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ARGENTINA
Under pressure from the IMF
Andrés Gaudin
1/20/2005
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Every three months IMF observers monitor economic progress.

Although the government uses a particularly harsh tone when referring to the International Monetary Fund (IMF), the opposition maintains that President Néstor Kirchner — who describes as “inept” the IMF functionaries who arrive every three months to supervise economic progress — talks out of both sides of his mouth.

Patricio Echegaray, leader of the Argentine Communist Party, says “the government talks tough to the IMF but pays it very well.”

On Dec. 20, Argentina made the last payment corresponding to 2004 — US$295 million. Prior to that, on Dec. 9, it paid $176 million. Such was the rhythm of payments in a year that, in interest and principal, Argentina transferred $3.5 billion to the IMF and World Bank in foreign debt payments.

Repayments

Since it declared a default in December 2001, Argentina has paid international financial organisms $10 billion: $4.1 billion in 2002 and $2.4 billion in 2003, in addition to what was paid in 2004.

At an exchange rate of 3 pesos per dollar that has remained more or less stable over the last three years, those $10 billion would be equivalent to what the state pays in retirement benefits for a year and a half or eight years of subsidies paid to the unemployed, who receive 150 pesos a month.

According to the National Institute of Statistics and Censuses, 865,000 jobs were created in 2004, bringing the unemployment rate from 16.3 percent — registered in the third quarter of 2003 — to 13.2 percent.

Economist Daniel Muchnik, however, said “the real unemployment rate is 17.6 percent, since the government does not count the 658,000 people who receive a state subsidy.”

In November, Kirchner surprised everyone with the idea of canceling the balance of $14 billion owed to the IMF. To do this, he planned to use reserves from the Central Bank and credits from Europe governments.

Unsuccessful missions

With this goal, Kirchner sent two missions abroad from Dec. 12 and 16. Foreign Minister Rafael Bielsa traveled to Washington to talk with US government officials, while Sen. Cristina Fernández — wife of the president — flew to Spain with the head of the cabinet, Alberto Fernández, to sound out European creditors.

According to a presidential spokesman, the idea was “to remove from our shoulders the constant pressure of the IMF before we begin to negotiate [in mid-January] with private bondholders” an agreement to pay the debt in exchange for a 75 percent reduction in what they are owed.

The spokesman explained “in addition we see this as the way to avoid pressures in this crucial juncture of negotiations with the bondholders and, at the same time, get rid of the fearsome quarterly reviews (by IMF observers) in the future.”

The Argentine proposal was not well received. In addition to the lack of internal consensus, the Central Bank refused to turn over part of the reserves unless it was done by means of a law. The plan´s failure was sealed with the cold reception from the United States and the European governments.

On his return from Washington , Bielsa resigned himself to declaring the idea dead. “We cannot change the doctrine of the IMF and neither can we send them to hell every day. Both things are wrong. What can we do then? Pay what is owed and try to gradually reduce the amount of our debt,” the foreign minister said.

Odious debt

The opposition thought it was the moment to approve a law that would declare “odious” the debt contracted by the military dictatorship that ruled the country between 1976 and 1983. This would be some $40 billion of the current total debt of $165 billion.

Deputy Mario Cafiero, former member of the Alternative for a Republic of Equals , took the arguments given by the United States to consider pardoning Iraq ´s foreign debt contracted during the years of Saddam Hussein´s government.

Cafiero mentioned a document entitled “Odious debt,” presented by Michael Kremer and Seema Jayachandran at an IMF seminar in 2002, in which the authors said “the legal doctrine of the odious debt argues that people do no have to pay debts incurred by others in their name. In the same way, debt contracted without the consent of the people is odious and should not be transferred to a successive government, above all if the creditors knew this fact beforehand.”

In the Chamber of Deputies, the progressive opposition explained “a debt is odious if it fulfills three conditions: lack of consent of the debtor, absence of a benefit for those in whose name it is contracted and knowledge of this situation on the part of the creditors.”

But the ruling party opted to elude the issue. In the session called in mid-December to consider the proposal only 43 of the 257 deputies were willing to debate it.

As things stand, this year Argentina will have to cancel a total of $5.9 billion to financial organisms, a little more than 70 percent more than what it paid in 2004. Meanwhile, 10.8 million of the 34.6 million Argentines continue to live in poverty on less than $34 a month.


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