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Argentina rebuilds IMF relation.

Sunday, January 11th 2004 - 20:00 UTC
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The International Monetary Fund finally approved the first review of the accord signed with Argentina last September, and without modifying a “iota” according to the Argentine government. However the approval comes three weeks later than expected because of the “difficult” relation between both sides.

Besides the political repercussions of the decision, Argentina will have access to 600 million US dollars, 345 million from the IMF and 276 from the World Bank that was waiting for the IMF green light. This will also enable Argentina to continue negotiations for a four year five billion US dollars World Bank loan that were frozen since last December.

During a fifteen minutes telephone conversation on Friday IMF Managing Director Horst Koehler informed Argentine president Nestor Kirchner of the decision while Economy Minister Roberto Lavagna received a letter from Deputy Managing Director Anne Krueger on similar terms.

Although there was no formal date for the approval of the review that took place during November when an IMF team visited Buenos Aires and confirmed Argentina was keeping to the terms of the agreement, it was expected that this was to happen last December 17.

Apparently the strong rebound of the Argentine economy and budget surplus motivated IMF soundings regarding an increase in the original surplus target agreed (3%) which could then be earmarked to pay outstanding Argentine bond holders. President Kirchner vehemently refused the proposal and said any surplus above 3% would be invested in repairing Argentina's "domestic debt" (aid to the over 50% of Argentines living below the poverty line).

The situation dragged on until almost Christmas when IMF official John Thorton responsible for Argentina arrived in Buenos Aires for a brief two days of consultations that proved non conductive.

In his official Friday announcement Mr. Koehler said that "progress has been made in recent days and understandings have been reached with the Argentine authorities on a letter of intent requesting the completion of the first program and financing assurances reviews under the three-year Stand-By Arrangement with the Fund. I plan shortly to recommend to the IMF Executive Board the completion of these reviews. The authorities' letter has been signed today (Friday January 9) in Buenos Aires and will be sent to the IMF Board shortly. I anticipate an Executive Board meeting later this month.

"The authorities' letter notes the considerable progress made in implementing the economic program that has been supported by a Stand-By Arrangement with the IMF since September 2003.

"In particular, macroeconomic developments continue to be favourable, the economic recovery in 2003 has exceeded the target in the program, and monetary and fiscal policy implementation remains in line with the program's commitments, with quantitative performance criteria for end-October 2003 met with comfortable margins. Moreover, important measures requiring Congressional approval have now been implemented, including the 2004 budget that underpins a consolidated primary surplus of 3 percent of GDP; a comprehensive anti-tax evasion package; and legislation facilitating the renegotiation of utility concessions. Considerable further progress has also been made toward eliminating quasi-monies.

"The letter of intent for the first review, in addition, develops further the authorities' strategy for strengthening the banking system and making progress in private corporate debt restructuring, among other areas of structural reform. Finally, the authorities reiterate in their letter their determination to complete a public debt restructuring that attracts broad creditor support."

President Kirchner who next Monday is scheduled to meet US president George Bush in Mexico during a regional summit, said he was satisfied with the announcement adding that Argentina will honour its commitments, "but others will also have to honour their commitments with Argentina; no body is going to play around with Argentina". However Mr. Kirchner publicly denied that strong lobbying from the United States had helped in achieving the delayed IMF review approval. Early in the day Mr. Lavagna and other Argentine high officials had admitted the decisive Bush administration presence.

Categories: Mercosur.

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