[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.
