I’m not that knowledgeable as others on this list about these matters, but an interesting sidelight for me has been the reported role played by the Bush administration which has, in effect, inadvertently (or perhaps not so inadvertently) “run interference” for the Argentineans.
North American football fans will recognize this as the expression which describes how big linemen clear the way for smaller running backs to skirt past the opposition. The US doesn’t reportedly want to see a big IMF bailout of the banks; it’s Britain, Japan, and Italy who do. The conservative Republicans apparently have decided to draw the line here as concerns “moral hazard” – the breakdown of lending self-discipline by the banks confident that governments and international financial institutions (IFI's)like the IMF will always be there to bail them out in the case of debt default. Paul O’Neil, the former Treasury Secretary, was keen that if the banks wanted to speculate in risky emerging market debt, they should expect, as speculators, to be subject to the discipline of the market without expecting government/IFI relief. Leaving aside whether this is actually how the system works, the Kirchner government has taken advantage of this emergent US view to deepen the ideological split within the IMF. The FT article I referred the list to yesterday quoted the Argentina’s economy minister Roberto Lavagna as follows: "I agree that you must not use the money of American plumbers and carpenters or German dentists to bail out Argentina, Turkey or any other country. But if you take that decision many other things have to happen too." “One of those things, he says, is that the world has to get used to lower debt-recovery levels.” the FT article continues. And quotes Lavagna again: "That is the reality. It was not Argentina's decision. It was the US's, and it means we have to carry out a restructuring deal with our own resources." The opponents of the US line cite Lavagna's stance, of course, as an example of how this approach just encourages defaults and bankruptcies and debt reductions by poorer nations, knowing that they’re not going to be subject to US heavy pressure to pay up. They say this ultimately puts the big banks – and by extension the world’s financial system – at risk, and these are simply “too big to fail”. The banks, of course, have always used this Cassandra cry to their advantage. Anyone else have any further information or special insights to offer about this reported ideological split? Today’s FT report on Argentina’s decision to pony up an IMF repayment, as had mostly been expected, follows. Marv Gandall Argentina agrees to meet IMF debt deadline By Adam Thomson Financial Times March 10 2004 Argentina on Tuesday agreed to make a $3.1bn payment to the International Monetary Fund, narrowly avoiding what would have been the biggest single default in the fund's history.The move broke a deadlock between President Néstor Kirchner's government and the IMF. Argentina is already in default with its private creditors after the country stopped servicing almost $100bn of debt in December 2001.It is expected IMF management will recommend that the fund's board members formally approve Argentina's second review under the current standby programme. Formal approval, expected within about two weeks, would unlock funds about equivalent to yesterday's payment. Argentine investors expressed relief at the agreement. The peso strengthened against the dollar while Argentine stocks and bonds were also higher. But there was no reaction in global markets, where some kind of deal had been expected. "Global markets have generally been immune to this crisis, perhaps foolishly so," said Guillermo Estebanez, emerging markets currency strategist at Banc of America Securities. The agreement comes as the IMF searches for a new managing director after Horst Köhler, the fund's current head, resigned last week after he was proposed as Germany's next president.Jean-Claude Juncker, Luxembourg's prime minister, said on Tuesday he would back the nomination of Rodrigo Rato, Spain's economy minister, to spearhead global attempts to head off financial crises. Details of how the IMF and Argentina broke the impasse were unclear on Tuesday afternoon. But people close to the negotiations told the Financial Times that Argentina had agreed to several IMF demands over the country's treatment of its private creditors. The most important of these is that Argentina should agree to enter formal negotiations with its private creditors to restructure the country's defaulted sovereign debt. Until now, Argentine authorities have gone out of their way to avoid using the word "negotiation" and, according to creditors, have done everything possible to delay the process. As part of the deal, Argentina will formally recognise the Global Committee of Argentina Bondholders (GCAB), a group claiming to represent institutional and retail investors holding about $37bn of defaulted Argentine bonds. It is also believed that Argentina has agreed to formalise an offer to private creditors before the end of the summer.
