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The IMF believes the country 'is heading for an iceberg'
La Nacion
August 21, 2008

Concern over the deterioration of fiscal accounts, the rise in subsidies and price controls

By Hugo Alconada Mon

WASHINGTON.- The International Monetary Fund (IMF) is staying quiet about Argentina. It's seeking to avoid a new public confrontation with the Casa Rosada. However, between the lines, its economists and technical officials estimate that the country "is heading for an iceberg in 2009" and that the government knows it, but that at least right now is not doing anything to change course and avoid a collision.

The metaphor was offered by a LA NACION source at the Fund, while two others spoke more directly about the problems that they see ahead for Argentina, with serious problems in financing on the horizon if commodity prices deflate, in that the government lacks foreign sources besides the Venezuelan president, Hugo Ch vez, and some other eventual opening, such as the Adean Foment Corporation (CAF).

The view that seems to dominate within the organization is that the government will have to give a shock of confidence to, for example, obtain financing on the local market. In another way, perhaps it has to turn to the reserves of the Central Bank (BRCA) to deal with the principal coming due on its debt in 2009, not interest, which is already covered. But if it uses reserves, it adds possible inflationary risks, and would also give arguments to the debt creditors that remain in default the holdouts to embargo BCRA assets around the world. The raw panorama is adding to the dark perspectives that Wall Street investment banks have sent out in recent weeks, which have included the possibility of a new default.

Warning lights

The warning lights have not stopped blinking. "In here (the headquarters of the IMF in this capital), what is most worrisome is the deterioration of fiscal accounts, the constant rise in subsidies, the tariff delay and price controls," said one source, on a strict basis of anonymity.

Those views are some that the Fund has enumerated in an official basis with Argentine officials for years. But now they carry an additional burden in a line of prophecies come true. "For some time we have told them that the problem of price controls is not only that they create distortions in the market, but the more difficult thing is how to get out of them without having a setback," the source said.

The Argentine situation still is not reflected, however, in any recent document from the IMF staff. This is due in great measure to the current director-general, Dominique Strauss-Kahn of France, who decided to give the Casa Rosada time while the leadership of the organization began to show varying signs of percolation before initiating its traditional summer recess this month.

Strauss-Kahn showed greater will than his predecessor, Rodrigo de Rato of Spain, with the idea that the government could take advantage of some time to put its accounts in order. Just in a little while would there be agreement on the sending of a mission that would have to review the economy's figures to put together a so-called "Article IV" analysis, which "usually" is completed every year on member countries of the Fund. In the case of Argentina, however, the last report was approved in July of 2006, and it is not expected that a new one is coming in the short term. "You could say that there are many at the Fund who are losing patience," said one of the officials consulted.

But still, if Argentina has already paid off all its debt with the multilateral organization and has no open program, what is the IMF's interest in the country? Among other reasons, for a question of its own preservation. The technical personnel at the Fund believe, according to what LA NACION pieced together, that the lack of credibility in the statistics that the INDEC puts out, for example, could also affect the credibility of the reports put out by the IMF itself.

"If we continue to accept numbers that are being sent out of Buenos Aires, what message are we sending to the international financial community?" posited one of the officials.

The controversial official figures have caused public short-circuits during the Spring meeting that the IMF held together with the World Bank last April. In its report of the World Economic Outlook (WEO), the Fund mentioned that official inflation went down in 2007, but clarified that the rate is far below the estimate "of a majority of the analysts in the private sector", a highly unusual statement in this type of document.

The World Bank went even further. It omitted the country in certain sections of its evaluation of Latin America, to the point of measuring the inflationary impact of the rice in food prices citing data from 16 countries in the region Brazil, Mexico and Venezuela included but excluded Argentina.

The IMF also still has an open analysis about the seriousness of the INDEC numbers, which remains under the purview of its statistical department. According to those consulted, it remains there to show the "patience" of the director-general. "If Strauss-Kahn gives the green light to a sanction, that could have repercussions in the lawsuits of the holdouts," said one official.