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Argentina could be sanctioned by the IMF
Ambito Financiero
September 08, 2010

By Maria Iglesia and Claudio Loser

So said Claudio Loser. It would affect our receiving loans from the organization as well as the World Bank and IADB , he argued

For Claudio Loser, Argentina could get a sanction by the IMF for not complying with Article IV. "It's an international convention approved even by the Congress, which gives it force of law," he said yesterday, from his home in Washington.

Loser worked for 30 years at the IMF (from 1972 to 2002) and rose to be director of the Western Hemisphere department, the highest position that an Argentine has reached in the international organization created at Bretton Woods in 1944. According to what this newspaper recorded in an interview, the maximum sanction has only been applied to the ex-Czechoslovakia and Poland, while he recognized that "that decision came from political motives, in the middle of the Cold War."

Reporter: It has come out that the IMF has been studying sanctioning Argentina for not complying with Article IV. Could it happen?

Claudio Loser: Yes, it's possible because there exist certain obligations. All the countries that are members promise to comply with the rules. Also, it's an international convention even approved by Congress, which gives it the force of law. I don't recall in my 30 year career at the IMF, nor in the eight since I've retired, that they've applied the maximum sanction, which is expulsion. In the extreme case, for lack of information, at the end of the 1940s they kicked out the ex-Czechoslovakia and Pland, but that decision responded to political motives, in the middle of the Cold War.

R.: What type of sanctions could Argentina receive?

C.L.: Every six months the board is informed around the refusal of a country to report. Sanctions could be the inability of the country to access the Fund's resources in case of emergency. That is to say, obtain any kind of line of credit. Another option is that it would affect the granting of loans by the World Bank or the IADB, with the justification of a lack of cooperation. That is to say, Argentina would be seen as not wanting to be part of the international market.

R.: But in the government they argue that they don't want any more loans from the IMF.

C.L.: But the problem is that if there is an emergency and Argentina need to get additional funds, it won't be able to do it. For example, if some terrible drought occurs and exports fall. Of course relations could be rebuilt. And yes, the country today has many reserves, but at any moment it could be in need.

R.: Why hasn't Argentina managed to place debt at a single-digit rate?

C.L.: A large part of the creditors of public debt fell out. Between principal and interest, there are up to US$20 billion. Another reason for Argentina not being able to go out to the market is because of the arrival of investors. It's a mistaken evaluation to not give importance to the IMF and to not worry too much about the Paris Club.

R.: You don't find the results of the swap to be successful?

C.L.: They couldn't close it entirely. It was less successful than what the government wanted. Also, those who fell outside it will continue taking a confrontational attitude. So, each time that the country wants to emit bonds abroad, they will order embargoes. There is even legislation in the state of New York that finds that, as the creditors were not paid, they were denied tax collection on the interest that were not collected. So, New York as a state considers itself harmed. Some legislators are pushing for countries that didn't comply with their contractual obligations, like Argentina, be made to pay a high fine.

R.: What are the main economic problems in sight?

C.L.: The current situation is seen as very positive in terms of economic activity. On the one hand, there is a big fiscal expansion, and the external conditions have improved significantly. In that sense, Brazil is passing through a boom period, and trade with China also helps. The big problem is that the levels of investment are low, which are not coherent with the rate of economic expansion. So that translates into elevated inflation, which for the year is expected to be placed around 25%. Also, the very strong monetary expansion over the long term will have a negative impact.

R.: Regarding the new stimulus plans of Barack Obama. Could a double recession be avoided?

C.L.: I don't think it is happening. The majority of experts say that, once the recovery consolidates, there will slowly be growth. There are problems between expectations of people, who were hoping the economy would expand more rapidly, and reality. The empirical evidence shows that we've been late in exiting the crisis like we should have. Obama's plans help in the short term. GDP is recovering, but it will not be back to previous levels that set off the bubble.

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