An Argentine news agency reported Friday that the government will announce on July 7 that it has both reached an accord with the International Monetary Fund and has decided to move elections up by six months. But there is little progress to speak of just yet, one day after an IMF negotiating team landed in Buenos Aires.
Noticias Argentinas, citing anonymous government sources, made the claim that the Fund will soon agree to terms with the destroyed country, now in its fourth year of recession. While it is doubtful that an accord will be reached by early next month, Argentina does seem to have something new going for it: its disease of economic catastrophe, once thought contained, is spreading its blight to neighboring economies, notably Brazil.
This alone could spur the IMF into delivering the goods sooner than expected.
Thursday saw the Economy Minister Roberto Lavagna opening talks with the Fund's John Thornton, who is leading the advance team that will comb through Argentina's books and closely examine each of the provinces and their agreements to slash their budgets, one of the main requirements the IMF has put forward for any renewal of aid. The two officials were said to have 90 minutes of cordial talks.
Contrary to reports in the local media, Argentine officials said the Fund in no way tied new aid payments to an early presidential election, now scheduled for September 2003, but widely expected to be moved up to next March should an IMF agreement be reached relatively soon.
"The negotiations with the Fund are long, tedious and boring, they discuss numbers all the time," Eduardo Amadeo, a presidential spokesman, told a local radio station Friday. "What is clear is that in no way is anyone presenting (talks of an election) like what is being printed in some newspapers."
Alfredo Atanasof, President Eduardo Duhalde's Chief of Cabinet, told reporters Friday that the IMF team didn't arrive with new demands for the country, another rumor bantered about in the local press. He also declined to comment on the report that an agreement would be reached by early July.
"It is difficult to establish a time limit to the negotiations," he said, noting that if it were up to the government the talks would be finalized today. "Each day that passes, the economy of Argentina deteriorates in some manner, but this is a negotiation and we have to be prudent and patient."
But it could be the Fund itself that is running out of patience, especially in the area of provincial budgets. Gestures of goodwill have been rampant between Duhalde and the governors, but to date exactly one of the 23 provinces - Buenos Aires - has signed an enforceable agreement regarding budget cuts. Officials are quick to quip that the rest will be signing up "in a week's time," but this has been claimed for months.
Argentine officials said that any future aid payments will be immediately used to bay back interest to multilateral lenders. The country has about $9 billion due this year to such lenders, like the IMF and the World Bank, and 2003 will see about the same amount having to be paid. It was in December that the Fund cut the country's $22 billion aid program, and shortly thereafter Argentina defaulted on its $141 billion debt. That eventually sparked bloody protests which saw four presidents rotating through power in a matter of two weeks. Duhalde took office on Jan. 1. But a deteriorating regional situation could now play a role in the IMF negotiations, and it is possible the Fund will lessen its hardball tactics with Argentina if it sees Brazil, Uruguay and Paraguay slipping further.
The past week has seen Brazil's currency drop to its lowest level in nine months, its equities stumble and its country risk rating - and hence its inability to raise cash on international bond markets - jump. On Thursday, Brazilian officials announced they were tapping $10 billion of a $15 billion IMF credit line agreed to last September, money that will be used to calm markets and buy back $3 billion in foreign debt.
The floor on international reserves was lowered to $15 billion from $20 billion, a move to facilitate direct central bank intervention in the foreign exchange. Also, the central bank increased the amount of money banks have to keep in reserve to 15 percent from 10 percent, a move meant to lessen the amount of cash available to buy dollars.
Analysts immediately said that last move was a negative, artificial means of bolstering the local currency, and market players were indicating overall disapproval or indifference to all the action, with the currency and benchmark bond both weakening Friday.
The consensus among analysts in Brazil is that the steps taken on Thursday, while positive on the surface, simply didn't go far enough, with the central bank mostly outlining further action it can take in the event of continued market turbulence. Additionally, many point out that the central bank can do little to halt what is really agitating the markets: political uncertainty in the face of October's presidential elections.
The socialist Lula da Silva is leading all candidates by 20 points in polls, and many fear his government would see a return to state intervention in the economy and big spending that would increase the burden of debt.
Since Argentina's implosion, any slight stumbles by countries in Latin America have sent foreign capital fleeing. While there has been distinctions between Argentina's internal problems and those of its neighbors, the longer troubles persist and the more problems seen in Brazil and other Southern Cone countries, the more apt emerging-market investors are to write off the region as a whole and stick their money in Asia and elsewhere.
This certainly has to be on the minds of the IMF negotiators. While they are unlikely to backtrack on demands already made of Argentina, what qualifies as having met the criteria for a resumption of aid payments could now be left to a looser interpretation.
