A New World of Analysis, Ideas, and Policy Options During his August 31st, 2004 ten-hour, self-invited visit to Argentina, IMF Managing Director Rodrigo Rato told President Néstor Kirchner: “At the IMF we have a problem called Argentina.” Kirchner promptly replied: “I have a problem called 15 million poor people,” a clear reference to what Kirchner considers the outcome of decades of mistaken IMF policy prescriptions in Argentina.This frigid exchange is an indicator that the relationship between Argentina and the IMF is not going smoothly. In fact, the three-year agreement with the Fund, signed in September of 2003,2 is in limbo. In what has become a regular event, the IMF delayed approval of the third quarterly review of the agreement due in July, alleging that Argentina had not complied with certain structural reforms.
In previous reviews, Argentina responded to IMF delays by threatening to default on its $15 billion debt to the institution.This time, however, Argentine officials tried a novel strategy: President Kirchner and Economy Minister Roberto Lavagna decided to unilaterally suspend the agreement until January, 2005 and pay the IMF on schedule the $1.5 billion due between August and January. While this approach temporarily gets the IMF off Argentina’s back, it is by no means a sustainable arrangement. As Table 1 shows, without the refinancing of capital payments provided by the agreement, Argentina must face impossible debt service payments in the coming years, reaching 8.2% of GDP in 2005.4 This would be roughly equiva- lent to 35% of total government spending in 2005, an unthinkable amount given the huge need for government spending required to undo 10 years of IMF-mandated austerity and the magnitude of the social crisis. According to the Argentine government, unemployment is at 19.1%, underemployment is at 15%, 44% of the population is below the poverty line and almost 20% of the population is indigent. How did Argentina get so deep in the debt cycle? Is there a way out?