MercoPress. South Atlantic News Agency

South America News

Headlines:
Green light from the US Treasury; A more sober Argentina; Foreign investment in Chile collapses; Warning from “The New York Times”

Green light from the US Treasury

Argentine Economy Minister Roberto Lavagna gained some extra oxygen for the ever agonizing Argentine economy, --and for himself? following his visit to Washington where he was met with a more encouraging attitude, and remarks, from the International Monetary Fund and the United States Treasury, according to Argentine press reports. Basically the IMF agreed to consider a rescheduling of multilateral institutions maturing loans, (beginning with an IMF one billion US dollars in July); naming a committee of international personalities to consider monetary policy differences between the IMF and Argentine officials, and sending yet another mission to Buenos Aires but this time not only to collect information. Argentina and the IMF, with strong support from the Bush administration, have been on a collision course since Argentina defaulted on its 141 billions US dollars foreign debt last December and was cut off completely from international credit plunging the country into financial disarray. Argentina desperately needs to reschedule with the IMF, World Bank and Interamerican Development Bank 9 billion US dollars maturing in the next 18 months, since its international reserves currently stand below 10 billion US dollars. Another contentious area is monetary policy. Argentina froze last December all bank deposits and accounts in an attempt to prevent a run on the banking system, but given the current financial situation, Mr. Lavagna fears any de-freezing of funds would end in a depletion of the Central Bank's US dollar reserves or in a socially explosive hyperinflation scenario. Mr. Lavagna and his advisors prefer a compulsory return of funds in government bonds. However the IMF feels that balancing the central government and provincial budgets, plus a free flotation of the peso and a voluntary acceptance of government bonds by depositors, will help normalize the banks situation. A consulting committee of outstanding financial experts, a rare concession for the IMF, is expected to counsel on the issue. Names such as Paul Vockler, a former US Federal Reserve president, and Michel Camdessus a retired IMF Director General have been mentioned. Finally another IMF technical mission, with greater powers, will be visiting Argentina any moment to begin what are described as "the third and final phase of negotiations". During his visit to Washington, besides holding several working sessions with the top IMF officials, Mr. Lavagna also met with US Treasury Secretary Paul O'Neil and his Deputy John Taylor, sponsors of a hard line towards highly indebted countries such as Argentina, particularly when they don't honor contracts. However this time Mr. O'Neill during a public speech talked about Argentina and said he was encouraged by progress in talks with the IMF stressing "we're very anxious to see Argentina return to the economic growth path".

A more sober Argentina

A majority of Argentines favor a fixed exchange rate similar to the one created by former Economy Minister Domingo Cavallo in 1991 and which was abruptly discontinued six months ago plunging the country into financial and social turmoil. According to the latest Gallup poll published this Monday by "La Nación", the fixed exchange rate system is particularly popular among the lower middle class, 56%, while those with higher education and belonging to a higher bracket income are inclined for a free flotation of the local peso or simply making the US dollar the legal currency. Similarly a vast majority of those interviewed, 83%, are flatly against the devaluation of the peso that occurred last January when the currency was left to float, ending a decade of financial stability and one digit inflation. Only 8% approve the decision. Not surprisingly these figures are closely linked to the disapproval of the current President Eduardo Duhalde administration, 80%, an index that has consistently increased since May when it stood at 74%, with only 14% supporting and 6% that did not answer. The disapproval is even more emphatic towards the current economic policies of the Duhalde administration, 89%. Making the US dollar Argentina's main currency still has much resistance, 63%, with 18% supporting and 19% not answering. However the 18%, has experienced a considerable jump since April when it recorded 13%, mostly supported by middle class Argentines. Regarding elections, 49% support an early call, while 42% believe president Duhalde should finish his mandate scheduled for December 2003. The anticipation of the electoral timetable experienced an important advance from the 35% of last April and 46% in May. However elderly people and residents of metropolitan Buenos Aires believe Duhalde should complete his term, while young people and residents in the provinces favor an anticipation. Half of the Argentines are now convinced that defaulting was not such a good idea after all. Support has dropped from 50% in January to 38%, and 12% don't know or won't answer. Finally the priorities of those polled are now combating price hikes, 32% and keeping law and order, 31%. The poll was taken between June 20 and 24th. involving 1,251 people in all of Argentina.

Foreign investment in Chile collapses

Foreign investment in Chile experienced a drastic 75% drop during the first four months of 2002 compared to a year ago, according to the Foreign Investment's Committee. However April saw a slight recovery which helped reach 679 million US dollars, but still far from the 913 million and 492 million in the telecommunications and energy sector during early 2001. So far this year foreign investment concentrated 166 million US dollars in the mining industry; 114 million in electricity, gas and water works; 84 million in services; transport and communications 80 million and a similar sum in industry. Chile's Foreign Investment Committee attributes the downfall to two main reasons: the first half of 2001 recorded a strong above average influx of capital, and secondly a general systematic decline at world level of investments particularly in emerging markets. International institutions estimate that Latinamerica will experience a 40% drop in foreign investment during the current year.

Warning from "The New York Times"

Following on the steps of Brazilian president Fernando Cardoso who apparently was caught off the record complaining about the "hands off" attitude of United States towards Latinamerica, and a New York Times editorial criticizing President Bush, Argentine president confessed that the most exasperating difficulty in the country's ongoing negotiations with the International Monetary Fund for financial assistance comes from the current US administration's "ignorance and aloofness" towards the region. "I think the greatest difficulty we have is the Untied States government ignorance and aloofness towards our region", said President Duhalde in a long interview published last Sunday in Buenos Aires. "Argentina and other countries of the region are suffering serious discrimination from the United States and the central countries", added Mr. Duhalde in direct reference to the protectionism practiced by rich countries towards developing nations. "The Americans don't feel responsible for the Latinamerican situation and give priority to conflicts in other parts of the world, where the supply of oil to the West is at stake or the possibility of a nuclear conflict between India and Pakistan". In an interview with a Mexican television crew, Brazilian president Fernando Cardoso was recorded saying that his US counterpart, George Bush "knows nothing about Latinamerica" and has an irrelevant attitude towards the region. A last Sunday editorial from The New York Times also attacks the US government for "isolating Argentina" arguing the ideas behind that policy are "false and dangerous". The New York Times demands a solution from the Bush administration for the Argentine crisis because, "the political and economic stability of the whole region is endangered". After criticizing the US government's passivity regarding the Argentina-IMF negotiations, the prestigious newspaper warns that the suffering could lead to the emergence of an "anti-American" feeling in the region.