Summary of Wall Street Journal’s “Argentina Tells IMF It Won't Hurt Economy” by Ryan Steed

 

“The letter” – what does Argentina want to do?

            Argentina claimed it was willing to meet IMF austerity demands unless they are detrimental to economic growth.  Further, Argentina stated it was prepared to move trade surplus funds towards the $43 billion in foreign debt “but won't cut imports to a level that will hurt the country's development.”  Also mentioned was a request for “a significant reduction in the spread from base rates that banks use to compute interest rates.”  The final major point of the letter is the intention to increase wages by 6% to 8% - “a demand government officials said IMF negotiators view in scorn in light of the country's 560% annual inflation rate.”  The article reminds its readers not to think Argentina does not want to pay its debt, however.  President Raul Alfonsin inherited this debt (from a military government established in 1976) and plans to pay it off “under the most adequate conditions for fulfillment of objectives of an orderly economy, growth and social peace.”

 

Effects of the letter

            Although many argue that Argentina’s demands are far too aggressive, the letter of intent at least paves the way for further negotiation.  Many also agree that the letter was “an attempt by Argentina to lift discussion of its economic program from a technical level to a political level.”  Regardless, it did make it clear to the IMF that Argentina does indeed want to eliminate its debt but in an economically healthy fashion.

 

Negative effects

            Also mentioned in the letter was Argentina’s promise to “take self-protective measures to insure that its foreign-debt payments do not endanger the country's political and social stability.”  Further, Argentina still displayed stubbornness regarding its refusal to cut the budget deficit (now at 9.1%).  These points along with others help contribute to many officials believing Argentina’s letter of intent will not be accepted by the IMF.

 

What will happen next?

            Argentina is supposed to sign with the IMF within the next few days due to a previous deal made for a first-quarter bail-out.  Whether this will happen or not, remains to be seen.  Regardless, US bankers insist on a loan depending on an Argentine-IMF agreement in the very near future as soon they may need to classify their loans as “non-accrual” because Argentina’s interest is 90 days overdue.