MercoPress. South Atlantic News Agency

Argentina begins process to cancel IMF debt

This Tuesday Argentina will make effective the advance payment of approximately 9.5 billion US dollars thus cancelling all debts with the International Monetary Fund, a decision announced by President Néstor Kirchner last December 15.

The original announcement was January 2, but given the national holiday in United States the final transaction process will begin Tuesday January 3. IMF works with Special Drawing Rights, (SDR) a mix of several currencies that last Friday was equivalent to 1.492 US dollars.

Apparently two transfers are involved in the operation: first Argentine Central Bank funds deposited in the Basel Bank for International Settlements amounting to approximately 5 billion US dollars, and further Argentine reserves deposited in the IMF where they are safeguarded from possible international claims following the massive debt swap of mid 2005.

In exchange for those reserves the Argentine government will extend the Argentine Central Bank a ten year document for the total sum in US dollars with an interest rate similar to that paid by IMF.

The IMF debt is only part of the overall Argentine overseas debt but for president Kirchner administration it's an operation of great political significance since it will eliminate IMF supervision of the Argentine economy and put an end to IMF strong pressures to follow certain policies which the Argentine government believes were responsible for the recession that began in 1998 and was followed by the collapse of the Argentine economy and financial system.

Argentina's standing debt is still above 120 billion US dollars. Once the payment is made effective Argentina will continue to be a member of IMF which will regularly review the Argentine economy but will be in no position to impose conditions. The IMF operation does not affect Argentina's relation with other multilateral organizations such as the World Bank or the Inter American Development Bank.

In January 2002 Argentina defaulted on private bond holders but never ceased to pay multilateral credit organizations. Since then the country has repaid debts equivalent to 15 billion US dollars of which 8 billion to the IMF.