MercoPress. South Atlantic News Agency

Three reasons - “Social” credit for Argentina

Three reasons / “Social” credit for Argentina

Three reasons
In a recent conference talking about the current Argentine financial situation, Economy Minister Roberto Lavagna identified three reasons, in his opinion, of why the fixed exchange rate of one peso-one US dollar, or "convertibility" failed or rather should have been changed before virtually exploding.
"Convertibility worked and was most efficient in eliminating hyperinflation and inflationary expectations", said Mr. Lavagna. "However the system which began in 1991 was exhausted by 1994/95". According to Mr. Lavagna three main reasons disrupted the system.
Locally the growing budget deficit. Since the convertibility system is based in a one peso-one dollar equation, and the more pesos in circulation, means the price of the dollar should increase or be compensated with overseas borrowing, which are also dependent on interest rates.
Internationally the failure of the GATT Uruguay Round which much promised when it began in the mid eighties but finally kept the clamps on agriculture markets in the rich countries, limiting exports of the efficient producers such as Argentina, Brazil, Uruguay, Oceania.
Finally in 1992 the devaluation of the British pound began a chain of similar events that extended to much of Europe, then moved to Far East, Russia and eventually Brazil in January 1999, at that moment Argentina's main trading partner.It was an accumulative explosive cocktail, according to the current Argentine Economy Minister.

"Social" credit for Argentina
Argentina cancelled a 680 million US dollars World Bank credit due this week avoiding a default with multilateral financial organizations. However almost simultaneously, the Interamerican Development Bank, IDB, granted Argentina its first international credit since last December, when the country defaulted on its 141 billion US dollars foreign debt.
The 700 million US dollars credit earmarked for social welfare programs will be handed out in equal installments during an 18 months period.
The repayment of the World Bank loan was made from a "special fund" created in December 2000 when the country received the first leg of an important financial assistance package.
The Argentine government is currently involved in critical discussions with the International Monetary Fund to obtain additional assistance to help the country overcome one of the worst recessions ever and restore international credit.
Argentine financial officials refused last week to anticipate how the President Duhalde administration was going to face this week's repayment, particularly when the country is in the brink of insolvency with Central Bank reserves standing at 11,7 billion US dollars, clearly insufficient to repay frozen US dollar assets in the banking system belonging to angry holders of deposits.
The 680 million US dollars is the first reimbursement of a 2,5 billion US dollars loan from 1998.
Explaining the extent of the new social aid IDB president Enrique Iglesias said "the 700 million is just an initial contribution to the problems facing Argentina in the social field. We know there are a lot of activities that are not functioning in social welfare and we also want to express our confidence in Argentina".
The Duhalde administration is expected to announce this week a subsidy program for unemployed heads of family, at an equivalent of 50 US dollars per month. The program is expected to benefit 1,050,000 heads of family.