Aid returns to Argentina

The barter system means a massage pays for a car service

Argentina has received its first financial assistance since its economy went into full-scale meltdown late last year.

Because of the precarious social conditions, we can no longer delay making all possible resources available to the population

Enrique Iglesias
president, IADB

The Inter-American Development Bank, the biggest lender for development purposes in Latin America and the Caribbean, has redirected $694m (£487m)to Argentina to help the near-crippled country rebuild its social services.

Officially, unemployment in Argentina is affecting about a quarter of the workforce and nearly half the population is regarded as below the poverty line.

The nightmare state of the country's books means the government has had to quadruple some export taxes on commodities to bring them in line with the plummet in the value of the peso.

With no money expected any time soon from the International Monetary Fund, although a team is due in Buenos Aires next week for talks, the IADB - an altogether separate institution - said Argentina could wait no longer.

"Because of the precarious social conditions, we can no longer delay making all possible resources available to the population and in this way open spaces for relief and hope," said IADB President Enrique Iglesias in a statement.

Broke

While the IADB money is peanuts compared to the $25bn or so Argentina is hoping to raise from the International Monetary Fund, it makes possible a vital $1bn social fund the government is setting up.

The fund aims to:

• Improve aid to destitute families,
• Provide emergency medical and sanitation help,
• Payments to encourage parents to keep their children in schools, and
• Rebuild social infrastructure and housing in deprived areas.

Waiting at banks and bureaux de change is a weary business

The loan is desperately needed because Argentina has been cut off from outside funds since it defaulted on $141bn in external loans in December.

Since then, prices have spiralled, joblessness has surged, and the economy is in a state of near-collapse.

The current government of President Eduardo Duhalde is still struggling to build an economic policy which will dig Argentina out of its hole.

But difficulties in dealing with provincial governors and the populist leanings of Mr Duhalde's Peronist Party mean that cuts to public sector pay and pensions, which are generally regarded as essential, are nowhere to be seen.

Pressure on the peso

The harsh conditions affecting many Argentines are being exacerbated by a sharp slide in the value of the peso, which was devalued in January after a decade of being pegged at parity with the US dollar.

From a level of 1.40 to the dollar on its flotation, the peso-dollar rate has sunk to a low of around 4.

Exchange controls were introduced earlier this week after the government blew nearly 10% of its foreign currency reserves trying to defend the peso.

They seem to be having an effect: since Monday, the rate has moderated, and dealers in Buenos Aires are quoting a rate of about 2.70-2.80.

IMF hiccups?

Argentina's fifth government since December may now be privately mooting the possibility that the free float could be abandoned.

The peso under pressure in neighbouring Uruguay

Although no-one is suggesting a return to the peg, a currency band could be an alternative, according to press reports.

That could do serious damage to the prospects for successful talks with the IMF.

The team going in next week will identify the problems, the IMF said.

"If things go well, a mission could go down shortly after the spring meetings [of the IMF and World Bank, on 19-21 April] and could have the potential of working on a draft of a letter of intent," said IMF spokesman Tom Dawson.

Calling this week's rise in the peso-dollar rate "a welcome development", he warned Mr Duhalde's government away from any idea of giving up on the free float.

"Under the present circumstances, the floating rate seems to be serving them well since the ability to defend a fixed rate would be difficult," he said.