Lending agency says Argentina needs time to develop new economic plan

Thursday, January 17th 2002, 12:00 am
By: News On 6

WASHINGTON _ The International Monetary Fund said Thursday it recognizes that Argentina needs time to develop a new economic program to deal with the country's worst economic crisis in decades.

Thomas Dawson, director of external affairs at the IMF, told reporters the international financial community is ready to support President Eduardo Duhalde's government once it has outlined a plan to keep the devalued currency on an even keel and halt a slide back to the hyperinflation of the 1980s.

``Clearly we have a good dialogue going on with the authorities at this point, and they've expressed a strong interest in talking with us (and) talking with other institutions,'' Dawson said.

He added that ``obviously it's going to take a while for the authorities to develop the comprehensive program that they have indicated they want, and we will provide whatever kind of technical assistance we can and then we will see where we go from there.''

Dawson said the IMF was aware Argentina needed ``some breathing space at this point.''

On Wednesday, the IMF granted debt-strapped Argentina a one-year reprieve on repaying a $933 million IMF loan that was coming due on Jan. 17.

IMF Managing Director Horst Koehler announced the decision of the agency's 24-member executive board in a brief statement, saying the action represented the IMF's ``desire to help Argentina overcome its difficult economic and social situation.''

Dawson said one positive sign for Argentina was that it still has considerable foreign exchange reserves to meet its needs in the short-term. He said demands on reserves should ease if Argentina adopts a freely floating exchange rate.

``The gross level of reserves in Argentina is still quite substantial but, of course, reserves have potentially a number of different uses, and so therefore how the reserves will be used depends on what the exchange rate strategy is,'' he said.

The peso had been pegged at one-to-one to the U.S. dollar for a decade. But Duhalde earlier this month devalued the peso to 1.4 per dollar for most business trade. The peso floats freely on the open market for ordinary transactions.

When asked what lessons the IMF has drawn from the Argentina crisis, Dawson replied the most immediate lessons appear to be that nations should choose the right policies to suit their currency exchange rate, and that they should secure strong political backing when undertaking difficult reforms.

The IMF sent a second fact-finding team to Argentina this week to consult with the economic team assembled by Duhalde.

Argentine officials have said they hope to receive $15 billion in support from the IMF and other lending agencies for the coming year.

The country has been rocked by violent street protests. Protesters have been unhappy with the country's deteriorating economic situation, which forced the government to default on its massive $132 billion foreign debt.

The IMF last month withheld a $1.23 billion loan for Argentina after officials decided the country did not have a sustainable economic program.