Argentina and the IMF
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Transcript of a Press Briefing (Teleconference) on Argentina
Anne O. Krueger
First Deputy Managing Director
International Monetary Fund
Friday, January 11, 2002
MS. KRUEGER: We are all, here at the Fund, very concerned about the situation in Argentina. I think we do appreciate the extremely difficult social situation, and know that it's a very hard context in which the new team has to form new economic policy.
Basically, I think it is a troublesome situation for everyone and I think it can say without fear of contradiction that everyone at the Fund is extremely sympathetic with the difficulties the Argentine people are going through.
The Managing Director has already made clear, and I think our actions have also made clear, that we stand ready to help Argentina in this extremely difficult time. We have been in close touch, and we will continue to be in close touch with the authorities.
As you probably know, we have already had some of our people down there. We are sending a monetary mission down next Monday as the team formulates its plans, and as we can be of help or as we can be useful, we will be sending other missions. I think there is no question about that.
And when a program is formulated that basically gives promise of going forward in an appropriate way, we will of course stand ready to support it.
I think the authorities themselves have already identified the main immediate economic challenges that they have to face. Some are very short term and they need to find out how to convert them into a medium term sustainable package, but certainly they recognize they had to do something about the choice of the exchange rate regime. They have correctly recognized that they have to do something to safeguard the banking system. They know that they have to strengthen the fiscal position. They know that they need to find a monetary policy regime that will maintain low inflation, and certainly there is a need to restructure Argentina's debt.
Now, how you find a solution to all these problems is very difficult. Each of the pieces of that puzzle depends in part on what you do with the other pieces, and of course the team has only been in office a week. Many of them did not expect two weeks ago even to be there, and they really have not had time to address all of the issues.
The Fund will help with its policy advice and technical assistance as they begin to get a coherent program, and until they do that, there is no point in our talking about a Fund support program for them. But basically, as the time comes, of course, we can look at that too. But it is premature at this stage.
The Executive Board did have a meeting this afternoon. It was what is called an informal Board meeting. Executive Directors were unanimous in their concern about the situation for Argentina, expressed their support, and encourged us to work with the Argentines, first on the technical side, at this stage, and then later move on with others.
Basically we are cooperating. We are in close cooperation with the Argentines and in ongoing discussions with them, and do expect that that will continue and perhaps even intensify in the days ahead.
QUESTION: There has been concern about the attitude of the IMF towards the dual exchange rate that Argentina has chosen to get out of the convertibility. I would like to know if this is so, if the IMF is recommending to go to a floating exchange rate.
MS. KRUEGER: We are not making any recommendations for the government to do anything, so to speak, today or immediately. In the medium or the longer term, we do not believe that a dual exchange rate system is sustainable. It requires a number of control mechanics, such as making sure you get things in the right category and all, which are very difficult to administer and are inconsistent with the growth, or healthy growth of an economy.
So in the longer term our position would be very much that the exchange rate needs to be unified. In the very short term we are not taking a position, although we have and would continue to state that we hope that the way the authorities implement the regime is consistent with a feasible and doable time path to remove it, to basically unify the two rates as soon as possible.
QUESTION: Which could be the right sequencing according to the Fund? You mentioned a lot of different problems that the government has to address, such as the monetary, fiscal consolidation, getting the exchange rate system right, etc., and there is also the "corralito"and all these limitations to the banking system that are even worsened by the devaluation itself. So, what should be done first?
MS. KRUEGER: What I would like to do is distinguish between having an overall plan —which, it seems to me, needs to be done as soon as possible, where it is understood how the various parts of the program go together—and then implementing each of them as the authorities can. I don't think it is a matter of sequencing. In fact, I think it is probably a mistake to decide that we will first do monetary policy, then we will do fiscal policy, then we will do exchange rate , etc.
QUESTION: But what about the terms of negotiation, of agreeing on points and then building on that plan?
MS. KRUEGER: Well, you are talking about negotiation with whom?
QUESTION: The Fund with the government.
MS. KRUEGER: At this stage, we are discussing with the authorities. We are perfectly happy to send technical missions and to be of help where we can. Until there is a fairly coherent program, one that gives promise to the medium run, I do not think that we can enter into negotiations. It is too soon for that.
The authorities quite clearly have identified the issues. I think, in part, it is a matter simply of putting together their teams so that they can work on it. They certainly have the priorities right. It is not something where they are going off on things that are not relevant.
QUESTION: You said that, for medium or long term, you need to have a unified exchange rate.
MS. KRUEGER: Oh, yes.
QUESTION: Does that also mean a floating exchange rate or simply a one-way system that could be fixed in some way?
MS. KRUEGER: At the moment, the way the authorities are talking about going is toward a floating exchange rate system, and we have every reason to believe that a floating exchange rate system would be a very satisfactory part of a medium-term package.
QUESTION: Regarding the interim measures that the Argentine authorities have to take before they have the package, the whole policy in the medium term, are the IMF recommendations being well received in Buenos Aires? What is the quality of the dialogue?
MS. KRUEGER: Well, as I told you, we had a mission down there over the weekend. They came back Monday and Tuesday. Another one will be going down next Monday.
Last weekend the Argentine team was so new that we billed it as a fact-finding mission on our side. The report was that the Argentine team was very eager to talk with them. They wanted more support as quickly as possible. The rest of this mission is going early next week. And given the circumstances—the Minister, himself, and others have expressed their intent to work with us—everything is excellent.
QUESTION: Does the IMF have any position short term or long term in regard to dollarization; and, secondly, are any measures taken by the Argentine government up to now considered to be something which the IMF cannot live with in discussing a plan?
MS. KRUEGER: Well, there are measures that cannot go into a longer term. I mean, you cannot maintain a banking freeze forever, for example, but the authorities are not thinking of that. They have taken these as short-term measures.
QUESTION: Does that mean that the banking freeze has to be lifted before the IMF negotiates?
MS. KRUEGER: No, no, no. What I mean is that we would urge them not to take things that were very difficult to unwind in the longer term and to try and do their short-term measures in ways that will make it easier, rather than harder, to move expeditiously and efficiently toward a more liberal system.
This does not mean, however, that we could not negotiate before that. But by the time we negotiate, we would want to see the broad outlines, at least, of an overall plan of how to get from here to there.
QUESTION: So there is nothing that has been done that would break negotiations so far. What about dollarization, is that included or excluded?
MS. KRUEGER: Well, my understanding at the moment is that that is technically unfeasible. So I don't think the authorities are thinking about it, I don't think we are thinking about it. They have already said they are going to a floating rate regime, and we are just accepting that.
QUESTION: I know you are saying that it is impractical for you to talk about entering into negotiations until there is a coherent policy framework put forward and so forth, but looking at the financial amounts that the Argentines are talking about, an amount that would be necessary to make the banking system functional in the long run, isn't it logical to assume that, aside from the resources that are available at the IMF, that some substantial additional amount of bilateral resources would be necessary as well?
MS. KRUEGER: I do not know. I mean, there have been—we have seen some numbers, been seeing from the Argentine authority, but we have also seen some quotes attributed to us that we know not to be true. So we are waiting until we hear something directly from the Argentine authorities, and that we have not done as yet.
I guess the only thing I can really tell you on that is I don't think they have moved far enough along with their measures yet so that it is possible to get an estimate of what would be needed, and even then it would depend very much on how they did things. So I think we are way too early for that.
QUESTION: What is the Fund's position on the measures that are being taken, that were already being taken by the government in terms of the speed or the lack of speed with which they seem to leave all of these limitations to the Banking system?
MS. KRUEGER: As I said, we are sending a technical mission down next Monday, and they will be talking about those issues.
QUESTION: What is your opinion or the opinion of the Fund about the decision by the government that part of the assets of the banking system be converted one-to-one into pesos, but the liabilities are still in dollars?
MS. KRUEGER: Well, again, lots of things are still undecided. They have done that. We are taking that as a given, although there are questions as to how one goes about addressing the impact on the banking system and on the banks' balance sheets.
Let me just emphasize once again that this is something that is a work in progress. It is not something that is completed. There is an ongoing dialogue, an excellent cooperation so far. It's a very difficult thing, and beyond that I think it is far too early to reach some of these conclusions.
Thank you very much.
IMF EXTERNAL RELATIONS DEPARTMENT