Latinnews Daily - 23 December 2003

Argentina's President Néstor Kirchner and his government have once again ruled out any compromise on the 75% debt 'haircut' offered to creditors. 'No longer will the Fund or its friends push us around because more important than the Fund or its friends are the heart, soul, and mind of the Argentines,' Kirchner exclaimed yesterday 'Damn it! We'll take care of Argentina ourselves'.

Kirchner's economy minister Roberto Lavagna is likely to be more circumspect in his meeting today with IMF officials, John Dodsworth and John Thornton (who were both instrumental in Argentina's US$12.5bn deal reached with the multilateral in September) but the message will remain the same. Buenos Aires will not raise its target for next year's primary fiscal surplus from the current 3% level in order to be more generous to the commercial creditors.

The IMF has apparently said that the surplus should be raised to 5% of GDP. This, the Fund argues, will enable Argentina to rescue its reputation in the financial community and persuade foreign investors to return, especially to the banking system. This in turn will allow credit to flow once more, and Argentina's economic recovery to establish itself.

The Fund believes Argentina can afford this due to the stronger-than-expected economic recovery. Lavagna is expected to announce today that GDP will grow 8.2% in 2003 - the second time he has upgraded his growth forecast in a month - and the independent forecast for next year is for growth of 6% against a budget target of 4%. Buenos Aires would, however, rather spend any excess funds accrued over this period on stimulating the economy and bringing down unemployment.

The Fund wants an agreement with the private creditors before the end of January, but Argentina seems keen to delay for as long as possible. The process of choosing which banks would participate in the restructuring, for example, was scheduled to be finished this month, but it might now not be concluded until January 2004. If no agreement is reached, and the IMF as a result does not approve its first revision of the September debt deal, Argentina will not get reimbursed for the US$284m in maturing debt it has paid to the IMF. In the longer term, meanwhile, Argentina risks incurring IMF sanctions if a deal is not sorted out by the middle of next year.

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