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Tuesday, 8 January, 2002, 11:58 GMT
IMF sees more pain for Argentina
President Eduardo Duhalde
Argentina's fifth president in two weeks
An International Monetary Fund (IMF) mission is in Argentina to gather information about the debt-ridden country's new economic policies.

But although the government is hoping for more financial help - perhaps as much as $22bn - there is little or no chance of any early direct assistance with the $141bn in debt which it cannot repay.

On top of that, one of the core points in the policy may well be a dealbreaker.

The devaluation of the peso against the dollar, dissolving a decade-long one-to-one peg, is intended to lead to a dual exchange rate - floating for the domestic market and fixed at 1.4 pesos to the dollar for foreign exchange.

But the IMF may well disapprove, since dual exchange rates are not part of the usual policy prescription.

In any case, the IMF's managing director has stressed that - while the organisation stands ready to work with Argentina - its problems remain "home-grown" and any solution will undoubtedly be painful.

Argentina's crisis was triggered when demonstrators rejected austerity measures put forward by the previous non-Peronist government after the IMF refused a fresh loan of $1.3bn last month.

But even though the IMF is close to accepting that a law banning budget deficits, part of its old deal with Argentina, is probably impossible to achieve, austerity measures are still going to be necessary.

Worried savers

President Eduardo Duhalde, who is the country's fifth president in two weeks, met on Monday with leaders of the trade unions and the popular protests that turned into riots and brought down the previous administration shortly before Christmas.

Protester demands new elections in Buenos Aires
Protests remain a possibility
The streets are quiet again, though Argentines were queuing up at banks before the weekend to withdraw their savings. The government has imposed a two-day bank holiday from Monday.

It remains to be seen whether shops put up their prices in response despite price controls on essentials such as medicines.

Flour prices have already risen 30%, the BBC's Daniel Schweimler reports, and one tango club in central Buenos Aires has boosted its entry fee to $65 from $60.

But supermarkets have promised the government that they will only put up the prices of imported goods.

'Home-made crisis'

Argentina in crisis
Early December, IMF refuses to disburse $1.3bn aid
20 December: President de la Rua resigns
23 December: Adolfo Rodriguez Saa sworn in
30 December: Mr Rodriguez Saa resigns
1 January: Eduardo Duhalde elected president
2 January: Argentina's debts reported at $141bn
3 January: Argentina officially defaults on its debt
Following the devaluation on Sunday, the IMF chief and other international financial leaders have expressed support for Argentina's new course but stressed the country must solve its own problems.

"What Argentina needs now is growth and growth requires savings, investment, and a working banking system", said the IMF's Mr Koehler, who was in the Swiss city of Basel for a meeting of the Bank for International Settlements.

"But one also must recognise that without pain, it won't get out of this crisis, and the crisis - at its root - is home-made," Mr Koehler said.

New business taxes?

The new government is under few illusions that the pain of adjustment is going to have to be spread between banks, businesses, investors and the general public.

To help relieve some of the pressure on the banks, it is planning to tax petrol exports to cover the $15bn cost to banks of converting the dollar denominated debts of ordinary Argentines into pesos.

That will hurt foreign firms including Spanish oil company Repsol. Spain's traditional links with Argentina mean that many of its top firms, including banks such as BBVA and BSCH and telecoms giant Telefonica, are heavily exposed to the crisis.

Economy minister Jorge Remes Lenicov is expected to meet with foreign investors on Monday.

Running away?

Although the protests have calmed down, one fear for the government now is that many middle class Argentines will start to quit the country.

Some financial analysts warned the devaluation could make the country's economic problems worse.

"We have to be very cautious: considering the long recession and people's lack of cash, we could be provoking more recession and inflation, the opposite of what the plan aims to achieve," said stock broker Alfredo Ferrarini.

One risk is that international investors will quit the country.

French auto parts firm Valeo said on Monday it will close its Argentine plant at Carmen de Areco and switch production to Brazil to improve its competitiveness in South America. The plant employs 90 people.

The BBC's David Willis in Buenos Aires
"There is confusion and concern here"
Argentina analyst Celia Szusterman
"Argentina is still a very closed economy"
See also:

02 Jan 02 | Americas
Argentina seeks world help
02 Jan 02 | Americas
New man takes helm in Argentina
01 Jan 02 | Media reports
Press lambasts Peronist 'infighting'
01 Jan 02 | Business
Argentina faces grim economic future
31 Dec 01 | Americas
Argentina's toughest job
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