MercoPress. South Atlantic News Agency

FT demands strong action from IMF against Argentina

Britain's Financial Times severely criticized Argentina for its current handling of defaulted debt and suggests the IMF “must be prepared to halt new lending”.

"Too many exceptions have been made already. Argentina's behaviour is setting dangerous precedents for future default situations", writes FT.

Argentina's Finance Minister Roberto Lavagna is currently involved in restructuring the 103 billon US dollars defaulted debt (capital and interest) with private bond holders and has promised to present in the coming weeks the "final offer".

Originally Argentina proposed a 75% cut to bondholders which was rejected and since then has been devising new mechanisms which anyhow do not attract or convince private creditors. The scathing editorial follows:

"Argentina would be well advised to enter constructive negotiations on how its offer might be improved. If it fails to do so, and consequently fails to win overwhelming backing for the restructuring deal, the IMF must be prepared to halt new lending. Too many exceptions have been made already. Argentina's behaviour is setting dangerous precedents for future default situations".

Roberto Lavagna, Argentina's Economy minister, has enjoyed playing tough thus far. He has certainly succeeded in showing the world that sovereign borrowers are far from powerless in their dealings with private creditors. Creditors will have to take a big haircut as part of a restructuring deal. Indeed the difference between the offer Argentina is willing to make, roughly 30 cents in the dollar, and what might be the maximum feasible amount, is probably not huge.

Yet its handling of the process has violated norms of transparency and cooperation. Threatening indefinite default on debt owned by holdouts is unacceptable. The structure of the deal is too clever by half. Bank of New York was right to walk away from it.

Argentina's confrontational approach is all the more senseless considering growth is strong, exports and reserves high, and the fiscal surplus exceeds government forecasts. It is no longer acting in desperation. Whatever policymakers may think, default is not cost free. Confidence would be hit and next year's growth undermined. Longer term, Argentina would pay the price in missed investment needed to support ongoing development.

The IMF is on hold while the restructuring offer proceeds. Fair enough. But it must make clear to Argentina that it will require a high level of acceptance from creditors to continue lending, 80% might be reasonable. Every 10% holdout is 10 billion US dollars debt litigated in the courts. The IMF must also hold Argentina to its other pledges to pursue structural reform which have fallen behind schedule.

If the IMF does stop lending, Argentina may default on its multilateral borrowing too. So be it. The IMF's credibility is at stake and the US Treasury must this time stand behind it. Those emerging markets which play the rules, endorsed by the G-20 at the weekend, must see that their behaviour does not put them at a disadvantage compared with the likes of Argentina. If the US wants to do something for Latinamerica, neighbouring Brazil is a worthier candidate".