July 22, 2003
Argentina’s President Kirchner Arrives Tonight for Meeting with President Bush
Restructuring and IMF Loom Large in Future Relations
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
- 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
- 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
For more information see the
following papers on the Argentine economy authored by these and other CEPR
Crisis: The Costs and Consequences of Default to the International Financial
Mark Weisbrot and Alan Cibils, November 19, 2002.
Since Default: the IMF and the Depression by Alan Cibils, Mark Weisbrot and Debayani Kar,
September 4, 2002.
Role of Social Security Privatization in Argentina's Economic Crisis , by Dean Baker and Mark Weisbrot, April 17, 2002.