MercoPress. South Atlantic News Agency

Argentina and IMF at loggerheads

Argentina and the International Monetary Fund, IMF, this week were unable to reach a full mid term agreement as was expected. The IMF delegation left Buenos Aires Monday night with two main issues unsolved that are considered crucial for Argentina's route map and the outcome of negotiations with its (defaulted) creditors.

One of them is the primary budget surplus which IMF delegate John Dodsworth insisted must be similar to Brazil's 4,25% of GDP, for the next three years, while Argentine Finance Minister Roberto Lavagna believes 3% is sufficient. A second discrepancy refers to Argentina's request that all credits from multilateral organizations during the coming three years be rescheduled. IMF position is that Argentina must make some capital reimbursements.

The situation must now be considered by the IMF Board most of whose members are actually on holiday, meaning Argentina's case might not be considered until early September, an extremely delicate scenario since on September 9th the country must repay a 2,9 billion US dollars loan.

The current IMF-Argentina agreement expires at the end of August.

According to Argentine press reports, president Nestor Kirchner anticipated to Minister Lavagna that under no circumstances is he willing to repay the September 9 loan with Central Bank international reserves, if no agreement has been reached.

IMF support is essential for Argentina because it will help pave the way for further and possibly even tougher negotiations with private creditors (for an estimated 76,7 billion US dollars) in the coming weeks. Apparently once it has wrapped an agreement with the IMF, Argentina is planning to announce in the annual World Bank-IMF general assembly a "voluntary" rescheduling and reprogramming of its defaulted debt.

According to IMF and Argentine technical estimates, Argentina must ensure primary budget surpluses between 3,5 and 4,5% of GDP for the next fifteen years to comply with debt payments. However this percentage will be effective as long as Argentine negotiators manage to convince creditors to accept a 50 to 70% cut in the original face value of sovereign bonds. If they only manage a 40% cut, the primary surplus would have to be 5%.

Officials from the Kirchner administration argue that a 3% budget primary surplus is a more reasonable figure since the Argentine economy after growing between 5,5and 6% in 2003, following the 10,9% meltdown of 2002, is expected to stabilize between 4 and 4,2% during the next three years; 3,8% the following two years and 3,5% in 2009.

Buenos Aires press allege that IMF officials believe that Argentina's proposal is not a "sustainable program" given the current indebtness and the country's propensity to borrow. The Kirchner administration argues IMF co-responsibility in the country's current situation: for "too long" the IMF travelled the world showing Argentina as the "model" to follow, when as back as 1998 it was known that the country was heading over the cliff.