- The Washington Times - Friday, August 10, 2001

Argentina's debt crisis is testing the Bush administration's resolve not to provide new bailouts for countries and investors through the International Monetary Fund.
Argentina sent a delegation to Washington yesterday to ask for $6 billion to $9 billion in loans to try to replenish the country's currency reserves, which have fallen 40 percent this year, and ensure payment of its $128 billion of debts.
Argentina's finance secretary, Daniel Marx, said the Latin American nation is "counting on" the new money to avert a widening crisis that some analysts fear could engulf Brazil and other Latin American nations as well as emerging markets in Eastern Europe, the Middle East and elsewhere.
Argentina for several weeks has been unable to borrow more money in the international credit markets, forcing its government to impose a "zero deficit" program that has forced deep cuts in government programs, salaries and pensions, and has provoked demonstrations in the streets.
Mr. Marx told reporters in Buenos Aires that the new loans would help "reinforce the reserves we have" and "give us much less vulnerability and exposure." Argentina's beleaguered financial markets have rallied in recent days on hopes that the IMF and United States will come through with the new loans.
Argentina has gained support for its request in the past week from the presidents of Mexico, Chile and Brazil, and has received a sympathetic hearing from European nations, who exert control over the IMF along with the United States.
President Bush phoned Argentine President Fernando de la Rua last week to express his support for the fiscal austerity measures, and dispatched U.S. Treasury Undersecretary John Taylor to Buenos Aires to confer on the crisis.
So far, the White House has been mute on Argentina's request. The Bush administration and the IMF agreed earlier this month to speed up a $1.2 billion payment from an existing $13.4 billion loan program. Argentina can tap into another $6 billion in loans under that program.
"We're coming to a crossroads here," said Brett D. Schaefer of the Heritage Foundation. "Argentina has not taken steps to avoid a full-scale meltdown," he said, and speculation is growing that the country will default on its debts. Argentines have been pulling their money out of the banks in anticipation of a default.
"The Bush administration has clearly stated they're not for bailing out" countries in a way that sanctions ill-advised economic policies, he said. "So far they've avoided full-scale bailouts like [President] Clinton's" more than $100 billion in loan programs for South Korea and other Asian nations arranged through the IMF during the 1997 to 1998 global financial crisis.
Like many analysts, Mr. Schaefer believes the root of Argentina's crisis is its failure to gain control over government spending and borrowing and to open up its trade and labor markets to revive economic growth. The country has been in a deep recession for three years.
"The existing IMF arrangement hasn't spurred a recovery or the reforms necessary for long-term growth. There's no reason to think a large bailout or secondary loan to Argentina would have any different result," he said.
With social tensions mounting and double-digit unemployment, investors and financial analysts doubt that Mr. de la Rua will be able to adhere to the "zero deficit" plan for long. The financial markets increasingly look to the IMF for a solution.
"It won't be good news if they come back empty-handed," said James Barrineau, vice president at Alliance Capital Management. He added that any new IMF loans might provide only temporary relief.
"A package would take default fears out for a while, but fears are set in so deep, people may wait and see what happens," he said.
"This could potentially be excellent news," said Ricardo Cavanagh, an analyst for Raymond James Argentina. "IMF aid could supplement the reserves and also be a strong sign that other countries won't let Argentina fall."
Others were more skeptical. "If the IMF gives monetary support alone, that only buys time," said Alfredo Thorne, an economist with J.P. Morgan Chase & Co. "But if the IMF comes up with money and a road map for Argentina to pull out of the recession, that may be the solution. They need a confidence shock."

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