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Tuesday, 29 January, 2002, 03:20 GMT
Argentina seeks US backing
Protest march
Protests about the economic situation continue
Argentina's government has begun crucial financial talks in Washington, as forecasts show the economy is set to contract sharply this year despite the devaluation of the peso.

Foreign Minister Carlos Ruckauf met White House national security adviser Condoleezza Rice and US Trade Representative Robert Zoellick, explaining the country's grim situation and the new government's hopes for financial support from the International Monetary Fund (IMF) and World Bank.

We are on a knife edge. We know we have to reach an agreement with the IMF... but, at the same time, we cannot go against the interests of the people

Carlos Ruckauf
Foreign Minister

Horst Koehler, managing director of the IMF, urged Argentine authorities to develop a comprehensive and coherent economic strategy.

"The Argentine authorities should work even more closely with the international community," he said.

"For the IMF, it goes without saying that we want to help Argentina find its way out of this crisis."

In a sign that the international financial community is anxious to help, the World Bank and the Inter-American Development Bank said they would speed up the provision of some existing loans to help ease the pain.

The recession that has besieged Argentina for four years has brought down a succession of presidents last month and provoked violent social unrest.

Demonstrators outside the Casa Rosada
The presidential palace, the Casa Rosada, is a focus for protest

With demonstrators again taking to the streets of the capital Buenos Aires on Monday night, the deputy economy minister, Jorge Todesca, admitted that the economy could shrink by as much as 5% in 2002.

With the words "Stuff the IMF" now a popular slogan in the streets, the leader of the militant unemployed group which organised Monday's march gave vent to anti-US feeling.

"[President Eduardo Duhalde] will have to choose between the policies of... President George W Bush and the Argentine people," said Luis D'Elia, a leader of the Argentine Workers' Association.

Time for the truth

Mr Todesca said the government had initially planned for a 2.6% fall in gross domestic product.

But the budget would now be based on a 5% contraction.

Argentine President Eduardo Duhalde
President Duhalde has yet to reveal where the spending axe will fall

The unwelcome admission comes as Argentina's Peronist government is trying to stitch together a plan to save the economy.

Argentina is mired in debts amounting to $141bn, on which it has already defaulted.

That has cut off its lifeline to all creditors except the IMF. And after offering $20bn last year only to see the country fail to meet its end of the agreements made, the IMF is far from ready to untie its purse-strings.

The Fund has agreed to let Buenos Aires postpone nearly $1bn in repayments which were due on 17 January.

The chances of further help worsened on Sunday, when Foreign Minister Ruckauf admitted that the country had lied to the IMF in the past.

In an interview with Italy's Corriere della Sera newspaper Mr Ruckauf said Argentina "told the IMF many lies", and now had to reveal "all the stark truth".

Dual rate

As yet the IMF is unimpressed with the devaluation policy at the heart of President Duhalde's economic plan.

The dual exchange rate policy, whereby domestic rates float while international transactions are pegged at 1.40 pesos to the US dollar, is unworkable, the Fund believes.

And the weakening of the banking sector - now mainly foreign-owned after the IMF-sponsored sell-off - means international investors are ready to walk away from Argentina.

As Mr Ruckauf prepares for his talks in Washington, the latest figures show that US banks are the most exposed to Argentina, with $23bn in outstanding loans.

The BBC's Peter Greste
"The government is caught between the IMF and the people"
See also:

27 Jan 02 | Americas
Argentine president pleads for calm
21 Jan 02 | Americas
Argentines angry at peso conversion
17 Jan 02 | Business
Argentina receives debt lifeline
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