MercoPress. South Atlantic News Agency

IMF recommends Argentina to invest in energy

Argentina needs more productive investment, particularly in the energy sector, if it wishes to sustain the current rates of growth, said Anoop Singh, head of the IMF Western Hemisphere Department during a press conference Saturday in Singapore.

Talking about Latinamerica Singh said that if Argentina and Venezuela are to be the locomotives of the regional economy, "if we want Argentina and Venezuela to keep growing at strong rates, investment must increase. But it must increase in a sustainable way, not through budget deficits, and it must be directed to productive sectors, a lesson made clear in other countries of the region and Asia".

"Investment is needed in crucial sectors of the economy" and that sector is energy both for Argentina and Venezuela. Mr. Singh admitted that investment in Argentina has significantly increased in "some sectors" and stood above 20% of GDP which is considerably higher than what it was "just a few years ago". But most of it has gone to the construction industry and "not enough to energy".

The IMF official said that in spite differences on how to address inflation and the cancelling of the IMF debt, "I've had very cordial meetings with the team of Finance minister Felisa Miceli".

"We've had a very constructive dialogue. I think debt repayment had a very positive effect in so far that we can now exchange ideas in a very normal manner. We have different points of view, economics is complex and inflation is a complex phenomenon", he said in a conciliatory tone adding that "I'm convinced Argentina is committed to lowering inflation and this we must recognize; as in other countries of the region, there's a social understanding between governments and the people that inflation must never return to what it was".

However he pointed out that Argentina's inflation is in fact in the range to two digits and "all available instruments and policies must be used to reduce inflation".

Singh pointed out that IMF puts more emphasis on macroeconomic policies to combat inflation but the Argentine government "feels" it must address "structural issues" and therefore has appealed to "controls".

Finally he praised Argentina for converting social support programs which hands out solidarity payments to heads of families, into training and work programs. "There's been a noticeable change in the purpose of social outlays", highlighted Singh.

In related news Argentina's Finance Minister Felisa Miceli is scheduled to meet with US Treasury Secretary Henry Paulson on Monday. The meeting is considered significant for Argentina since the US has been objecting loans from the World Bank and the Interamerican Development Bank.

United States is demanding Argentina to de-freeze public utility rates, mainly those linked to energy where most of US corporations have invested. Besides the US is pressing Argentina to update payments to the Club of Paris (that includes 19 countries with country to country loans, mostly at soft interest rates), involving 6.3 billion US dollars.

Arrears go back to 2001 when the Argentine default and US position is supported by other countries which have higher figures pending, Germany, Japan, Holland and Spain. Argentina has promised an announcement sometime in September. Another irritating issue pending are the 25 billion US dollars in Argentine sovereign bonds, left out of the defaulted debt exchange last year.