Argentina Gets $ 8 Billion Aid From IMF
WASHINGTON, 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 cautious.
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.
(c) Copyright: The New York Times