BY SEAN HEALY
The crisis-wracked Argentine economy looks likely to take another battering after the International Monetary Fund on December 6 announced it blocked a US$1.3 billion loan which the government had hoped would lessen its financial troubles.
The IMF's 24-member executive board had sent a special economic team to Argentina's capital, Buenos Aires, to check on the government's progress in implementing tight IMF conditions for further assistance, including a massive reduction in government spending.
The mission recommended that the fund not extend the loan, the latest tranche of a total US$22 billion IMF support program. The fund's decision will also likely block the extension of planned loans from the World Bank, the Inter-American Development Bank and the Spanish government totalling a further US$5 billion.
The IMF's decision not to extend the loan follows controversy about President Fernando de la Rua's plans to renegotiate the terms of a large chunk of the country's US$132 billion foreign debt. Wall Street bondholders were furious at the plan, under which high-premium bonds would be swapped for bonds paying less interest, calling it tantamount to default.
Taking its signals from foreign debtholders and the US Treasury Department, the IMF also expressed dissatisfaction with the debt swap, leading some analysts to speculate that the fund's latest decision might be aimed at forcing the Argentine government to sweeten its swap deal.
But Argentine government officials have warned that the IMF's decision may force them to suspend repayments of the country's debts altogether, perhaps as soon as December 19.
Earlier the government had partially frozen bank accounts for the next three months, in a move designed to prevent capital flight from the country and a run on domestic banks, which would certainly trigger a major collapse.
The government also introduced measures to encourage the use of US dollars, which many see as a prelude to the replacement of the Argentine peso and the full dollarisation of the economy. Presently, the peso and the US dollar are fixed at a value of one-for-one, a policy which is hurting the competitiveness of Argentina's exports.
Dollarisation would undoubtedly hurt Argentina's poor and working classes, already suffering in the country's third straight year of recession. Swapping pesos for dollars would lock in the country's high prices for basic, and even luxury, goods.
But the country's foreign creditors seem to view dollarisation as a better alternative to the country defaulting on its debts altogether.
From Green Left Weekly, December 12, 2001.
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