WASHINGTON, DC -- The world's two most powerful financial institutions, the IMF and World Bank, have just concluded their annual spring meetings here. Their officials committed themselves to such niceties as "a new partnership between developed and developing countries," "sustainable growth and poverty reduction," and "participatory processes."

But just look at what they are doing to Argentina.

Financier George Soros was the first to put in print what many in the financial world knew about Argentina's default on its debt. In contrast to corporate borrowers, writes Soros, "sovereign states do not provide any tangible security; the only security the lender has is the pain that the borrower will suffer if it defaults. That is why the private sector has been so strenuously opposed to any measure that would reduce the pain . . ." Argentina's international creditors are determined to get their pound of flesh. In the 19th century, this might have been accomplished through gunboat diplomacy. Today, the world is more civilized: we have the International Monetary Fund.

The Fund has been negotiating with the government of Argentina since President Eduardo Duhalde took office in January. It has demanded harsh austerity conditions, including cuts in public spending amounting to about 4 percent of Argentina's output. For comparison, imagine cutting public spending in the US by $400 billion in the
middle of a present-day Great Depression.

Argentina's government has surrendered to the IMF on this and almost all of its other demands.  But the Fund won't seem to take yes for an answer.  And now World Bank President James D.  Wolfensohn has indicated that his own institution will delay a $700 million loan for Argentina's destitute and unemployed, pending IMF approval.

Roberto Frankel, Director of the Bank of the Province of Buenos Aires, suspects that the IMF is punishing Argentina in order to discourage other countries from defaulting on their debt. "This is discussed openly in financial circles," he said at a recent conference in New York. "Of course the argument is made that this is for the benefit of developing countries as a whole. In other words, if Argentina defaults and is not punished, then lending to developing countries will drop."

The Fund recently announced that it is only willing to lend Argentina enough money to service its debt to the IMF and other multilateral lenders such as the World Bank. This is the worst of all worlds: Argentina will be required to implement the Fund's destructive conditions, which will almost certainly prolong the depression; and they get no new money for their pain.

The main constraint on the IMF is that Washington -- to whom the IMF answers -- may get nervous about causing a political meltdown in Argentina (the economic meltdown has already happened). There is a risk of backlash throughout Latin America, where populism is making a comeback after two decades in which income per person has barely grown.

The cruelty of this punishment will not be overlooked in Latin America, as it has been in the United States. Presidents Fernando Henrique Cardoso of Brazil, and Alejandro Toledo of Peru have publicly criticized the IMF for its treatment of Argentina -- an unusual break with protocol for neighboring heads of state.

Outside of official Washington, most people can see the profound injustice of holding Argentina accountable for failed policies that were the joint project of the IMF and the Argentine government.