Argentine Official Confident About Aid

Argentine Economy Minister Domingo Cavallo was confident Sunday that a visit by U.S. Treasury official John Taylor would help secure aid from the International Monetary Fund to boost confidence and stave off fears of a debt default.

But in an interview with leading daily La Nacion Sunday, Cavallo was evasive about whether he had sought new cash on top of pre-agreed disbursements from multilateral lenders such as the IMF and what kind of IMF help he meant.

“I am sure . . . the opinions that the United States voice in the IMF will be positive and will lead Argentina to obtain what we need from the fund,” Cavallo said. “It is not the style of good negotiations to divulge what we are planning or asking.”

“I am sure Argentina will receive the support of the United States and all the G7 members,” he added. “We will get what we need from [multilateral lenders].”

Asked what any new funding might be used for, Cavallo said: “You will see when the negotiations are over.”

Meanwhile, Taylor, the Treasury Department’s undersecretary for international affairs, wrapped up his two-day visit to Argentina on Saturday, saying he was impressed with the government’s efforts to erase its budget deficit and spur growth, and that talks with top government officials had been “fruitful and detailed.”

“I am impressed by the firm measures the Argentine government is taking to reach its objective of a zero deficit,” Taylor said in a brief statement before returning to Washington.

However, as he headed home Saturday to inform President Bush and Treasury Secretary Paul H. O’Neill of his impressions, Taylor also said the U.S. was still evaluating Argentina, and had not decided how best to help it.

“We are still in the middle of the reporting and information-gathering process,” Taylor told Reuters late on Saturday.

The absence of any sign of new U.S. cash to help the government fend off investor fears of a debt default confirmed worries expressed in markets last week, which despite initial hopes, reflected suspicions that the talks would result simply in verbal support.

Local media have speculated the government may be seeking to create a multibillion-dollar financial cushion to help it fend off any attacks from speculators.

Argentina’s international reserves and bank deposits fell in recent weeks amid swirling fears of an impending debt default.

“We are not seeking help to cover state finances,” Cavallo told La Nacion. “What we need is the punctual payment of pledged aid disbursements.”

Argentina clinched key IMF support Friday to bring forward a pre-agreed $1.2-billion disbursement, but it paled when compared with a new $15-billion precautionary IMF loan for Brazil, which should help insulate that country if the crisis in Argentina deepens.

Finance Secretary Daniel Marx was cited by local media as saying the early IMF payment would be used to “restore reserves,” but officials were unavailable for comment.

According to official data, debt swaps, disbursements from a $40-billion IMF-led aid package sealed last year, and other new initiatives will ensure the government can cover its debt payments for the rest of the year on its $128-billion public debt.

Markets want to see evidence the government will stick to a recently passed austerity plan, which includes unpopular cuts of as much as 13% to state salaries and some pensions to help erase the budget deficit for the second half of the year as pledged.

In a country where unemployment is more than 16% and a third of the nation lives in poverty, groups of unemployed erected roadblocks this week to decry the measures and plan a similar protest this week.

Labor union group the Argentine Workers’ Center (CTA), which groups most government workers and is one of the nation’s three main labor groups, on Saturday called a national strike for Wednesday, which would paralyze hospitals, schools and public administration, but not transport. Other unions have also scheduled marches this week.

Cavallo said the government was due next week to propose measures to make sure bonds issued by cash-strapped Argentine provinces to pay part of state worker salaries would not destabilize the economy.

He hinted that taxpayers could be given the opportunity to pay their taxes due by buying Argentine bonds.

However, he warned that plans to start exempting some state workers and pensioners from cuts to salaries and pensions would depend on tax revenues in August after plunging nearly 9% in July.