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.