Weekly Report - 3 February 2004

ARGENTINA | Opposition grows within IMF. On 28 January, much later than originally expected, the IMF's board approved the first review of Argentina's performance under its three-year US$13.3bn standby agreement signed last September. It granted a set of waivers requested by Argentina and cleared for disbursement a tranche of US$358m. There is growing opposition to continuing to `carry' Argentina (on the grounds that it is not seeking a reasonable agreement with its creditors): leaks, which began to flow profusely in the days before the board meeting, indicated that eight of the 24 board members, among them three European G7 members, abstained from voting on Argentina's review -- which is the IMF directors' way of signalling displeasure. When the standby deal was approved in September, there were only three dissenters.

Most influential in swinging the vote Argentina's way was the US, even though deputy managing director Anne Krueger, a Bush administration appointee, has been openly airing the dissenters' views (which reflect the stance of many creditors). The IMF board has warned Argentina that, come the next review, `the restructuring of [the] sovereign defaulted debt remains the most critical task' and said that it expects a `deepening [of] relations with private creditors.' There was also something for the creditors (and their friends on the board) in the communiqué issued on 28 January: it said the target is `a collaborative, comprehensive and sustainable debt restructuring.'

BRAZIL | Bank issues growth warning. The central bank delivered an extra dampener on growth expectations last week when, after having decided to keep the benchmark interest rate unchanged [WR-04-04] it issued a warning that inflation continues to be a threat. It worries aloud that some price increases between December and January may not be isolated events but `an accommodation of inflation to higher levels'. Hence, its policy will be to `preserve the successes achieved so far.' 

This has been read by business associations as spelling no further reduction of interest rates, and hence little additional stimulation of growth, for some time.

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