(2004-09-01) Imf Too Lax In Argentina

A July internal report by the IMF claimed that they contributed to the collapse in Argentina by being too lax! These impressive gains, however, masked the emerging vulnerabilities, which came to the surface when a series of external shocks began to hit Argentina and caused growth to slow down in the second half of 1998. Fiscal policy, though much improved from the previous decades, remained weak and led to a steady increase in the stock of debt (National Debt), much of which was foreign currency-denominated and externally held... The IMF on its part erred in the precrisis period by supporting the country's weak policies too long, even after it had become evident in the late 1990s that the political ability to deliver the necessary fiscal discipline and structural reforms was lacking... Lesson 2. The level of Sustainable debt for emerging market economies may be lower than had been thought, depending on a country's economic characteristics. The conduct of fiscal policy should therefore be sensitive not only to year-to-year fiscal imbalances, but also to the overall stock of Public Debt.

Now the IMF and Argentina are failing to come together on a Work Out plan. The IMF, in turn, wants the Argentine government to shore up its finances through austerity measures which are likely to prove highly unpopular. The Washington-based lender also wants to see some progress in Argentina's talks with private bondholders, who are owed some $100bn.