ARGENTINA UNVEILS $39.7 BILLION FINANCIAL RESCUE. Moving decisively to avert an economic meltdown that threatened to spill over into the rest of South America, the Argentine government announced today that it had put together a $39.7 billion financial rescue package that would give it the money to avoid defaulting on its loans and the time to restore confidence of foreign investors, reports the Washington Post (p. E1). The package was almost twice the size that had been expected and included a $13.7 billion line of credit from the IMF and $20 billion in non-binding commitments from Argentine banks and foreign investors to roll over their existing loans. The World Bank, the IDB and the government of Spain also committed funds to the rescue plan, notes the story.
Also reporting, Reuters notes the IMF said yesterday the $39.7 billion bailout package should help the third-largest Latin American economy get back on a firmer footing and on a path toward renewed growth. "We believe that with these measures-and they are strong measures-and with this financing and with the private sector involvement, we will be able to restore the Argentine economy to growth, and we look forward to a point in the future at which these programs become less necessary," an unnamed senior Fund official is quoted as saying.
The IMF official said that in the first quarter, Argentina should have access to $3.5 billion from official sources, including just under $3 billion from the Fund. It will also have access to $2 billion from unofficial or private sources. "This should improve the investment climate and, together with enhanced domestic and external confidence, lay the ground for sustained economic growth in Argentina," IMF Managing Director Horst Köhler said in a statement.
Reuters also notes that the World Bank said yesterday its $2.5 billion contribution to the $39.7 billion international aid package for Argentina was aimed at supporting the government's reform efforts and boosting economic growth. "The Bank's support will help the government address underlying bottlenecks and constraints that impede Argentina's productivity, economic growth, and social development," it said in a statement. Planned reforms to be supported by the World Bank's funds would include efforts to make the public sector more efficient, reduce inequities in the tax system, and combat fraud and tax evasion that add to the cost of doing business in Argentina.
The World Bank's share of the package contains $900 million in new lending next year, bringing the Bank's planned commitments to Argentina to $1.5 billion in 2001 alone.
The aid program is the first IMF global bailout since a US panel recommended against big loans to countries with financial difficulties, notes Agence France-Presse. But the multilateral organizations had to weigh the risk of a default on Argentina's bond, which could trigger a global crisis. Argentina accounts for up to a quarter of tradeable emerging market debt worldwide, and there had been concern amongst international finance officials that a default by the country could set off a new round of financial contagion, notes the Financial Times (p.4).
US Treasury Secretary Lawrence Summers welcomed the aid package, notes AFP, but said Argentina should "fully implement its enhanced commitments under the new program, which will help position Argentina for a restoration of confidence and renewed growth."
Argentine Economy Minister Jose Luis Machinea said yesterday he plans to visit Europe, the US and possibly Japan early next year, as part of an effort to further promote the benefits of the IMF-led financial aid package on Argentina's economy, reports Dow Jones.
Meanwhile, Ecountries.com comments that the IMF-led aid package of nearly $40bn for Argentina has surpassed expectations. But it's unclear if multilateral help can do the trick. Doubts persist over the quality of the package and whether it can improve Argentina's economic fortunes. The details are more important than who precisely is backing the initiative. And the conditions will ultimately make or break the credibility of this bailout.
Separately, Business Week (p. 106) reports two years of stagnation have brought this pivotal Latin economy to the bring of a foreign-debt default. Default would hurt stock markets from Santiago to Mexico City. It would shut Argentina itself, a major borrower, out of world markets, painfully delaying its chance of recovery. Argentina's creditors will do their utmost to prevent default, and an IMF loan package negotiated in December should help.
In other news, the Financial Times (p. 8) reports that after more than 10 years of market-oriented economic reforms, Latin America's external dependence has become "accentuated", according to the executive director of the UN Economic Commission for Latin America and the Caribbean (Eclac). Jose Antonio Ocampo said that pursuit of so-called Washington consensus policies had failed to deliver enough economic growth and that the region needed a new production-oriented economic strategy.
"Simply maintaining macroeconomic equilibrium and opening up economies has not worked and nothing indicates that it is going to work," he said. Ocampo, a former Colombian minister of finance, was speaking Monday shortly after publication of a downbeat annual assessment of regional economic trends by Eclac.