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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: John Pitera who wrote (5219)	12/7/2001 12:08:09 AM
From: John Pitera	Read Replies (2) \| Respond to of 33421

Loan Installment for Argentina Is Held By IMF, in Blow to Country's Finances By DAMIAN MILVERTON Dow Jones Newswires December 5, 2001 The International Monetary Fund said it won't release a $1.3 billion loan to Argentina's cash-starved government later this month, undermining the country's hopes of muddling through its financial crisis and increasing the chances of a full-blown default on its debt. Argentina had been hoping to use the loan to cover part of its roughly $2 billion budget shortfall this month, including payments on government Treasury bills. The IMF has spearheaded nearly $50 billion in loans this year to help Argentina stave off creditors, but the fund evidently wasn't willing to overlook the government's apparent failure to balance its budget as promised. "They're pulling the plug," said Roger Scher, an economist at Fitch Ratings Inc. "I guess they don't want to throw good money after bad." In a statement released late Wednesday, the IMF said that "based on the findings of the mission that has been in Buenos Aires, fund management is unable at this stage to recommend completion of the review" needed to release the next loan to Argentina. A spokesman said the IMF "remains in close contact with the Argentine authorities and is committed to working with them to develop a sustainable [economic] program." To make up for the lost funding in the short term, economists say Argentina may dip into dwindling foreign-currency reserves. But a run on bank deposits has left the country without much of a cushion: It is barely above the reserve level needed to maintain Argentina's one-to-one lock between the peso and the U.S. dollar. A partial freeze on bank deposits went into effect Monday. For that reason, some economists say the IMF's decision may be a an indirect way of pushing Argentina to let its currency float freely. That most certainly would lead to a sharp devaluation and a financial meltdown in Argentina, since most debts are in dollars and would instantly become far more expensive to repay. "Perhaps the IMF's strategy is to get the government to devalue the currency," Mr. Scher said. "Even though a float would be painful, in the long run it would help Argentina get back to growth." Some local economists suggested the IMF may also be pressuring Argentina to pass a draconian budget for 2002. As the IMF released its statement, Argentine Economy Minister Domingo Cavallo told a news conference in Buenos Aires that talks with the IMF had gone "very well," and denied that the fund has pressured Argentina to devalue. Argentina's other official-sector lenders, including the Inter-American Development Bank and the World Bank, typically take their cues from the IMF. Without these big lenders in its camp, Argentina could force foreign creditors to swallow bigger losses on their holdings of its debt. The government recently restructured about $50 billion in bonds with local banks and pension funds, but has yet to carry out a similar operation with foreign holders of about $45 billion in bonds. "This is a very, very negative signal for the foreign-debt swap, which was already very difficult," said Ricardo Delgado, an economist with Ecolatina think tank in Argentina. Instead of dipping into reserves, Argentina may force local banks and pension funds to buy more government debt -- even though they are fresh from taking a loss on much of the debt they now own. Buenos Aires quietly issued a decree this week forcing local pension funds to buy government debt during the coming months. Although the move caused an angry reaction among the pension funds, it could raise the cash-strapped government about $3 billion, local economists said. Argentina's budget shortfall will end the year at about $7.8 billion, according to the government. With no private lenders willing to give Buenos Aires more money, the country has been relying on loans from official lenders and printing new kinds of money -- usually bonds -- that can be used to pay salaries and buy some goods.