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Last Updated: Monday, 8 March, 2004, 18:44 GMT
Argentina plays 'chicken' with IMF

Andrew Walker
BBC economics correspondent

A key date in Argentina's sometimes tense relationship with the International Monetary Fund is 9 March.

Then, the country is due to make a repayment of $3bn under an earlier IMF loan. And there have been suggestions from Buenos Aires that they might refuse to pay.

The reason? Argentina wants assurances that the next installment of more recent loan will be paid in the next few weeks.

Argentina will have a debt that seriously affects the economy even after the proposed haircut (reduction in debt payouts)
Alberto Fernandez, Argentinian Cabinet chief of staff

They do have reason to doubt it. The IMF has made it clear that it has some concerns about whether Argentina is living up to the promises it made when the new loan was agreed in September.

The principal concern is Argentina's relations with its private foreign creditors. When the crisis came to a head around Christmas 2001, Argentina announced the suspension of payments on its debts, or bonds. The bondholders haven't received a cent since.

Financial haircut

One condition for the September 2003 loan was that Argentina should negotiate in "good faith" with the creditors. Argentine officials say they are doing so.

The opening salvo came in September in the margins of the IMF and World Bank annual meetings in Dubai.

Finance Minister Roberto Lavagna and Finance Secretary Guillermo Nielsen presented a proposal that bondholders should accept new terms that amount to loss - or haircut as it's called in financial circles - of 75 cents in every dollar they owed.

Some members of his group have been forced to sell their cars or even their homes. Some are now dependent on social benefits from the German government

Bondholders did their own arithmetic and concluded that it was more like 90 cents on the dollar they were being asked to sacrifice.

The creditors say that since that opening offer, Argentina has not budged. And that, they argue, is not negotiating in good faith.

But who are these bondholders? There are investment funds. Some of them are sometimes pejoratively called vulture investors, who buy the bonds of companies or countries in financial distress.

They buy them very cheap with a view to making a large profit when some of the money owed is finally paid.

But there are also hundreds of thousands of private individuals involved. The largest numbers are in Italy, Japan and Germany, where I travelled to meet some.

'Against corruption'

Stefan Engelsberger runs a group which campaigns for bondholders from his home in Inzell. It is a picturesque village in the Bavarian Alps not far from the border with Austria.

Argentina looms large in his life. He has just been there telling people about the problems bondholders face.

At his home, nestling in the snow clad mountains, he served me Argentine herbal tea. Then he showed me the shop he owns in the village, selling souvenirs to tourists, things like cow bells and yodelling rucksacks.

If it does miss that payment due on Tuesday, it could further delay Argentina's rehabilitation in international financial circles

He has had some special beer steins or mugs made up with a logo - against corruption in Argentina.

He says he needs the money from his Argentine bonds to invest in the shop. He has already sold part of his investment at a loss.

I also visited some other members of his group, Max and Christel Bohrer in a suburb of Munich.

They are brother and sister who together with another brother have a portfolio of investments which they manage and use to support their families.

Cautious investors

They invested in Argentine government bonds. It was attractive because the interest rate was a bit higher than on the German equivalent.

But they didn't think it was particularly risky. Their attitude to investing in the past has always been cautious.

Both Stefan Engelsberger and the Bohrer family have lost a lot of money even if they have not been ruined.

But Mr Engelsberger says some members of his group have been forced to sell their cars or even their homes. Some are now dependent on social benefits from the German government.

Mr Engelsberger has focused his efforts on campaigning and trying to negotiate, while others are using the courts.

Contractual rights

Ralph Stone of the New York law firm Shalov Stone and Bonner is trying to sue Argentina.

He says his clients are just trying to enforce the contractual rights that Argentina has already agreed to that enabled it to borrow their money in the first place.

In Buenos Aires it all looks rather different, where the priorities are to reinforce the post-crisis recovery that got started last year, and to tackle the social problems left in the wake of the crisis.

Cabinet chief of Staff, Alberto Fernandez says that Argentina will have a debt that seriously affects the economy even after the haircut proposed.

In the meantime, Argentina continues a game of financial chicken with the IMF. If it does miss that payment due on Tuesday, it could further delay Argentina's rehabilitation in international financial circles.




SEE ALSO:
Argentina's threadbare recovery
19 Dec 03  |  Business
Argentina gets huge IMF loan
21 Sep 03  |  Business
Argentina lifts final cash curbs
27 Mar 03  |  Business
Q&A: Argentina's economic crisis
12 Feb 03  |  Business


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