Life and default
The worst of Argentina's economic crisis seems to be over. Hisham El-Naggar, in Buenos Aires, writes
Argentina has surprised the world by surviving the most calamitous year in its recent history. Although the economy is believed to have shrunk by over 11 per cent in 2002, many are surprised that it did not collapse completely.
While some foreign correspondents referred to "Argentina's demise" in an article at the beginning of the year, these predictions have turned out to be greatly exaggerated.
Repeated mass demonstrations have not resulted in political crisis. Most credit the current government's policy of food aid to needy families for having avoided a repetition of the riots which brought down the previous government. Meanwhile, the economy is showing signs of a slow recovery. Despite the collapse of confidence in the banking system as a result of a partial deposit freeze, deposits have actually increased.
Cynics argue that increasing deposits are the result of fear in a society where crime has increased. Perhaps, but the result is positive nonetheless. Ready credit has been responsible for a modest increase in sales. Meanwhile, exporters have done well out of the currency's huge devaluation. With better access to credit, potential exporters might just be able to produce an export-led recovery.
All this is tentative, of course, and has yet to withstand the strain of a presidential election that cannot be postponed beyond April of this year.
What is remarkable, though, is that Argentina has handsomely skirted its long-heralded demise despite the International Monetary Fund's (IMF) continuous refusal to sign any agreement with the government. However, the IMF is beginning to find it difficult to resist pressure from the group of seven industrialised nations (G-7) to sign at least a temporary agreement with the beleaguered Latin American country.
That said, 2003 began not only with a slight recovery of the peso against the dollar, but also with persistent rumours that the IMF will, in fact, sign an agreement with Argentina.
The catch? The agreement may not necessarily produce any new money. On the contrary, Argentina may be required to pay some of what it owes to the IMF, World Bank and Inter American Development Bank. But it might provide the country with the international legitimacy required to deal with its economic problems in the run-up to elections. However, Roberto Lavagna, Argentina's economy minister, is putting his foot down about the money to be paid to international organisations. If money must be paid, it should be "reimbursed" to Argentina as soon as the agreement is signed, precisely as part of the agreement.
One British newspaper has even complained about the IMF giving in to Argentina's highly effective "blackmail". Argentina has not only stopped payment to its main private foreign creditors, but has also squeezed the international financial institutions by telling them it will not use up all of its reserves to pay if an agreement is not forthcoming.
Brazil, which together with Argentina represents over a third of these organisations' portfolios, may even be tempted to emulate Argentina's successful blackmail.
Indeed, there was almost no dissent in this usually dissent-ridden country when the government decided to withhold payment to the IMF and other international creditors.
The G-7 has its own reasons for backing Argentina. Some of the world's wealthiest nations -- Spain, Italy and France included -- are major investors there, and would love to salvage something of the wreck. Many more are being pressed by those who hold Argentine bonds to make an economic reconciliation between Argentina and the "world" possible.
However, an agreement with the IMF, probably short- term in nature and involving no new money, will not in itself solve Argentina's problems. But since these very problems are showing signs of improvement, an agreement which smoothes the way for international debt restructuring is an additional help.
Argentina's detractors must recognise that default, however unpardonable, does not mean instant death for a country. Argentine public opinion, though critical of the government, seems to agree. A majority of Argentines, according to opinion polls, believe the worst is over in their country's lengthy crisis. A new-found solidarity among citizens, and a determination to survive in a country which dared to default, has done what no agreement with the IMF would have been able to produce. Other countries must be taking notes.
