MercoPress. South Atlantic News Agency

IMF-Argentina frustrated and confronted.

Differences regarding budget surplus, utility rates and compensations for banks losses as a result of the 2002 devaluation of the currency are frustrating negotiations for a long term agreement between Argentina and the International Monetary Fund, IMF.

On Monday September 1 the interim agreement reached at the beginning of the year expired and Argentina needs an understanding before September 9 when the country must reimburse IMF approximately 2,9 billion US dollars.

Argentine President Kirchner has anticipated the country will not use its international reserves, --that now stand at 13,5 billion US dollars--, for the repayment.

An IMF agreement is essential for Argentina to roll over the debt and set foundations for economic recovery and a debt structuring offer to international creditors following one of the biggest sovereign default's ever in December 2001.

With this in mind this Tuesday an additional IMF delegation headed by John Thorton will be joining John Dodsworth the resident IMF representative in Buenos Aires in a further attempt to reach a three years agreement.

President Kirchner and Economy Minister Roberto Lavagna insist that Argentina can't produce a primary budget surplus of more than 3% of GDP, (actually 2,5% in 2003), while the IMF argues that the figure must reach 4% or 4,5% by 2006 to make any debt rescheduling credible and sustainable.

Argentine officials have suggested that once an agreement is reached with the IMF, the country would be making an offer to sovereign bond holders during the coming IMF-World Bank annual assembly.

However primary budget surplus figures give an idea of how much Argentina will actually be able to repay and how big a cut bond holders will have to endure. With the Argentine government proposal, the 90 billion US dollars sovereign debt could be exposed to a cut well over 50% and close to 70%.

Argentine press reports indicate President Kirchner is tempted to invest budget surpluses in a jobs creating public works program.

Another issue of concern are utility rates frozen since December 2001 and mostly now under European management. The IMF is demanding increases but the government argues it will not do so until it has reviewed all contracts with the private companies involved.

"We have time from now until December 2004 to review all and every utility contract, and eventually begin working with the rates. We will not sign what we can't honour", indicated Interior Minister Aníbal Fernandez in response to mounting pressure from European countries and the IMF. Regarding bank compensations for losses caused by the 65% devaluation of the currency in 2002, Congress is currently considering several bills.

The three year agreement Argentina is hopeful of reaching includes the 15 billion US dollars in multilateral organizations credits plus interests that the country must repay in the coming three years.

Differences between Argentina and the IMF have also reached the Group of Seven industrialized countries that are split over how to address the issue and whether to support or not an agreement.

While former staunch supporters of Argentina, France and Italy (plus Spain) are demanding greater savings and a utility rates increase commitment, United States seems more inclined to a quick deal fearing havoc to IMF finances if Argentina is forced to default.

Britain, Canada and Germany also believe that Argentina needs higher primary budget surpluses if debt repayments are to be sustainable.

Next Monday September 8, the Finance ministers of the G 7 will be meeting in London and Argentina is expected to be among top issues of the agenda.