July 22, 2003
Argentina’s President Kirchner Arrives Tonight for Meeting with President Bush
Debt Restructuring and IMF Loom Large in Future Relations
A Change in Policy?
For Immediate Release: July 22, 2003
In Washington: Mark Weisbrot, 202-293-5380 or 202-746-7264
In Buenos Aires: Alan Cibils, 011-5411-4822-4617 or 011-54911-5422-4617
As Argentina’s President Nestor Kirchner arrives tonight for a meeting with President Bush, much of Argentina is looking for signs of any change in economic relations between the two countries, and between Argentina and the IMF. Among the key issues and background information:
- President Kirchner has made unprecedented statements about how he intends to deal with the country’s un-payable $172 billion debt (141 percent of GDP), $76 billion of which is currently in default.
- He has noted that “Argentina has already proven that it can live without an IMF agreement” and stated that “we cannot return to the policies of adjustment nor increase the debt. We can’t return to paying debt at the cost of hunger and exclusion of Argentines, generating more poverty and increasing social conflict.”
- Although the IMF played a major role in determining economic policy during the recession/depression that began in mid-1998, the country received no help from the IMF from the time of its financial collapse in December of 2001 until the most recent agreement was reached in January 2003.
- The January agreement, which expires at the end of August, provided no new net resources for the country, but only a roll-over allowing continued payment of official creditors (mainly IMF, World Bank, Inter-American Development Bank).
- Between September and the end of 2003, more than $6.3 billion dollars in payments are due to official creditors. Default to official creditors, especially the IMF and World Bank, generally carries much more severe consequences than default to private creditors. This means that the IMF/ US Treasury will have some leverage with which to set the terms of repayment for the enormous defaulted private debt, as well as macro-economic and other policies.
- On the other side of the equation, as one of the world’s largest debtors to the IMF and World Bank, Argentina also has considerable bargaining power. The official creditors would like to avoid an unprecedented default to themselves, which could possibly damage the credit rating of World Bank, and set a dangerous precedent from their point of view. Also, Argentina is presently running a large trade and current account surplus, and therefore does not need foreign financing for its economy.
- The outcome of the current negotiations over debt restructuring and economic policy could have a major impact on the country’s nascent economic recovery, and whether it continues. Many Argentine economists and officials believe that conditions attached to IMF lending in the past helped cause and prolong the recession/depression, the worst in the country’s history.
- A key issue has emerged around the government’s proposed restrictions on incoming capital, designed to control the appreciation of the Argentine peso. The issue has provoked a rare public difference between the IMF and Treasury on this issue. Thomas Dawson, the IMF’s chief spokesperson, noted in June that “there have been a number of countries where controls on short-term incoming flows, where the rules of the game are fairly well established, have worked out quite well.” However, U.S. Treasury Secretary John W. Snow has maintained the traditional position that such controls are counter-productive. The outcome of this dispute could have considerable implications for economic policy in Latin America and developing countries generally.
For more information see the following papers on the Argentine economy authored by these and other CEPR economists:
Argentina’s Crisis: The Costs and Consequences of Default to the International Financial Institutions by Mark Weisbrot and Alan Cibils, November 19, 2002.
Argentina Since Default: the IMF and the Depression by Alan Cibils, Mark Weisbrot and Debayani Kar, September 4, 2002.
The Role of Social Security Privatization in Argentina’s Economic Crisis , by Dean Baker and Mark Weisbrot, April 17, 2002.