Global Policy Forum

By Mark Egan

The International Monetary Fund said on Friday it supported new Argentine economic measures announced last week, which included changes to the country's currency regime that are designed to help exporters. "The package of measures announced last week by the Argentine authorities is directed toward rekindling growth and improving economic fundamentals," IMF spokesman Tom Dawson told a regular news briefing. "The IMF continues to support the authorities' measures in that direction," he said. "We believe the package of measures can help them achieve their growth targets," Dawson said, referring to all steps Argentina has taken in recent months to aid its economy, including a debt swap and changes to its tax structure.

On Thursday, the Argentine government said its 2001 economic growth projections were unchanged despite a contraction in output in the first quarter that was worse than analysts had expected. "The budgeted provisions have not changed ... They are about 2 percent this year," Finance Secretary Daniel Marx told reporters. The government had estimated growth this year of between 2.0 percent and 2.5 percent, but during the first three months of the year the economy contracted 2.1 percent compared with the same quarter in 2000. Dawson said the IMF did not believe the change in the currency peg, which devalues pesos for exporters and charges importers more for pesos, constituted a dual foreign-exchange regime but instead acted as a tariff and subsidy.

Last Friday, Argentine Economy Minister Domingo Cavallo unveiled the plan to alter its currency peg, which had linked the peso one-for-one to the U.S. dollar, in the hope of reviving the flagging economy. Cavallo said the government would exclude exporters and importers from the peg. Exporters will receive more pesos for every dollar in sales, based on a rate that is a combination of the euro and the dollar. The plan includes a matching charge against importers, making their goods more expensive.

The move effectively subsidizes exports by about 7 percent while charging importers a matching amount, effectively serving as a tariff. Dawson said he believed the move complied with World Trade Organization agreements. The change to the decade-old currency regime, known as the convertibility law, was seen by some as a precursor to a broad devaluation of the peso and caused turmoil in financial markets this week. "We have looked at the measures announced and the measures introduced do not constitute a multiple" foreign-exchange regime, Dawson said.

Many on Wall Street view the change to the currency peg as a dual-currency exchange-rate regime -- something they see as difficult to implement and likely to promote corruption. Earlier this week, senior IMF sources said the lender's point man on Argentina, Claudio Loser, told Cavallo in April that the timing was wrong to alter the currency peg and that doing so by targeting one sector of the economy -- exporters and importers -- ran counter to the IMF's dogma.

Dawson on Friday declined to comment on what advice the IMF offered Argentina, saying only that the IMF typically does not comment on private talks and negotiations. The Argentine economy has been struggling to shake off its economic doldrums in recent years. Some in the South American nation believe that the peg to the U.S. dollar is depressing the export sector because the dollar has continued to strengthen compared to other currencies, making Argentine exports more expensive.

In December, the IMF led a $40 billion rescue package for Argentina after fears in financial markets that the South American nation might be forced to default on its debts. Almost immediately, Argentina missed a vital IMF-mandated fiscal deficit target -- causing the frenzied negotiation of a waiver and renewing fears of default.

The change in the currency peg was announced with a raft of other measures aimed at boosting economic activity, including lowering income taxes for many Argentines and lowering the value added tax.

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