World Bank summary of Argentina news

Doug Henwood dhenwood at panix.com
Fri Nov 15 08:14:52 PST 2002


============================================= Argentina Makes Partial Payment to World Bank =============================================

Argentina has defaulted on a debt repayment to the World Bank of more than $800 million that was due on Thursday, BBC News Online reports.

"The World Bank today confirmed that it has received a partial payment of $79.2 million from the government of Argentina against a scheduled payment of $805 million," the World Bank said in a statement. The Bank said the move meant it would not consider any new loans for the country, and access to current loans would be removed unless it was paid within the next 30 days.

Ambito Financiero (Argentina) adds that after Argentina decided not to make the full debt repayment to the World Bank, which had actually been due 30 days ago from Thursday, the Bank said that it hopes that Argentina will rectify its situation as soon as possible.

"The Bank's policy concerning late payments is being applied," the statement from the Bank announced. "The full payment by Argentina of the amount now more than 30 days overdue will result in the immediate lifting of restrictions on the submission of new loan applications," the statement added.

The World Bank "is pleased by the statements by representatives of the Argentine government to the effect that Argentina remains committed to rectifying the situation as soon as possible," the Bank statement said. It pointed out that after being 30 days late "it is not possible to submit new loan applications to the board of directors of the bank and borrowers cease to be eligible to obtain interest rate reductions for the next six months".

Meanwhile, the New York Times quotes Argentine President Eduardo Duhalde as saying, ìTo pay today, in these conditions, would be risky for the economy. I refuse to make promises that cannot be fulfilled."

Argentina did make a token $77 million interest payment, allowing Duhalde to maintain that the action does not amount to a true default on Argentina's last remaining source of external financing. "Argentina has a firm commitment to meet its obligations once an agreement is reached" with the IMF, he said, but cannot afford to dip into its diminished $9.8 billion in foreign reserves to pay back creditors.

Reuters notes the default will effectively cut off one of Argentina's last sources of financing after it has already defaulted on $95 billion of its $115 billion commercial debts. The default will have little initial effect on Argentina's real economy, but analysts said the resulting jolt to public confidence could shake recent stability gained after four years of devastating recession.

The Washington Post says that despite the conciliatory remarks from both sides, Thursdayís move raises the prospect that Argentina could fall further into economic isolation. Privately, some officials in Washington also worry that if Argentina becomes more estranged from the IMF, the danger will increase that popular sentiment throughout Latin America will turn increasingly against the Fund, its overseers in the US government and the system of global capitalism that they champion. "This is crucial for the whole region," one senior policymaker said, noting that Brazil's left-wing president-elect, Luiz Inacio Lula da Silva, may find it more difficult to hew to IMF-backed policies if neighboring Argentina rejects them.

The Economist Global Agenda (online) believes the decision will worsen the country's already-tense relationship with the IMF. The prospect of a new IMF-backed economic program being agreed before the presidential elections next spring must have diminished, although the government in Buenos Aires insists a deal is still its aim. All of this is bad news for Argentina, which now joins that select group of countries, including Zimbabwe and Iraq, which are in default with the Fund or the Bank. It is also a setback for the IMF at a time when it faces potentially tricky negotiations with incoming governments in Brazil and Turkey.

The Wall Street Journal, too, notes the default complicates tense relations with the IMF, which insists that, in exchange for a rollover of existing IMF debts, Argentina tighten government spending, develop a workable monetary policy and decide how to free up accounts frozen to prevent a run on the banks. Argentina took a jab at the IMF in announcing its World Bank decision. It couldn't make a full payment, it said, because that would bring its foreign-currency reserves level below the $9 billion it said the IMF recommends. "That's totally disingenuous, to say that's what the target is," an IMF official said.

Meanwhile, EFE-Spanish News Agency reports the IMF said Thursday that it would support Argentina's request to postpone for one year the payment deadline on $141 million it owes to the Fund, which falls due November 22. The announcement came shortly after Argentina announced that it would not pay the full $805 million it owes to the World Bank, but that it would pay $80 million in interest.

Dow Jones adds a senior IMF offcial said Argentina and the IMF worked through some of their differences this week, notably settling on a strategy for reopening the banking system, although obstacles remain, a senior IMF official said late Thursday. Argentina's Minister of Economy Roberto Lavagna and Finance Secretary Guillermo Nielson have been in Washington this week trying to foster an agreement that would allow the IMF to provide enough new credit to effectively roll over payments coming due to the fund next year.

Anne Krueger, IMF's first deputy managing director, said Argentina must work out a plan for a monetary policy aimed at controlling inflation, continue reform of the budget relationship between federal and provincial governments and adjust utility prices before it can qualify for new IMF credit. "In particular, we have broadly agreed on the sequencing of an initial banking strategy and that there will be no further mandatory stays to the application of the insolvency law," Krueger said in a statement. "The authorities have also agreed to seek the necessary consensus with the political leaders."

"There are, in addition, still some issues that remain to be resolved for the emerging program, affecting the monetary anchor, the federal and provincial fiscal framework for 2003, and the pricing and regulatory framework of the utilities," Krueger said, adding that discussions will continue in the coming days.

Further, the National Post (Canada) and Reuters report Argentina's peso and stock market slid sharply Thursday after the government said it would miss the payment it owes the World Bank.

Markets were largely surprised by the decision, as most investors had believed Argentina would either reach an aid deal in time with the IMF or pay using its central bank reserves. "Almost nobody expected this," a stock trader said.

Also reporting are: CNN.com, AFP, El Cronista (Argentina), the Financial Times, the Times (UK), the Guardian (UK), La Tribune (France), Les Echoes (France), Le Figaro (France), VOA, El Mundo (Spain), El Pais (Spain), and Tages Anzeiger (Switzerland).



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