Global Policy Forum

By Humphrey Hawksley

The International Monetary Fund (IMF) has owned up to making mistakes in dealing with Argentina's 2001 economic crisis, which pushed half the population into poverty. A new softer line on debt repayment has now been adopted at the insistence of Washington.

Grasslands stretched unprotected and untamed for as far as the eye could see, forming a perfect horizon under a big sky, whisped with the faintest of white clouds.

The wind was everywhere, buffeting gulls in the air, whipping up white water on the river, and slamming shut car doors - if you gave it the chance - as soon as you had opened them.

From a distance, a hillside where we were heading was shimmering strangely, the green turning into a dirty white then back again. As we got closer, I realised it was was actually full of sheep being rounded up with dogs and farm hands on horseback.

And down the slope, by a fence, his thumb pushing tobacco into a pipe, was Paul Gallard. His leathery face was etched and wind-burnt from years of working a farm on the Patagonian steppe.

"So you made it?" he said, by way of greeting.

I had expected Spanish-accented English. But Paul is the son of English settlers who came to Argentina after the First World War. I zipped up my jacket against a fresh gust. Paul, his pipe packed, amazingly cupped his hand, struck a match and kept enough flame to light the tobacco.

Time bomb

Just over two years ago, Paul's farm was almost bankrupt. Argentina was coming to the end of a decade of sham. The country had been hailed by Western politicians and bankers as a model of democratic and economic growth. Loans poured in unchecked. But it was riddled with corruption and so then came the crash. Millions were put out of work and rioters took to the streets.

A recovery is under way, but there is now deep mistrust between Argentines and financial institutions which they had once believed in.

"We knew," said Paul. "We all knew it would happen. We who lived and suffered it. Yes, we knew. Definitely. It is hard to believe they did not know. Our whole economic system was going down the drain fast."

So why, if a Patagonian farmer knew, did not those highly respected economists who deliver recipes for growth to the developing world?

Spend strategy

Argentina's new president, Nestor Kirchner, has answered the question already. They simply were not up to the job. He used to be governor of this area and he foresaw disaster with such certainty that he sent money from his provincial coffers into foreign banks for safe keeping.

And now he is challenging the orthodox economic thinking of the IMF and other lenders head on. Kirchner is a tall man, in his early 50s with an easy, urbane manner.

He was a left-wing activist, jailed during the military dictatorship, and even now counts Fidel Castro among his friends. In normal times he would be a natural opponent of the United States. But these are not normal times.

Kirchner argues that money which should be used to repay debt is better spent in ending poverty and getting the country back on its feet again. And so far - because of a fascinating twist of international politics - he is winning.

Mistakes

In Washington, I asked the same question that I had asked Paul, but this time to Anne Krueger, an academic who is now the acting managing director of the IMF.

"Why didn't you know?" I said.

"Well I was not here," she said. "I was at Stanford University at the time."

"Sorry," I said. "Not you, but the IMF. Why did it not know?"

Then she revealed that some IMF staff had written letters about their fears for Argentina.

"So what happened," I said.

"Nothing."

"Why not?"

"I do not know", she admitted.

And it was that oversight - for want of a better phrase - which finally caught the attention of the White House.

Protection

Last September, Argentina came close to defaulting again because the IMF was playing tough to get back the money it was owed. Nestor Kirchner was playing hardball too, and the US told the IMF to back off.

"Our point of view was that Kirchner needed time to establish his credibility," said Richard McCormack, an economist close to the Bush administration.

Another insider put it more concisely.

"This is so weird," he told me. "A generation ago, Kirchner and his buddies would have been thrown into jail for being communists. Now you have got a right-wing American government helping them stay in power.

"You see, Bush cannot afford to deal with Iraq, terror and social unrest in Latin America. He wants to see if Kirchner can make it work, see if he can produce a new kind of model for the developing world.

"God knows, we need to find one."