Argentina in a very slippery position

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Argentina Hammered as Aid Fails to Materialize E-Mail This Article Printer-Friendly Version Subscribe to The Post By Simon Gardner Reuters Friday, August 17, 2001; 5:34 PM

BUENOS AIRES, Argentina, Aug 17—High hopes for an imminent multi-billion dollar aid announcement for Argentina were dashed on Friday, when the IMF said while new funds were being discussed, it could not say when a decision might come.

Latin American markets were punished along with Argentine shares and bonds by investors, who said any new aid package -- which the government has been trying to secure for the past week to help underpin dwindling reserves and fend off fears of a debt default—needs to come fast.

U.S. Treasury Secretary Paul O'Neill, meanwhile, warned Argentina was in a "very slippery situation," adding the U.S. was working to create a "sustainable Argentina."

Investor expectations had swelled ahead of an International Monetary Fund statement issued on Friday, the eighth consecutive day of talks, with speculation as to the size of a possible aid package swirling in the media and markets alike.

Analysts blamed Argentina's local media for whipping up hopes with daily, unsubstantiated reports of a package worth up to $15 billion while analysts have been forecasting aid between $6 billion to $9 billion.

"The problem is that everyone had expected the IMF aid to come quite soon," said Rodrigo Gordon Davis, an analyst at Gordon Davis y Cia. brokerage in Buenos Aires, saying further delays could scare Argentines into withdrawing more savings.

Meanwhile, the Argentine government—which had fueled such expectations by saying on Thursday the lender was poised to make a "favorable" statement on Argentina—declined to comment on the matter on Friday.

"I believe this (package) has to come out now. It is a disappointment. This has to come out this weekend or Monday," said Mario Zawadzki of Schweber Brokerage.

The financial woes of Latin America's No. 3 economy also overshadowed an annual summit of Latin American Presidents in Santiago on Friday, with the leaders said to be scripting their statements of support for Argentina in a way that won't be perceived as pressuring the IMF.

NO SIGN OF NEW AID YET

The IMF said on Friday that while it would be surprised if no statement on Argentina came within two weeks, it could not say when such a statement would be issued.

"The possibility of additional financial support is one of the items being discussed," IMF External Relations Director Tom Dawson told reporters in Washington, saying the Argentine media reports of a $15 billion package were "exaggerated."

The size, timing and conditions of any new loan package for Argentina is a key concern for investors, who hold much of the nation's $128 billion public debt.

However, there has been vocal resistance to any further IMF aid to the crisis-racked South American country.

U.S. Treasury's O'Neill told CNN in an interview: "And Argentina is now, after the $41 billion intervention, in a very slippery position."

"We're working to find a way to create a sustainable Argentina, not just one that continues to consume the money of the plumbers and carpenters in the United States who make $50,000 a year and wonder what in the world we're doing with their money," the transcript added.

Argentine President Fernando de la Rua, in Chile for the summit, declined to comment on O'Neill's statements.

Earlier on Friday, Morris Goldstein, an economist and former deputy director of research at the IMF, warned in an editorial that the lender should dole out no more cash until Argentina restructures its debt and breaks its currency peg to the dollar.

Local markets slumped on news that the aid deal had not been realized. Argentina's benchmark Global 2008 dollar bond fell 6.5 percent to 61.50 points on Friday, dragging fellow emerging market bonds lower in its wake.

The Buenos Aires MerVal stock index ended down over 6 percent. Argentine markets will be closed on Monday for a holiday.

The country risk premium the government must pay to entice investors away from safe-haven U.S. Treasuries Argentina widened 115 basis points to 1,502 basis points. That means Argentina is perceived as a riskier investment than the likes of Russia, Brazil and Turkey.

The IMF said, however, Argentina's debt load was an issue in the discussions but that it should not be overemphasized. Talks were also said to have included the Argentine government's new strategy to erase its budget deficit.

Unpopular austerity cuts to state salaries and some state pensions, aimed at helping it achieve that zero deficit target, have prompted waves of nationwide protests in recent weeks.

Markets are now looking for proof the government will stick to its cutbacks and not give in to mounting social protests with legislative elections looming in October.

International reserves and bank deposits have fallen in recent weeks amid fears of a currency devaluation or debt default after a three-year economic slump. International reserves have plunged nearly 36 percent since Economy Minister Domingo Cavallo was appointed in March.

http://www.washingtonpost.com/wp-dyn/world/A26790-2001Aug17.html

-- Martin Thompson (mthom1927@aol.com), August 17, 2001

Answers

U.S. Treasury Secretary Paul O'Neill, meanwhile, warned Argentina was in a "very slippery situation," adding the U.S. was working to create a "sustainable Argentina." The US financial community like their brothers, the IMF, the BIS and World Bank are a bunch of cannibiles inviting a neighboring tribe to an evening feast. Guess who is going to be on the menu? The world is not what it seems to be. Vampires with large fangs are bleeding the world economy. The Vampires are have no real nationality and care for none. Either you are prey or the preditor. That seems to be the outlook. The older world communities, realized that there had to be a year of Jubilee; a year where all debts were forgiven. Without that, there would be a rape of the productive elements of the state by the money lenders. It is the same today, yet there is no year of Jubilee. The smart bankers would realize if a country goes into total choas, either war or starvation results. How can this serve anyone's goals? If a parasite kills the host, it too will die. If this is the case then something for more sinister must be pushing the agenda of the world's money changers.

-- Donald Z Parl (dpark@magick.net), August 18, 2001.

Maybe I'm on a roll. Generally I respond to nothing, although reading quite-a-bit. Jesus Christ, in the first real act, whipped the money changers out of the temple. This was the Son of God, seeing the temple of his father, being violated by pure filth. He was rightiously angry, and we should be too. This 'money game' has gone fair beyond anything envisioned by the framers of our Constitution and Bill of Rights. The world, with a few notable exceptions, is slipping into choas and disintergration. These small countries would be better off asking their citizens for any gold and silver, jewels or whatever and make their own currancy good in their own countries. Cutting themselves off from the greater economic shellgame would ensure a stable, but simple life for their people. By continueing in the International shellgame, they think that they can become as rich as the US or parts of Europe, but that is impossible. In this country people are being improvished and ripped off, just the same as if a gunman held them at bay and demanded their purses. It's far worse in other countries. They need to solidify their borders and secure their finaces, independently of the rest. I can hear the objections, but really it is a matter of survival, not of choice.

-- Donald Z Park (dpark@magick.net), August 18, 2001.

The IMF creates money out of thin air with SDR's. They didn't help the Pacific rim and they will not help Argentina.

-- David Williams (DAVIDWILL@prodigy.net), August 18, 2001.

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