- The Washington Times - Sunday, June 9, 2002

In the midst of a grueling crisis that follows four years of recession, the Argentine government believes it has found its economic solution: IOUs. Rather than return to the Argentine people the funds they deposited into local banks, the government has proposed that people accept government bonds in lieu of their hard-earned money. The trouble is, of course, the government has already defaulted on a whopping $141 billion of debt. And there are already various incarnations of government-issued IOUs circulating chaotically in the Argentine economy, such as patacones and lecops, which have been used, for example, to pay the salaries of civil servants. For many Argentines, these IOUs are their only currency, and shopkeepers take them reluctantly in exchange for food, since they have few prospects of getting real cash.
All these IOUs are, of course, hard to track, and since the government ended up printing more money than expected, inflation may just become the handmaiden to Argentina's severe liquidity crunch. The government is planning to allow the new bonds to go toward the purchase of large-ticket items, such as cars and houses. Already, consumer prices have risen by more than a quarter since January.
It is difficult to imagine government bureaucrats maintaining any dignity while articulating such a confiscatory scheme. But then again, after robbing the country dry of its last peso, politicians have few viable options left. As Central Bank President Mario Blejer, put it, "It's very difficult to conduct monetary policy when people don't have any confidence in either the banks or the peso."
Meanwhile, the International Monetary Fund (IMF) is coming to town. An IMF "technical" team will arrive in Buenos Aires next week. They shouldn't expect a warm welcome from the Argentines, many of whom correctly blame the fund for having added to Argentina's debt load while politicians raided the public chest.
Naturally, the IMF has voiced wariness of the government's new scheme and proposed policy-makers create a new monetary anchor to prevent inflation from taking off. Some kind of deal is likely. Apparenty, the IMF's concerns about how Argentina's crisis reflects on the fund have overshadowed any skepticism regarding the government's economic proposals.
Most astonishing is the patience of the Argentine people amid the economic meltdown. Despite all the hardships, democracy and relative stability prevail.

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