Re: Argentina

[michael perelman <michael@xxxxxxxxxxxxxxxxx>]

This article is a miracle of unclarity.  I wanted to know the pound of
flesh that they are going to extract.  Are the creditors going to relent
with no pound of flesh?

Ian Murray wrote:
>
> [NYT]
> August 22, 2001
> Argentina Gets $8 Billion Aid From the I.M.F.
> By JOSEPH KAHN
>
> WASHINGTON, Aug. 21 - After nearly two weeks of negotiations, the
> International Monetary Fund announced tonight that it would provide up
> to $8 billion in emergency aid to Argentina to stabilize its economy.
>
> The agreement came after protracted talks between Argentina and the
> Bush administration, which had sought to use Argentina's financial
> crisis to demonstrate a new, skeptical approach to financial bailouts
> that breaks with what administration officials view as an overly
> accommodating stance by the Clinton administration.
>
> The package provides incentives for Argentina to reach agreement with
> creditors to restructure part of its $128 billion foreign debt.
>
> Under the plan, Argentina would get $5 billion in loans as early as
> September, but the other $3 billion would be delayed unless the
> country reschedules its debt payments. The fund, which typically makes
> loans to help ensure troubled nations that they can pay their debts
> and defend their currencies, has not previously made such rescheduling
> an integral part of a rescue package.
>
> The plan could put pressure on American banks and other lenders to
> take losses on bonds and loans to Argentina, though fund officials say
> that any restructuring under their three-year plan depends on
> voluntary cooperation by all parties, and that it is not an absolute
> condition of the loans. Thus the plan offers a carrot but no stick.
>
> Treasury Secretary Paul H. O'Neill has used Argentina's case as a way
> to demonstrate that the administration will back bailouts only when a
> nation takes painful steps to grapple with its financial woes before
> seeking emergency help - and then only when there is a high
> probability that the aid can sustain the recipient through tough
> times.
>
> But by supporting the Argentina rescue, the administration has
> departed from its own expressed reluctance to allow repeated bailouts.
>
> Argentina received $13.7 billion in I.M.F. aid eight months ago, at
> the end of the Clinton administration, and Bush administration
> officials had suggested that they were not willing to make any new
> loans.
>
> That position proved difficult to maintain as economic malaise spread
> round Latin America. Mexico has officially fallen into recession.
> Brazil's economy has slowed to a standstill, and its weakening
> currency and rising debt forced it to seek new loans from the fund
> last month.
>
> Argentina's problems are more serious. Its economy has been shrinking
> for three years. Its debt burden, though not enormous relative to its
> overall economy, has become unsustainable as exports slump. Residents,
> fearing a financial collapse, are moving assets out of the country at
> an increasing rate; investors have shifted $9 billion out since
> Argentina's latest round of difficulties began in June.
>
> President Bush has made improving political ties to Latin America a
> centerpiece of his foreign policy and has said he wants to extend the
> North American Free Trade Agreement to form a hemispheric free-trade
> zone.
>
> Those goals are threatened, at least temporarily, by economic weakness
> across the region.
>
> Even so, Mr. O'Neill and other Treasury officials took a tough line
> with Argentina when it sent a delegation to Washington earlier this
> month seeking an infusion of aid. Treasury officials initially
> declined to commit to any new aid, those involved in the talks said.
>
> It is not unusual for the United States, the largest single
> shareholder in the fund, to play an important role in shaping an
> emergency aid package to a large developing country.
>
> But several people involved in the talks said the administration's
> role was especially intricate in this case, with many late-night
> sessions held in Treasury offices rather than at I.M.F. headquarters
> nearby.
>
> Bush administration officials pressed a team led by Daniel Marx,
> Argentina's finance secretary, to come up with ways of reorganizing
> Argentina's finances and debt payments so that it could survive
> without fresh loans.
>
> If there were to be new loans, they wanted Argentina to demonstrate
> that the money would be instrumental in sustaining the nation even
> beyond the usual terms of three years, those involved in the talks
> said.
>
> The effort to revise the fund's approach to Argentina in the middle of
> a crisis led to some tension between officials of the I.M.F and the
> Treasury. Mr. O'Neill also ruffled some diplomatic feathers with his
> frank comments about his reluctance to support new loans.
>
> "We're working to find a way to create a sustainable Argentina, not
> just one that continues to consume the money of the plumbers and
> carpenters in the United States who make $50,000 a year and wonder
> what in the world we're doing with their money," Mr. O'Neill told CNN
> late last week.
>
> La Nación, a leading Buenos Aires newspaper, wrote in an editorial on
> Monday that Mr. O'Neill's comments were "outside all norms of respect
> and protocol." Stock prices plummeted and interest rates soared this
> week on speculation that Washington would not back new aid.
>
> Treasury officials declined to comment tonight on the negotiations.
>
> Some outside analysts are sympathetic to the administration's tough-
> love approach, in large part because they view Argentina's problems as
> intractable. Not only does it have a debt burden that threatens to
> overwhelm its ability to pay interest, beginning later this year; it
> also has a rigid currency system that fixes its peso to the dollar.
> Some economists say the system has undercut the competitiveness of its
> companies.
>
> "I think it's a real long shot that new aid would be of use without
> restructuring the debt and devaluing the currency," said Morris
> Goldstein, a former I.M.F. official who is now at the Institute for
> International Economics, a research organization in Washington.
>
> "You have to do one or the other, and maybe both."
>
> Administration officials have backed Argentina's desire to keep its
> currency system in place. But they focused on debt restructuring as
> the price of American support for new loans.
>
> The new plan takes a step in that direction, though it seems unlikely
> to result in a wholesale debt reorganization - akin to a bankruptcy
> proceeding - that some economists feel is needed.
>
> Given the sensitivity of the I.M.F. in recommending a debt
> reorganization that could result in losses for foreign investors, the
> wording of tonight's announcement was cautions.
>
> Argentina is "considering the possibility of a voluntary and market-
> based operation to increase the viability of Argentina's debt
> profile," Horst Kohler, the managing director, said in a statement.
> "As these discussions bear fruit, I.M.F. management would be prepared
> to recommend bringing forward the remaining $3 billion under this
> augmentation to support such an operation."
>
> Other elements of the new aid package are more traditional. The fund,
> as it often has in the past, is requiring Argentina to tighten its
> fiscal belt, reducing both central and provincial government spending
> to meet the goal of a "zero deficit" law approved by the Argentine
> Congress on July 29.
>
> Other conditions include improving tax collection and strengthening
> the banking system, Mr. Kohler said.

--

Michael Perelman
Economics Department
California State University
Chico, CA 95929

Tel. 530-898-5321
E-Mail michael@xxxxxxxxxxxxxxxxx