Argentina Gets Financial Aid, Devalues Peso
A new package of aid from governments and banks to help Argentina keep up with its $48.4 billion in debt emerged Tuesday when Managing Director Jacques De Larosiere of the International Monetary Fund gave his approval and Argentina announced a devaluation of its peso.
De Larosiere’s approval sets off actions designed to help Argentina and ease a threat to the international financial system.
“The managing director of the International Monetary Fund has informed the Argentine authorities that he is prepared to support the economic program described in the letter agreed (to) with the Argentine delegation in Washington,” the fund said in a statement.
Argentina’s team has been led by Jose Luis Machinea, a deputy to the minister of economics, and Mario S. Brodersohn, the country’s chief debt negotiator.
Central Bank Acts
President Raul Alfonsin’s civilian government in Argentina is coping with debt piled up in seven years of military rule, widespread strike threats, a major bank failure and inflation that drove prices up 939% in a year. It was the rise in prices that led to suspension of a loan from the fund in March.
Alfonsin announced agreement with the fund last Friday, but it took until Tuesday to complete the negotiations. Just as De Larosiere’s acceptance of Alfonsin’s austerity program was announced, the central bank in Buenos Aires announced an 18% devaluation of the peso--the biggest since Alfonsin took office at the end of 1983.
The devaluation brought the peso’s official value down to 758 for a U.S. dollar. Actually it was worth less than that--it took 793 pesos to buy a dollar in Washington on Tuesday.
Details of the accord were not announced. But Alfonsin said he is starting a “war economy,” cutting his budget, freezing government jobs and limiting wage increases to 90% of price increases.
The fund often requires such measures, as well as currency devaluations, in return for its help.
A devaluation is intended to improve a country’s international financial situation by making its goods cheaper and easier to sell and to discourage spending by the country involved by making its imports more expensive.
U.S. bank regulators, anticipating the fund’s announcement, have put off a decision on downgrading their rating of $8 billion worth of loans to Argentina held by U.S. banks.
Such a decision would have discouraged many of the banks from joining in new loans to Argentina of $4.2 billion--much of which will go to pay interest on old debts. In addition, portions of Argentina’s current loans would have to be classified as non-performing and become a drain on banks’ profits.
After the fund statement, William R. Rhodes, chairman of the bank committee for Argentina, said the package was almost complete and fast progress could be made. About 350 banks from the non-Communist world are expected to take part.
De Larosiere indicated that he is ready to resume paying out the fund’s own loan to Argentina of $1.4 billion. The fund suspended it after disbursing only $236 million when Argentina failed to keep Alfonsin’s pledge to reverse the rise of inflation.
It will take four to six weeks to get the necessary approval for a resumption from the 148 governments that own the fund.
Meanwhile, the U.S. Treasury, as it has done before, was putting together a “bridge loan” reported at $450 million. Robert D. Levine, a Treasury spokesman, said that it will take a few more days and that, until it is completed, he cannot give any figures.
Negotiations are going on at the Bank for International Settlements in Basel, Switzerland. An official there, who spoke on condition that his name not be used, said that $250 million would come from the U.S. Treasury and the rest from Mexico, Venezuela, Japan, Canada, Spain and France.