ARGENTINA IN CHAOS AS PRESIDENT RESIGNS.
President Fernando de la Rúa resigned Thursday as tens of thousands of Argentines defied a state of siege he had declared less than 24 hours earlier when violence tore through the recession-ravaged country, the Los Angeles Times (p. A1) reports.
De la Rúa stepped down after opposition legislators in the Peronist party declined his offer to form a government of national unity, the president's last hope of holding on to power after two days of rioting that shook many of the nation's largest cities. With the post of vice president vacant, the line of succession fell to the Peronist head of the Senate, Ramon Puerta. He was set to be sworn in at an extraordinary session of Congress Friday. Meanwhile, the Wall Street Journal reports the US administration and IMF officials said the political chaos in Argentina wouldn't sway them from their hard-line position against additional aid to the Latin American nation, and professed confidence that the turmoil wouldn't trigger broader global financial shocks.
IMF spokesman Thomas Dawson told reporters that the Fund wasn't rushing to free up delayed loans, noting that while board members could be contacted during an emergency, there was no meeting scheduled to discuss Argentina and the board is now on its traditional holiday recess.
Dawson said discussions with Argentina over a stalled $22 billion loan package wouldn't begin until a new cabinet was picked, and made clear that the money wouldn't be released until Buenos Aires adopted economic policies the IMF considered acceptable. "Our aim has been to help the Argentines develop - on their own - a program that can be sustained both economically and politically, and that remains our goal," he said.
Separately, US Treasury Secretary Paul O'Neill, referring to the angry Argentine street clashes that have left at least 20 dead, is quoted as saying, "I don't think the violence is a function of whether the IMF did more or less -- the violence is a function of the people's frustration with their government." The notion that the rioting, which catalyzed the resignation of President de la Rúa, might justify more aid from the US or from the IMF, in which the US is the largest shareholder, "suggests somehow that we should accept the responsibility for how they run their country, which is inappropriate to me," O'Neill said. O'Neill dismissed the danger of any broader fallout throughout the region, or to emerging markets in general. "They've been approaching this time for a year or longer," he said, adding: "I think markets have seen this coming and they've discounted it."
Cinco Días (Spain) quotes Vice-President of the World Bank for Latin America David de Ferranti as saying, "The situation is critical and the Bank regrets the suffering of the country." De Ferranti stressed that the Bank is still supporting the country and that two projects amounting to $2.1 billion remain active, although the loans will not be disbursed until "the sky over Argentina is clear". The Ambito Financiero (Argentina) and El Clarin (Argentina) also report on De Ferranti's comments.
Meanwhile, Dow Jones reports Spain's Finance Minister Rodrigo Rato said Thursday the Spanish government has been urging the IMF to supply Argentina with the last $1.3 billion payment which the IMF blocked earlier this month. "I met with IMF officials last week at the European Council meeting in Laeken, Belgium and repeated to him our view that the IMF should supply these funds as soon as possible," said Rato. "We are encouraging Argentina and the IMF to get together, agree on an economic stimulus package and transfer the funds to Argentina," said Rato.
Also reporting, the New York Times (p. A8) says any new government in Buenos Aires is expected to abandon the policy of fixing the currency, the peso, to parity with the dollar, and to delay or cancel payments on its $132 billion foreign debt.
The United States and the IMF had supported Argentina's bid to defend its currency with several loans, the story notes. But O'Neill has expressed skepticism about bailouts, and Fund officials have been hinting in recent weeks that Argentina is unlikely to get any more support unless it takes a new approach. The Fund rejected Argentina's urgent appeals to release a $1.24 billion installment of a loan arranged earlier this month, setting up the events that led to the fall of de la Rúa's government.
Further, CNN.com reports that in the wake of two days of rioting and President de la Rúa's resignation Thursday, one of the world's top financial rating agencies said the government was about to default on $97 billion in debt. The international rating agency Fitch described default on the debt by the government as "imminent." Fitch currently gives Argentina's bonds a "DDD" rating, or junk status. "Argentina's default will be the largest default by any debtor," the agency said. Around $600 million in bond payments are due through the end of December, it said.
Reporting on international markets reactions to the Argentine crisis, meanwhile, the International Herald Tribune (p. 11) says Unrest in Argentina and the departure of the country's economic minister, Domingo Cavallo, on Thursday caused few ripples across world markets, which analysts said saw the financial crisis brewing a long time ago. Markets took in stride news that the Argentine government had imposed a state of emergency following violent street protests. The South African rand was one notable exception. Already volatile amid political turmoil in neighboring Zimbabwe, the rand tumbled to a record low against the dollar in early trading as investors sold some of their emerging-market assets.
Most major papers world-wide report on the looming crisis in Argentina.
ARGENTINA: ANALYSIS, COMMENTARY, OPINION. The Wall Street Journal (p. A9) notes the incoming president faces a passel of unpleasant economic policy options, from currency devaluation to debt default, not to mention a punishing recession that has put nearly one out of every five Argentines out of work.
Dollarization -- the outright adoption of the greenback -- has been proposed. Tiny Ecuador most recently has given it a go, and it has helped tame inflation and bring down sky-high interest rates there. By contrast, Argentina has allowed its pesos to circulate alongside dollars, leaving doubts in the minds of investors as to whether the one-to-one peg would always hold. Yet adopting the dollar and junking the peso printing presses wouldn't solve Argentina's most immediate problem: the need to stoke confidence in lenders and its own people. They had been emptying their bank accounts for weeks, in favor of stuffing their mattresses, before the government imposed harsh bank withdrawal limits at the beginning of the month, now somewhat eased.
Currency devaluation, meanwhile, is unlikely to offer the kind of impetus to exports that it did for Mexico in 1995, the piece says. That's because Argentina sits far removed from big consumers in Europe and North America and is notoriously poor at selling its goods abroad. The country exports a feeble 8 percent of its total economic output. Only a few countries, like Rwanda, Burundi and Haiti, export less as a percentage of gross domestic product.
If Argentina runs too low on the hard-currency reserves, such as dollars and gold, that are the backbone of its peg with the dollar, it might have no choice but to let the peso float freely against other currencies, the piece says. That would almost certainly cause a sharp devaluation in the peso. Allowing the peso to devalue against the dollar, as Brazil did in 1999, would be especially painful for ordinary Argentines. Most people earn money in pesos but carry mortgages and car and business loans in dollars, so their debts would instantly become more expensive to repay after a devaluation.
Commenting in the Financial Times (p. 14), Martin Wolf says that convertibility is finished. But the repercussions for other emerging markets and the international financial architecture are just beginning.
Argentina, says Wolf, shows that any regime associated with a long economic decline is vulnerable. If, as in Argentina, the economy is inflexible, such a long economic decline is quite likely under an irrevocably fixed exchange rate, particularly in a country vulnerable to external shocks. The likely conclusion from the Argentine disaster is greater unwillingness to support currency boards. Even dollarization is no panacea. A country would then avoid monetary meltdown but fiscal collapse is quite feasible under dollarization.
The role of the IMF will, once again, be put under the microscope, Wolf says. The story of Argentina's fall illustrates the difficulty faced by the IMF in avoiding capture by its borrowers. Senior officials at the Fund argue that the Fund is caught in a trap. If it refuses to support the government, it will be blamed for the chaos that follows a default. If it agrees to support the government, it will be blamed for any failure. It cannot win.
Mary Anastasia O'Grady of the Wall Street Journal, by contrast, says the fiasco in Argentina follows a string of IMF failures since 1994 -- most notably in Mexico, Indonesia, Russia and Turkey -- where the fund adopted a strategy of bailing out sovereign debtors with huge cash infusions while simultaneously imposing fiscal austerity, or, in local jargon, punitive tax increases. Devaluation was required. Millions of ordinary citizens around the globe have been left destitute from IMF "help" administered over the past seven years. Reuters, meanwhile, reports Peru's Economy Minister Pedro Pablo Kuczynski said Thursday that the IMF is partly to blame for the debt crisis that has pushed Argentina into chaos because it did not spot the warning signs soon enough and then played hardball when the going got tough. "The Fund is partly to blame for this because the Fund did not sound the alarm in time and then took a very hard line when things were incredibly difficult," Kuczynski told RPP radio.
Further, Der Standard (Austria) reports former Austrian Chancellor Viktor Klima - now President of Volkswagen Argentina - criticizes the IMF for its policy during the Argentine economic crisis. "In a country where devaluation is useless, one cannot ask for a zero budget deficit," he is quoted as saying. Meanwhile, Louis Goodman from the University of Washington, says in an interview with Libération (p.4) that the IMF was only a very small part of a huge problem, which started at the beginning of the 20th century. Argentina's main problem is that it wasn't able to change or to adapt while it was trying to maintain a certain living standard financed by external debt.
A Wall Street Journal Europe editorial (p. 6) says Argentines suffer the consequences of poor political leadership. Ultimately, it's up to the Argentines to demand better policies of their politicians, and the images of violent confrontations should drive home the realization that there are times when governments have to act decisively rather than assuming that there will always be some ways to weasel out of debt, the editorial says.
One should bemoan Argentina's fate, writes Charles Lambroschini in Le Figaro (p.14). Once again, this big nation is the victim of its petty leaders. Seeing hunger riots in a country which could feed half of the world is the appalling evidence of its economic failure, he writes. It is also the proof of the failure of its political system, one of an alliance between mates and rogues who turned a democracy snatched to the military into a second-rate kleptocracy, Lambroschini notes. Besides, when Argentina's wealth have not been robbed by corrupted politicians, its resources have been scandalously mismanaged.
Finally, the only good news is that no one seems to wish that the army takes the power back, not even the military themselves, he adds.
Reporting on reactions in the UK, AFP says British newspapers Friday blamed bad economic leadership for Argentina's financial and political crisis, with one urging the country not to be so scared of inflation and another calling on the IMF to reschedule the country's debt.
"Argentina's mistake was to think there was a short cut to economic reform," said the Independent daily, which called for the IMF to phase in a package to reschedule the country's debt. The country must now put its public finances on a sound footing, it said. "The political difficulties involved in such measures as cutting university funding or teachers' pay are obvious and very real. "For that reason it would be better if the IMF did not force such measures on an already weakened body politic immediately, but phased them in as part of a package that rescheduled the debt."
The Guardian said: "Argentina should not be so scared of inflation -- people are rioting because there is too little, not too much money around." Sticking to plans to chop government spending would only exacerbate the problems, the paper said, adding: "It is justifiable to ask whether the economies are run for foreign investors or for local people."
Meanwhile, The Washington Post (p. A44) writes in an editorial that Debt default and devaluation are both big challenges, but they offer a way to convince Argentina's disaffected public that the four-year-long recession has a chance of ending. It is important, however, that the country resist pressure to throw out other aspects of its economic program -- by renationalizing privatized industries or reversing trade liberalization. Argentina now needs above all to preserve its democracy and free-market outlook. The alternatives offer only worsened misery.