MercoPress. South Atlantic News Agency

IMF urged to go easy on Argentina

Roberto Lavagna, Argentina's economy minister, on Wednesday urged the International Monetary Fund to go easy on Argentina's next government rather than demand damaging fiscal restraint.

Speaking in Washington before meetings with the IMF and John Snow, the new US Treasury secretary, Mr Lavagna also said that Argentina should not have to bankrupt itself to repay foreign creditors, who had known the risks they were taking when they lent to the government.

Mr Lavagna was speaking on the eve of the Argentine government's announcement of a financial adviser to help it begin to restructure about $50bn of debt to foreign investors on which it defaulted in December 2001. Last month Argentina achieved a controversial interim debt rollover agreement with the IMF, aimed at giving the country breathing space until after presidential elections in April.

Mr Lavagna said that after Thursday's appointment of the adviser, from a shortlist of Morgan Stanley, Lazard Freres and UBS Warburg, restructuring negotiations between the new government and private bondholders could begin before the end of the year. But he warned that Argentina should not suffer unduly to bail out imprudent investors.

"For the bondholders to say: I made a good investment and it is for the country to pay, that is not true," he said. "They made mistakes." Mr Lavagna held open the possibility that domestic bondholders could also be included in the restructuring but stopped short of saying the IMF itself should also see its loans written down.

Referring to estimates that it would take a primary fiscal surplus - the surplus before interest payments - of 5 per cent of gross domestic product in order to make significant repayments to bondholders, Mr Lavagna said that would be too high. The IMF should "not put the new administration into a corner", he said.

Associations of private bondholders have expressed concern about the IMF's interim deal with Argentina, worrying that it will reduce pressure for the new administration to negotiate in good faith with their creditors. The debt negotiations are likely to be protracted and intricate, with several hundred thousand individual European investors as well as large funds holding Argentine debt.

In his last remaining weeks in office, Mr Lavagna said he was anxious to improve Argentina's standing in the eyes of the IMF and the international community to ease the path of negotiations for his successor.

He said that the stabilisation of the Argentine economy and banking system had not yet been taken into account by the international community.