Global Policy Forum

By Bradley Brooks

A political cartoon in Tuesday editions of Argentina's leading newspaper perfectly captured that country's start-and-stop aid negotiations with the International Monetary Fund. In it, a caricature of Argentine President Eduardo Duhalde lovingly holds a flower representing the IMF. Anxiously, the Duhalde figure is yanking out a petal -- one of the few left -- playing the time-honored game of fate: "She loves me, she loves me not."

Of late for Duhalde, the answer would be "loves me not."

Eleven months after having its $22 billion IMF loan package severed and subsequently defaulting on its debt, Argentina is still limping along. In talks with the IMF, there have consistently been just enough moments of hope to make it seem as if Argentina's payday is right around the corner.

Two weeks ago, for instance, there were several positive signals from IMF officials and Argentina's economic team. In one instance, IMF First Deputy Managing Director Anne Krueger said a deal was possible within days.

But reports from Washington and Buenos Aires quickly indicated that talks had broken down again when the parties failed to agree on two issues. The IMF wants Argentina to charge more for public services and to raise taxes to improve the fiscal situation. Duhalde -- realizing that such actions could enrage an easily agitated public -- refused to budge, reportedly telling IMF Managing Director Horst Kohler over the phone this weekend that there were limits on how much austerity he could impose.

On Tuesday, a spokesman for Duhalde said the president was breaking with tradition and would play a direct role in the detailed negotiations with the IMF -- something that is usually left up to the economy minister. Duhalde met Tuesday with Economy Minister Roberto Lavagna to draft a response to an IMF letter of intent Lavagna received last week in his meetings with fund officials in Washington.

"The president is working with the minister of economy on this subject, and we are going to respond rapidly," said Duhalde's chief of Cabinet, Alfredo Atanasof. "We hope to arrive at an agreement before the 14th of this month." That date is when Argentina must make a debt payment to the World Bank of $800 million. But Duhalde has said Argentina can't afford to do that unless an agreement is reached with the IMF or he breaks his promise not to tap into the country's $9.88 billion in reserves.

It is a desperate gambit for Argentina, which knows as well as the IMF how dangerous it would be for Argentina to default on its World Bank loan. Despite its default last December, Argentina has stayed current with multilateral lenders such as the World Bank and the IMF. If it begins missing payments to those creditors, its ability to raise foreign cash would be completely cut off.

Lavagna on Tuesday refused to comment on the new draft letter of intent from the IMF, saying only that there were "some distinct" topics within it that were raised when he was in Washington last week. Argentina's Foreign Minister Carlos Ruckauf weighed in on Tuesday, saying that the IMF's demands for higher utility tariffs and tax collection "are unacceptable." He said that despite urging from the Group of Seven industrial nations for a timely resolution of talks with the IMF, "there hasn't been a single change in the posture" on the IMF's part. Whether the IMF would stand firm if Argentina began defaulting on multilateral loans is a risk Duhalde seems willing to take.

Argentine officials received good news on Tuesday: inflation for October was only 0.2 percent, the lowest monthly rise this year. That puts inflation for the first 10 months of the year at 40 percent. The currency has stabilized in the past four months, allowing inflation to ease. Argentine officials are likely to cite the low inflation numbers as proof to IMF officials that the economy is improving and the nation is ready for the resumption of aid.

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