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Argentina clears IMF debt, ushers in “new phase”

January 3, 2006

By Damian Wroclavsky

BUENOS AIRES, Argentina (Reuters) – Argentina canceled its
entire $9.5 billion debt to the International Monetary Fund on
Tuesday, effectively cutting free from the Washington-based
lender after years of bitter clashes.

“This is the start of a new phase,” a smiling Economy
Minister Felisa Miceli told reporters after the transaction was
completed.

Argentine President Nestor Kirchner announced on December
15 the government would use nearly a third of its foreign
reserves to wipe out the remaining IMF debt, two days after
Brazil announced it would pay its $15.5 billion debt with the
IMF ahead of time.

Argentine leaders say the early payback gives the
government more freedom to carry out economic policies that
have not always met with the fund’s approval.

“This allows Argentina to improve its economic, financial
and fiscal situation and has a strong political and symbolic
value … Argentina is recovering autonomy in its economic
decisions,” said Miceli.

An IMF spokesman declined to comment on the payment, a
logistical feat that Central Bank Governor Martin Redrado
described as the “the central bank’s most important and complex
transaction in its 70-year history.”

The payment involved funds transfers to 16 different
central banks worldwide, he said.

Argentina’s reserves totaled $18.5 billion after the
payment, down from $28.05 billion on Tuesday, Redrado said.

The Argentine Treasury will give the central bank 10-year
bonds to compensate for the drop in reserves.

Miceli did not rule out the possibility of using the
reserves again in the future to repay Argentina’s remaining $16
billion debt to other multilateral lenders including the World
Bank and the Inter-American Development Bank.

At the time of Kirchner’s surprise announcement in
December, Argentina owed $9.8 billion to the IMF and has made
some payments in the interim to leave the final figure at $9.5
billion.

Kirchner, a left-leaning Peronist who took office in May
2003, has slammed the IMF for funding what he calls the failed
free-market policies of his predecessors.

SOUR RELATIONS

Argentina’s relations with the IMF soured badly after its
2001-02 economic crisis that plunged millions into poverty. The
IMF sent a rescue package to then President Fernando de la Rua
as the nation’s economy teetered on the brink of collapse.

Argentina will save $800 million in interest payments,
Kirchner has said. But analysts note the country pays double
the interest by tapping for funds from international capital
markets.

Argentina, Latin America’s third-largest economy, has been
a key player in international debt markets for decades, first
due to its heavy borrowing in the 1990s and then for declaring
the biggest sovereign default in modern history in 2002, at the
height of a devastating financial crisis.

The government restructured its $100 billion in defaulted
debt earlier this year in a controversial bond swap in which
participating creditors took a loss of about 60 percent on
their investment.

While many Argentines applaud Kirchner’s independent
streak, financial markets are more skeptical, fearing that in
the absence of IMF influence over economic policy, Kirchner
will turn to increasingly populist means of sustaining a
three-year economic upturn.

(Additional reporting by Lucas Bergman)


Source: reuters



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