IMF's Role in Argentina to Be Investigated by Panel
By Mark Drajem, February 6, 2003 

Washington, Feb. 6 (Bloomberg) -- An International Monetary Fund panel will examine whether the IMF should have done more to prevent Argentina's economic collapse, the first time the independent board will review the fund's handling of a single country. 

The IMF, which pledged $34 billion to Argentina in the decade before the country's default on $95 billion in debt last year, has been criticized for allowing the government to run up a debt it couldn't afford. 

Argentina's default "has raised a number of questions about the effectiveness of IMF crisis prevention and the quality and impact of its policy advice,'' the two-year-old Independent Evaluation Office said in a statement. 

More than half of Argentina's 36 million people are in poverty since the default and currency devaluation a year ago. The country was the wealthiest in South America in 2000, with a per capita income of $7,460, according to the World Bank. Measured in dollars, the economy is a third of its size in 1997. 

Criticism of IMF 
The independent panel was created by the IMF's shareholders in 2000 in the wake of criticisms of the fund's handling of the Asian financial crisis. Led by former Indian finance minister Montek Singh Ahluwalia, the panel findings are presented to its board and to the public. Its recommendations aren't binding. 

The panel said it has taken on the Argentina case because of the IMF's "continuous engagement'' with Argentina through the 1990s, when the country pegged its peso to the dollar. The IMF praised Argentina in 1998 for its "exemplary'' policies of fighting inflation and encouraging foreign investment. 

The panel said it will examine whether the IMF provided "adequate and effective policy advice'' as well as whether the fund might have done more to avoid the default and devaluation. The study will focus on the two IMF packages, worth a total of $21.7 billion, that the fund pledged Argentina in 2000 and 2001. 

Critics including former IMF chief economist Michael Mussa say IMF programs for Argentina through the 1990s allowed that country to more easily tap funds from private markets, racking up an unsustainable debt. Argentina became the biggest borrower on capital markets among developing nations. 

Peso Peg 
Then, in late 2000 or in 2001 the fund should have forced Argentina to reschedule its debt and break the peg of the peso to the dollar, which would have allowed the country to avoid some of the pain of last year's default, some critics say. 

Mussa has called the decision by the fund to give $8 billion more to Argentina in August 2001 "absurd,'' adding that "only a fool'' could have concluded that Argentina had a chance of avoiding default at that point. 
IMF spokesman Francisco Baker said the IMF had no immediate comment on the opening of the inquiry. 

After a year of negotiations, the IMF agreed last month to defer $6.8 billion due to the lender through August, giving Argentina time to hold presidential elections in April and install a new government without falling behind on payments to Washington- based institutions. 

With that IMF package, the World Bank and Inter-American Development Bank were cleared to begin providing new aid. Argentine Economy Minister Roberto Lavagna is meeting with top IMF, World Bank and U.S. Treasury officials this week in Washington. 

`Special Interests' 
IMF research released today comes to one conclusion of what goes wrong in countries such as Argentina. Researchers examined why some countries implement their agreements with the IMF and others don't. 

"The paper concludes that program implementation depends primarily on borrowing countries' domestic political economy,'' according to a synopsis posted on the fund's web site. "Strong special interests, political instability, (and) inefficient bureaucracies'' make IMF aid programs less likely to succeed, the researchers concluded.