Argentina defaults on loan repayment

national | miscellaneous | news report Thursday November 14, 2002 22:53 by end of capitalism

perhaps Lula will do the same for Brazil?

Argentina defaults on loan repayment

http://tinyurl.com/2pih

By Alan Beattie in Washington
Published: November 14 2002 19:58 | Last Updated: November 14 2002 19:58
The Argentine government on Thursday took the extraordinary step of defaulting on a loan repayment to the World Bank, in a sign of its intense frustration over negotiations with the bank's sister institution, the International Monetary Fund.

The decision not to make a due payment of $805m (€798m) places Argentina in the company of countries such as Iraq, Zimbabwe and Liberia, that have defaulted to the international financial institutions.

It makes Argentina ineligible for any new lending from the bank or reductions in interest rates on outstanding loans. Disbursements from existing loans, around $2bn of which has yet to be paid out, will also be stopped if the country does not pay within 30 days.

Alfredo Atanasof, chief of the cabinet, said: "The country's level of reserves prevents it from paying the total of the quotas that expire today." Argentina would make only an interest payment of $79m, he said.

The World Bank confirmed it had received a partial payment, but said: "The World Bank welcomes statements by government officials that Argentina remains committed to rectifying the situation as soon as possible."

Economists said the decision showed Argentina's determination to raise the stakes in negotiations with the IMF. The government is seeking to have its $13bn debt to the fund rolled over until the end of next year, but talks have been held up by Argentina's inability to convince the IMF that it can carry through fiscal and banking systems reforms.

"The Argentines are playing harder and harder ball," said Lacey Gallagher, director of Latin American research at CSFB in New York.

Buenos Aires blamed the IMF for its decision to default, saying the fund insisted it kept foreign exchange reserves above $9bn.

Ms Gallagher said that the Argentines viewed the default as merely the latest stage in a bargaining game rather than a complete withdrawal from the international financial community. Roberto Lavagna, Argentine finance minister, has been in Washington over the past two weeks negotiating with the IMF.

At the end of last year, Argentina defaulted on more than $90bn of its government debt to private investors, the largest sovereign default in history.

The missed payment will make little immediate difference to the operations of the World Bank, which has substantial reserves.