The Washington Post
Friday, August 17, 2001

Argentina Hammered as Aid Fails to Materialize

By Simon Gardner

BUENOS AIRES, Argentina, Aug 17—High hopes for an imminent multi-billion dollar aid announcement for Argentina were dashed on Friday, when the IMF said
while new funds were being discussed, it could not say when a decision might come.

Latin American markets were punished along with Argentine shares and bonds by investors, who said any new aid package -- which the government has been trying
to secure for the past week to help underpin dwindling reserves and fend off fears of a debt default—needs to come fast.

U.S. Treasury Secretary Paul O'Neill, meanwhile, warned Argentina was in a "very slippery situation," adding the U.S. was working to create a "sustainable

Investor expectations had swelled ahead of an International Monetary Fund statement issued on Friday, the eighth consecutive day of talks, with speculation as to the
size of a possible aid package swirling in the media and markets alike.

Analysts blamed Argentina's local media for whipping up hopes with daily, unsubstantiated reports of a package worth up to $15 billion while analysts have been
forecasting aid between $6 billion to $9 billion.

"The problem is that everyone had expected the IMF aid to come quite soon," said Rodrigo Gordon Davis, an analyst at Gordon Davis y Cia. brokerage in Buenos
Aires, saying further delays could scare Argentines into withdrawing more savings.

Meanwhile, the Argentine government—which had fueled such expectations by saying on Thursday the lender was poised to make a "favorable" statement on
Argentina—declined to comment on the matter on Friday.

"I believe this (package) has to come out now. It is a disappointment. This has to come out this weekend or Monday," said Mario Zawadzki of Schweber

The financial woes of Latin America's No. 3 economy also overshadowed an annual summit of Latin American Presidents in Santiago on Friday, with the leaders said
to be scripting their statements of support for Argentina in a way that won't be perceived as pressuring the IMF.


The IMF said on Friday that while it would be surprised if no statement on Argentina came within two weeks, it could not say when such a statement would be

"The possibility of additional financial support is one of the items being discussed," IMF External Relations Director Tom Dawson told reporters in Washington,
saying the Argentine media reports of a $15 billion package were "exaggerated."

The size, timing and conditions of any new loan package for Argentina is a key concern for investors, who hold much of the nation's $128 billion public debt.

However, there has been vocal resistance to any further IMF aid to the crisis-racked South American country.

U.S. Treasury's O'Neill told CNN in an interview: "And Argentina is now, after the $41 billion intervention, in a very slippery position."

"We're working to find a way to create a sustainable Argentina, not just one that continues to consume the money of the plumbers and carpenters in the United States
who make $50,000 a year and wonder what in the world we're doing with their money," the transcript added.

Argentine President Fernando de la Rua, in Chile for the summit, declined to comment on O'Neill's statements.

Earlier on Friday, Morris Goldstein, an economist and former deputy director of research at the IMF, warned in an editorial that the lender should dole out no more
cash until Argentina restructures its debt and breaks its currency peg to the dollar.

Local markets slumped on news that the aid deal had not been realized. Argentina's benchmark Global 2008 dollar bond fell 6.5 percent to 61.50 points on Friday,
dragging fellow emerging market bonds lower in its wake.

The Buenos Aires MerVal stock index ended down over 6 percent. Argentine markets will be closed on Monday for a holiday.

The country risk premium the government must pay to entice investors away from safe-haven U.S. Treasuries Argentina widened 115 basis points to 1,502 basis
points. That means Argentina is perceived as a riskier investment than the likes of Russia, Brazil and Turkey.

The IMF said, however, Argentina's debt load was an issue in the discussions but that it should not be overemphasized. Talks were also said to have included the
Argentine government's new strategy to erase its budget deficit.

Unpopular austerity cuts to state salaries and some state pensions, aimed at helping it achieve that zero deficit target, have prompted waves of nationwide protests in
recent weeks.

Markets are now looking for proof the government will stick to its cutbacks and not give in to mounting social protests with legislative elections looming in October.

International reserves and bank deposits have fallen in recent weeks amid fears of a currency devaluation or debt default after a three-year economic slump.
International reserves have plunged nearly 36 percent since Economy Minister Domingo Cavallo was appointed in March.

                                                        © 2001 Reuters