point of view: the drowning man might save himself if not for the outside intervention.
Very simply, the IMF is practicing a form of extortion, and a fairly brutal one at that. A couple of months ago the World Bank was supposed to release some $700 million in funds for the unemployed—now numbering about a quarter of Argentina's labor force. But they decided to wait for the IMF's approval.
On a recent visit to Argentina, I met with Dr. Nestor Oliveri, a physician who runs a health clinic for the poor in the neighborhood of Matanza, on the outskirts of Buenos Aires. He pointed to children jumping over an open drainage ditch. "They touch their mouths, and they get parasites. We have 30% malnutrition among children in this neighborhood."
And it is getting worse, in a country that was until recently the richest in Latin America.
What does the IMF want from Argentina? After more than six months of talks and pressure, it is not even clear. The government has already agreed to just about everything that the Fund demanded, including drastic spending cuts (especially for the provincial governments) and rewriting their bankruptcy laws to make these more favorable to creditors. Yet the IMF keeps moving the goal posts, and coming up with new demands. Some financial analysts have concluded that the IMF is deliberately punishing Argentina for defaulting on its international debt, so as to discourage others from taking this path.
The Fund's policy conditions will probably worsen the depression, by causing layoffs of hundreds of thousands of workers and reducing aggregate demand in the economy. For four years, the IMF has been arguing that the only way to get the economy growing is to first restore the confidence of investors, especially foreign investors.
But the measures that they have recommended to do this, such as cutting government spending, have further weakened the economy. These policies have therefore had the opposite effect. And now, by choking off credit from most other sources—i.e., its extortion—the Fund is accelerating the decline.
Unlike most countries that turn to the Fund, Argentina is currently running a trade surplus. This means that it does not really need external financing. Nor does it need dollars to fix its banking system, which now runs on pesos.
In other words, the country is capable of recovering on its own. At this point the biggest obstacle to re-starting growth may be the Fund itself. As the crisis drags on, Argentina may have to find a way to get around the IMF.