Argentina: O último tango?
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Argentina: O último tango?
Argentina and the IMF
Which is the victim?
Mar 4th 2004 | WASHINGTON, DC
From The Economist print edition
Acute soul-searching at the International Monetary Fund
ON MARCH 9th Argentina is supposed to make a scheduled repayment of money it owes to the International Monetary Fund. The date inspires the keenest interest, not least among financial ghouls for whom the only more pleasurable thing than an incipient financial crisis is a full-blown one. Not only is the sum—$3 billion dollars in interest and principal—rather large by the standards of most instalment plans, but Argentina's president, Nestor Kirchner, is also threatening not to make the payment at all if the Fund does not first promise immediately to send the money back again, part of a lending programme agreed last September. The Fund can only do that if it deems Argentina to be making progress towards financial normality—and that is something of a stretch.
If no payment is made, the IMF must set in train a process that would eventually declare Argentina in default, and that would be uncomfortable in the extreme for the IMF. The size—$16 billion has been lent to Argentina—would be unprecedented, with consequences for the Fund's reputation and for the way it does business. The World Bank and the Inter-American Development Bank, with over $20 billion of exposure between them, would have to make immediate provisions. Thus does Argentina have the Fund over a barrel. A growing number of the Fund's shareholders want to call Argentina to account.
The World Bank and the IMF
Certainly, the Fund has got into a position that its own experts would condemn if it were a commercial bank. Some 15% of the Fund's total lending is to Argentina, a huge concentration. And with the $13.5 billion, three-year facility agreed in September, the Fund is in effect continuing to lend large sums to what is in effect an insolvent debtor, on the understanding that it will use this to repay past loans.
Of course, the Fund is not a commercial bank. Its job is to help countries in crisis precisely when private lenders are fleeing. This involves large injections of cash to help stabilise a spiralling economy. In most instances, the Fund has been successful. Think of Russia, Indonesia and South Korea, whose crises in the late 1990s ended happily. More recently, Brazil and Turkey were helped with big IMF packages and are making admirable recoveries. Argentina, as ever, is sui generis.
Naturally, conditions have been attached to Argentina's new borrowing, which has been broadly constant since the crisis of 2001. That crisis led to a collapse of the banking system, a collapse of the currency that had been fixed to the dollar, the biggest-ever sovereign default and (from peak to trough) the shrinking of the economy by a fifth.
A checklist of progress has been drawn up that needs to be met before new slugs of IMF cash are supposed to be paid out. But no one claims that these are the most stringent conditions ever to have been imposed by the Fund, let alone on a country in arrears. And it takes a stretch of the imagination to say that Argentina is abiding fully even by these weak conditions. A Fund mission returned this week from Buenos Aires to report on the progress of economic and financial reforms.
When the Fund's country directors consider the report, they will probably declare Argentina to be on track to receive a second amount of money—though chiefly because of American pressure. Yet for such a clubby institution, the number of dissenters is rising. At the last board meeting, in late January, three G7 members, Japan, Italy and Britain, broke precedent and abstained from voting for more money.
Where do they fault Argentina? First of all, for the vituperative attacks on the IMF, and in particular on the Fund's deputy managing-director, Anne Krueger, an academic from the tough-love school of economics. If Mr Kirchner's team thought that the attacks would drive a wedge between Ms Krueger and her pragmatic boss, Horst Köhler, the attempt backfired: the Fund delivered a rare and stern rebuke.
Argentina is able to declare that it is on track with economic and fiscal targets. Growth surged to an annual 8% rate late last year, ensuring the goal of a “primary” budget surplus, (ie, before interest payments), of 3% in 2004. But the country is on much shakier ground over three other issues: banking reform, raising charges at foreign-owned utilities and, most important, dealing with the overseas creditors who own Argentinian bonds with a face value of $88 billion.
Most bondholders are hardened speculators in the world's riskier assets—just the type who have recently made a killing in neighbouring Brazil. But they also include over 400,000 Italians, including pensioners, who failed to equate the bonds' high yields with commensurate risk. This has now become an embarrassment for the Italian government, and may soon be one for the IMF: Italian creditors threaten a legal challenge to the Fund's privileged position at the head of any queue of creditors, a position it enjoys because it lends only in times of crisis and cheaply.
The issue of the private creditors will loom at the next board meeting. It is the Fund's own policy, when lending to a country in default, that the borrower must be “making a good faith effort” with its creditors. When overdue interest is taken into account, Argentina proposes to pay back just one-tenth of what it owes foreign creditors. This is a tiny fraction compared the amounts offered by other big countries that have defaulted in recent years. This week, Mr Kirchner said that Argentina could not “by miracle” increase resources to pay creditors, and that he was not going to pay “with the suffering and hunger of the people”. Another way of paying more, Mr Kirchner's economy minister, Roberto Lavagna, has wryly suggested in private, is to string out the IMF's repayments timetable, a notion that horrifies the Fund.
As a sop, Argentina sent an observer last week to a meeting of a group representing holders of two-thirds of its foreign debt. That is positive, says the Fund, and the board may even stretch the bounds of credulity to deem it in good faith.
To restore the Fund's credibility, some staff, board members and outside observers call for new toughness. Michael Mussa, formerly the Fund's chief economist, says that the IMF should have made the point sooner that, while a primary surplus of 3% may have been appropriate while growth was low, a substantially larger surplus is needed in future—Brazil's target, after all, is 4.25%, while Turkey's is double Argentina's. A larger surplus should, in turn, be used to offer a better deal to foreign creditors. And Argentina's feet should be held closer to the fire over the banks and the utilities. For the Fund, the stakes are high. As one member says: “We are in a very awkward position in making sure that the emperor remains dressed”.
Fonte: www.economist.com
Um abraço,
MozHawk
PS-O saldo acumulado a 31.01.2004 de $106.200 milhões de dólares cedidos pelo pelo FMI a composição era a seguinte: Brasil $28.200, Turquia $23.800, Argentina $15.800 e Outros $38.300...
Which is the victim?
Mar 4th 2004 | WASHINGTON, DC
From The Economist print edition
Acute soul-searching at the International Monetary Fund
ON MARCH 9th Argentina is supposed to make a scheduled repayment of money it owes to the International Monetary Fund. The date inspires the keenest interest, not least among financial ghouls for whom the only more pleasurable thing than an incipient financial crisis is a full-blown one. Not only is the sum—$3 billion dollars in interest and principal—rather large by the standards of most instalment plans, but Argentina's president, Nestor Kirchner, is also threatening not to make the payment at all if the Fund does not first promise immediately to send the money back again, part of a lending programme agreed last September. The Fund can only do that if it deems Argentina to be making progress towards financial normality—and that is something of a stretch.
If no payment is made, the IMF must set in train a process that would eventually declare Argentina in default, and that would be uncomfortable in the extreme for the IMF. The size—$16 billion has been lent to Argentina—would be unprecedented, with consequences for the Fund's reputation and for the way it does business. The World Bank and the Inter-American Development Bank, with over $20 billion of exposure between them, would have to make immediate provisions. Thus does Argentina have the Fund over a barrel. A growing number of the Fund's shareholders want to call Argentina to account.
The World Bank and the IMF
Certainly, the Fund has got into a position that its own experts would condemn if it were a commercial bank. Some 15% of the Fund's total lending is to Argentina, a huge concentration. And with the $13.5 billion, three-year facility agreed in September, the Fund is in effect continuing to lend large sums to what is in effect an insolvent debtor, on the understanding that it will use this to repay past loans.
Of course, the Fund is not a commercial bank. Its job is to help countries in crisis precisely when private lenders are fleeing. This involves large injections of cash to help stabilise a spiralling economy. In most instances, the Fund has been successful. Think of Russia, Indonesia and South Korea, whose crises in the late 1990s ended happily. More recently, Brazil and Turkey were helped with big IMF packages and are making admirable recoveries. Argentina, as ever, is sui generis.
Naturally, conditions have been attached to Argentina's new borrowing, which has been broadly constant since the crisis of 2001. That crisis led to a collapse of the banking system, a collapse of the currency that had been fixed to the dollar, the biggest-ever sovereign default and (from peak to trough) the shrinking of the economy by a fifth.
A checklist of progress has been drawn up that needs to be met before new slugs of IMF cash are supposed to be paid out. But no one claims that these are the most stringent conditions ever to have been imposed by the Fund, let alone on a country in arrears. And it takes a stretch of the imagination to say that Argentina is abiding fully even by these weak conditions. A Fund mission returned this week from Buenos Aires to report on the progress of economic and financial reforms.
When the Fund's country directors consider the report, they will probably declare Argentina to be on track to receive a second amount of money—though chiefly because of American pressure. Yet for such a clubby institution, the number of dissenters is rising. At the last board meeting, in late January, three G7 members, Japan, Italy and Britain, broke precedent and abstained from voting for more money.
Where do they fault Argentina? First of all, for the vituperative attacks on the IMF, and in particular on the Fund's deputy managing-director, Anne Krueger, an academic from the tough-love school of economics. If Mr Kirchner's team thought that the attacks would drive a wedge between Ms Krueger and her pragmatic boss, Horst Köhler, the attempt backfired: the Fund delivered a rare and stern rebuke.
Argentina is able to declare that it is on track with economic and fiscal targets. Growth surged to an annual 8% rate late last year, ensuring the goal of a “primary” budget surplus, (ie, before interest payments), of 3% in 2004. But the country is on much shakier ground over three other issues: banking reform, raising charges at foreign-owned utilities and, most important, dealing with the overseas creditors who own Argentinian bonds with a face value of $88 billion.
Most bondholders are hardened speculators in the world's riskier assets—just the type who have recently made a killing in neighbouring Brazil. But they also include over 400,000 Italians, including pensioners, who failed to equate the bonds' high yields with commensurate risk. This has now become an embarrassment for the Italian government, and may soon be one for the IMF: Italian creditors threaten a legal challenge to the Fund's privileged position at the head of any queue of creditors, a position it enjoys because it lends only in times of crisis and cheaply.
The issue of the private creditors will loom at the next board meeting. It is the Fund's own policy, when lending to a country in default, that the borrower must be “making a good faith effort” with its creditors. When overdue interest is taken into account, Argentina proposes to pay back just one-tenth of what it owes foreign creditors. This is a tiny fraction compared the amounts offered by other big countries that have defaulted in recent years. This week, Mr Kirchner said that Argentina could not “by miracle” increase resources to pay creditors, and that he was not going to pay “with the suffering and hunger of the people”. Another way of paying more, Mr Kirchner's economy minister, Roberto Lavagna, has wryly suggested in private, is to string out the IMF's repayments timetable, a notion that horrifies the Fund.
As a sop, Argentina sent an observer last week to a meeting of a group representing holders of two-thirds of its foreign debt. That is positive, says the Fund, and the board may even stretch the bounds of credulity to deem it in good faith.
To restore the Fund's credibility, some staff, board members and outside observers call for new toughness. Michael Mussa, formerly the Fund's chief economist, says that the IMF should have made the point sooner that, while a primary surplus of 3% may have been appropriate while growth was low, a substantially larger surplus is needed in future—Brazil's target, after all, is 4.25%, while Turkey's is double Argentina's. A larger surplus should, in turn, be used to offer a better deal to foreign creditors. And Argentina's feet should be held closer to the fire over the banks and the utilities. For the Fund, the stakes are high. As one member says: “We are in a very awkward position in making sure that the emperor remains dressed”.
Fonte: www.economist.com
Um abraço,
MozHawk
PS-O saldo acumulado a 31.01.2004 de $106.200 milhões de dólares cedidos pelo pelo FMI a composição era a seguinte: Brasil $28.200, Turquia $23.800, Argentina $15.800 e Outros $38.300...
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