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INTERNATIONAL AFFAIRS -
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Argentina to Pay Entire IMF Debt 4 Years After Default

Posted in the database on Sunday, December 18th, 2005 @ 17:49:22 MST (1129 views)
by Eliana Raszewski    Bllomberg.com  

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Argentina said it will pay back its entire $9.8 billion debt to the International Monetary Fund, severing 22-year-old ties with the lender that the government blames for its 2001 debt default.

President Nestor Kirchner, who at rallies and speeches this year has called IMF officials ``rude'' and demanding, said at a press conference in Buenos Aires the government will make the payment after three years of economic growth bolstered foreign currency reserves. The economy grew 9.2 percent in the third quarter on a surge in public spending, the government said today.

Kirchner, 55, vowed to take the decision on several occasions this year to ensure the administration isn't dependent on policies endorsed by the Washington-based lender, including spending caps and higher utility rates. The announcement comes two days after neighboring Brazil said it would repay its $15.5 billion IMF debt.

``The objective of this is more political than economic,'' said Alberto Bernal, an economist at Bear, Stearns & Co. in New York. ``It's to get rid of the IMF obligations.''

Argentine reserves stood at $26.8 billion yesterday, up from $19.7 billion by the end of 2001, when the country defaulted. Reserves fell as low as $8.2 billion in January 2003 before rising exports of soybeans and other commodities boosted dollar inflows.

Bad Advice

Kirchner said today the IMF advice and loans in the 1990s helped lead to the country to ``failure'' and said the fund has neglected to help since the default when they most need the help. He said the IMF's demands acted as constraints that impeded the economic recovery, and he criticized the fund for not providing financing for the government's debt restructuring this year.

Kirchner also thanked Venezuelan President Hugo Chavez for his assistance, prompting applause from government officials listening to the speech at the presidential palace. Venezuela this year has purchased almost $1 billion of Argentine bonds.

Kirchner said paying back the IMF will save the government $1 billion of interest.

``We're trying to pull out of the hell that we fell into,'' Kirchner said, referring to the nation's debt default and subsequent currency devaluation. He vowed to press for a ``deep restructuring'' of the IMF.

For Argentina, whose default on $95 billion of bonds in 2001 sent the economy into its deepest recession on record, repaying the IMF will only increase its financing costs, said Claudio Loser, a former director of the Western Hemisphere Department for the International Monetary Fund who now works as an economic consultant in Washington.

Lower Interest

The IMF charges lower interest than the government pays to borrow on debt markets. Argentina's dollar-denominated bonds yield on average 5 percentage points more than comparable maturity U.S. Treasuries, according to JPMorgan Chase & Co.

``It's going to end up costing Argentina a lot more money because they will have to seek other forms of financing that are more expensive,'' Loser said.

The IMF last year suspended a $13.3 billion loan accord with Argentina pending the government's completion of a debt restructuring. The government, which finished a swap of defaulted bonds for new securities in June, since hasn't met to discuss a new accord with the IMF.

``When I seek to discuss issues with the IMF, they say I'm rude,'' Kirchner said on May 19, a month after he lauded his own government for helping sustain an economic recovery by ignoring IMF advice.

Argentina, the third-largest debtor to the IMF after Brazil and Turkey, has had a loan agreement with the fund since 1983.

The yield on the restructured dollar bond due in 2033 climbed to 9.947 percent at 4:38 p.m. New York time from 9.840 percent yesterday, and the price, which moves inversely to the yield, fell 1 cent on the dollar to 82 cents.

To contact the reporter on this story: Eliana Raszewski in Buenos Aires eraszewski@bloomberg.net



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