September 3, 1998
Dow Jones Newswires
IMF, Latin America Policy Makers Meet In
Show Of Unity
By MICHELLE WALLIN
Dow Jones Newswires
WASHINGTON -- The International Monetary Fund this week will attempt
to bring Latin America, tossed about by the cross winds of economic instability
in Russia and Asia, in from the storm.
Top economic policy makers from nine Latin American countries - in most
cases, chosen for their reliance on foreign capital - will meet in Washington
Thursday and Friday with IMF Managing Director Michel Camdessus. U.S.
Treasury Secretary Robert Rubin and his deputy, Lawrence Summers, also are
scheduled to attend part of the talks.
The meeting is the first of its kind; even as the Mexican peso's collapse
ravished the region in 1995, contacts between the IMF and Latin American
countries were mostly bi-lateral.
Camdessus last week extended the invitations to the finance ministers and
central bankers - even though most will be in Washington to attend the IMF
annual meeting later this month - as the Russian currency devaluation and debt
restructuring plan transformed concerns over emerging markets into terror.
Colombia's surprise devaluation of its currency overnight Tuesday makes the
meeting look particularly prescient.
"We thought that it would be important at a moment when Latin American
countries are treated perhaps unfairly by the markets who don't differentiate
them enough" from other developing countries, Camdessus said Friday.
He said he's keen to send a "signal" to markets that Latin American countries
by and large are pursuing the right policies, and are poised to react further if
needed.
While no one is expecting huge new policy initiatives or funding programs, all
sides are hopeful that soothing words from the IMF and a show of regional
unity may help alleviate some of the panic that has driven markets downward,
analysts say.
So far, markets have paid little attention to the meeting, but it would be a
stretch for investors to turn suddenly cheery on Latin America in a week when
the Dow Jones Industrial Average has hurtled hundreds of points higher or
lower in a question of hours, analysts say.
They note that although the IMF is limping from a battle within the U.S.
Congress over funding and from the mixed results of its efforts in places like
Russia and Indonesia, the multilateral lender still carries weight in Latin
America.
"The IMF for Latin America behaves or proceeds differently than it does in
other parts of the world, say Indonesia or Russia, for example. For Latin
America, the Fund is imminently prestigious and is recognized as the best
discipline for the financial community," said George Landow, a former
Inter-American Development Bank official and now an independent consultant
in Sao Paulo.
Given that, "I think there is a favorable expectation" for the meeting, he said.
"While not much will happen in terms of action, I think what will emerge is an
agreement to behave collectively in a disciplined fashion."
Camdessus said IMF in fact would oppose any major policy shifts in Latin
America. "I believe that there is no reason that they have to change now their
policies or accept the deterioration of the exchange rates, which wouldn't be
justified," he said.
Latin American monetary officials gathered in Wyoming over the weekend said
they expected the IMF to warn them of the danger of attempting a controlled
devaluation of their currencies in today's environment.
Colombia's devaluation sent jitters through other countries, particularly
Venezuela, where the currency has been under attack for several weeks and
which has heavy trade with Colombia.
Perhaps most importantly for the longer-term, ministers may lay the
groundwork for setting up a contingent fund to be drawn on in times of need,
analysts say. The idea is expected to be discussed at these talks, and further
pursued at the annual meeting.
"There are some countries that are managing their affairs well enough that a
contingent fund could be all they needed" to regain confidence, IDB lead
research economist Michael Gavin said, adding that he had no information on
actual plans for such a fund.
And economists stress that no country right now needs the kind of cash
infusion Russia desperately needs. "I think there is no sense of urgency for
Latin America as far as funding is concerned," said Isaac Cohen, director of
the Washington office of the United Nations' Economic Commission for Latin
America and the Caribbean.
But when economists and investors think of countries that may be in need in
the future, more often than not they're thinking of Venezuela and Brazil. Most
discount a devaluation of the Venezuelan bolivar by year-end; it's a matter of
whether it will be before or after December presidential elections.
More worrisome is Brazil, itself entering the home stretch ahead of Oct. 4
presidential elections, which incumbent Fernando Henrique Cardoso looks
increasingly likely to win in a first round. Cardoso and other top economic
officials firmly denied any plans to devalue after Colombia's move was
announced.
But while Brazil went into the recent turmoil with a beefy $70 billion in foreign
reserves, the country registered a net outflow of nearly $9 billion in foreign
exchange markets in August compared to an inflow of $6.69 billion in July.
Jeffrey Schott, a senior fellow at the Institute for International Economics, said
that Brazil doesn't need a major funding package now, despite concerns over
its large fiscal and current account deficits.
"I'm not sure of the need for new resources for Brazil right now, or of the
prospects that the U.S. Congress would be willing to extend financial
assistance without a broader review of the overall objectives of such support
programs through the IMF. Right now, the funding bills for the IMF are still
stalled in Congress," Schott said.
Indeed, if the meeting takes place at a difficult juncture for Latin America, the
same can be said of the IMF. The U.S. House of Representatives has been
deadlocked for months over an additional $17.9 billion of funding for the IMF.
Weeks after the IMF pledged $22.6 billion in funds for Russia, that country is
crumbling.
Camdessus dismisses charges that the IMF's pockets are empty. "If a country
asks for our assistance in support of a strong program, we will recommend to
the executive board the normally jusified level of support," he said.
ECLAC's Cohen sees a political element to the talks, which he called "a signal
to Washington as well because Congress has been reluctant about the capital
increase to IMF." The meeting gives the IMF an opportunity to show that it
can be proactive.
Prior planning will be needed, analysts warn, if in six to eight months time Latin
American countries are still shut out of capital markets. Most countries - with
the exception of Venezuela - should be able to hold on for several months
without issuing debt because of pre-financing and some budget surpluses, but
they will need to roll over debt in 1999.
"Most of these countries in 1999 have fairly large debt financing needs," said
the IDB's Gavin.
-By Michelle Wallin; 202-862-9291; mawallin@ap.org; Christopher Chazin
contributed to this article
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