Argentine government officials are meeting IMF officials in Washington today to ask for more money amid fear of a default on its $128-billion foreign debt.
Their meeting with the IMF is officially to discuss an existing $13.7-billion programme for Argentina and a $1.2-billion tranche, due to be released next month.
But top members of the Argentine government have ramped up pressure on the IMF in the run-up to the talks by calling for a fresh disbursement of up to $9 billion.
"The reason for coming, obviously, is to get more money from the IMF," said UBS Warburg economist Mr Matias Silvani. "If the financial system collapses, the government would have to default on its debt," he added.
Arentina’s woes come from the decision ten years ago to fix the Argentine peso put to the US dollar to halt chronic hyperinflation.
For a long period the strategy was successful. Inflation was brought under control, the country finally achieved a measure of financial stability and, as important, credibility.
But the devaluation of the Brazilian real in 1999, made the peso seem overvalued and Argentine exports uncompetitive with those of its neighbour.
The second has been the relentless rise of the dollar, and thus the peso, against most of the world’s currencies. The consequent squeeze on Argentina’s exports, and on domestic producers struggling to compete against cheap imports, has brought the economy to its knees.
"In my view the Fund and the US Treasury will be ill advised to agree to such a request," said the Institute for International Economics expert Mr Morris Goldstein.
"Argentina had an excessive debt burden and an over-valued exchange rate," he said. "They do not want to change the convertibility system and they do not want to do a serious debt restructuring."
If the IMF were to grant Argentina more funds, "It just takes the train wreck from 10 feet up the track to a couple of hundred yards up the track, it does not deal with the root problem," he added.
AFP