And should we be more concerned about excluding infrastructure than social spending? Should we be in favor of the idea but only for social spending???
DoreneC
In a message dated 4/1/2004 4:29:00 PM Pacific Standard Time, dhenwood at panix.com writes:
> Subj: [lbo-talk] IMF under siege!
> Date: 4/1/2004 4:29:00 PM Pacific Standard Time
> From: dhenwood at panix.com
> Reply-to: lbo-talk at lbo-talk.org
> To: lbo-talk at lbo-talk.org
> Sent from the Internet
>
>
>
> <http://quote.bloomberg.com/apps/news?pid=10000039&refer=columnist_derosa&
> sid=aOGWO5LS9bWg>
>
> Argentina and Brazil Join Forces to Tame the IMF: David DeRosa
>
> March 26 (Bloomberg) -- In yet another affront to the authority of
> the International Monetary Fund, Argentina and Brazil have agreed to
> stand as one in future negotiations over loan conditions.
>
> The Fund is being eviscerated by two of the very countries it has
> staked its reputation on when it rescued them from financial collapse.
>
> In effect, Brazil and Argentina are acting as if they have an
> entitlement to borrow billions of dollars from the IMF on terms of
> their choosing.
>
> Earlier this month, Argentina successfully negotiated a $3.1 billion
> loan disbursement by threatening not to make a loan service payment
> of the same size to the Fund. The Fund gave in; Argentina made the
> payment and the Fund promptly agreed to return the billions to
> Argentina.
>
> What Argentina learned from that episode is that the IMF is a
> low-pain-threshold creditor when it comes to its clients threatening
> it with default. This happens when the lender of last resort, the
> IMF, is afraid of its own shadow.
>
> Now Argentina is trying to gain a tactical advantage over the IMF by
> combining forces with Brazil.
>
> Seeking Exclusion
>
> Brazilian President Luiz Inacio Lula da Silva and Argentine President
> Nestor Kirchner present their agreement as a means to persuade the
> IMF to free up cash and bolster growth in their countries, South
> America's two largest economies. They want the IMF to exclude such
> projects as road building, power plants and other infrastructure from
> spending limits tied to IMF financing.
>
> Last month Lula had the temerity to hit U.S. President George W. Bush
> with this idea to exclude infrastructure from the primary surplus.
>
> Brazil's $14.8 billion IMF package requires it to maintain a primary
> surplus, or budget surplus equal to 4.25 percent of gross domestic
> product.
>
> Argentina's $13.3 billion IMF accord requires it to run a primary
> surplus at least equal to 3 percent of its gross domestic product.
> That calculation excludes government interest payments on debt.
>
> Growth Justification
>
> What Lula and Kirchner want is some wiggle room. Brazil's Foreign
> Minister Celso Amorim, speaking after Lula and Kirchner met in Rio de
> Janeiro on March 16, summed up the case: ``We emphasize the
> importance that during the negotiations with the IMF, we jointly
> defend that the primary surplus takes into account the needs for
> growth.''
>
> Alberto Fernandez, Kirchner's cabinet chief, said the two countries
> plan to continue to negotiate debt accords with the IMF separately.
>
> Be that as it may, what Brazil and Argentina really want is a license
> to spend billions of dollars in full view of the IMF under the
> justification that it's good for growth. Maybe it is, though history
> shows that large government-sponsored infrastructure projects are
> riddled with fat, the very thing on which corruption feeds.
>
> Another rationalization came from Eduardo Suplicy, a senator from
> Lula's Workers' Party, who claimed the IMF's conditions ``discourage
> countries to invest in social programs.''
>
> The reality is that there will be no limit to what some politicians
> will want to classify as acceptable exceptions to the budget surplus
> rule. Any excuse will do, growth, social programs, you name it.
>
> Debtors United
>
> It should alarm the IMF that two of its biggest client states think
> they can join together to fight for a redefinition of the terms of
> their loan packages.
>
> Whether the new partnership gives the combination of Brazil and
> Argentina actual power over the IMF is uncertain. Yet the symbolism
> speaks of how little respect either country has for the Fund.
>
> What's next? Perhaps a union of Latin American IMF clients? So if
> Uruguay, for example, needs a loan, the Fund has to sit down with
> several nations, such as Brazil and Argentina, to work out the terms?
>
> Or maybe all the emerging markets nations will band together, and the
> IMF will have to check with all of them before it can work out a loan
> package with economic conditions.
>
> The very concept of debtor nations combining forces against the Fund
> is completely antithetical to the IMF having a role in straightening
> out the financial and economic affairs of bankrupt countries.
>
> Before this goes any further, the IMF should put Brazil and Argentina
> in their respective places. If it doesn't begin to assert authority
> now, it never may get the chance to do so down the road.
>
> --
>
> David DeRosa , president of DeRosa Research &Trading, is an adjunct
> finance professor at the Yale School of Management and the author of
> "In Defense of Free Capital Markets." The opinions expressed are his
> own.
>
> To contact the writer of this column:
> David DeRosa in New Canaan, Connecticut, at dderosa at bloomberg.net.
> ___________________________________
> http://mailman.lbo-talk.org/mailman/listinfo/lbo-talk
>
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