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IMF sees more pain for Argentina


President Eduardo Duhalde  
Argentina's fifth president in two weeks

The head of the International Monetary Fund (IMF) has said it is ready to work with Argentina to solve the debt-ridden country's problems.

But IMF managing director Horst Koehler said Argentina's difficulties were "home-grown" and finding a solution would involve pain.

Argentina's president has devalued its currency by 30% in a bid to tackle the country's economic problems, including its inability to repay $141bn of overseas debt.

Argentina's crisis was triggered when demonstrators rejected austerity measures put forward by the previous non-Peronist government after the IMF refused a fresh loan of $1.3bn last month.

Worried savers

President Eduardo Duhalde, who is the country's fifth president in two weeks, met on Monday with leaders of the trade unions and the popular protests that turned into riots and brought down the previous administration shortly before Christmas.

The streets are quiet again, though Argentines were queuing up at banks before the weekend to withdraw their savings. The government has imposed a two-day bank holiday from Monday.

Following the devaluation on Sunday, the IMF chief and other international financial leaders have expressed support for Argentina's new course but stressed the country must solve its own problems.

'Home-made crisis'

"What Argentina needs now is growth and growth requires savings, investment, and a working banking system", said the IMF's Mr Koehler, who was in the Swiss city of Basle for a meeting of the Bank for International Settlements.

"But one also must recognise that without pain, it won't get out of this crisis, and the crisis -- at its root -- is home-made," Mr Koehler told Reuters news agency.

An IMF technical mission was due in Buenos Aires on Monday.

'No quick fix'

The Bank of England's govenor, Sir Eddie George, who was chairing the Basle meeting, said "it is not going to be a quick fix" for Argentina.

He said the "good news" is that Argentina's economic problems do not appear to have spread to the rest of South America.

The current chair of the European Union's finance ministers was similarly non-committal, saying Argentina was "on the right path" but needs to find "maximum consensus with national and international investors."

Rodrigo Rato of Spain said he was sure European finance ministers would have "a positive role to play...in the light of Argentina's problem at the moment."

New business taxes?

Spain is the European country whose firms have most exposure to Argentina.

spandish firms - such as oil company Repsol - could bear the brunt of the Argentine government's attempts to pass the costs of devaluation onto banks and private firms while cushioning consumers.

Argentina's economy minister plans to tax petrol exports to cover the $15bn cost to banks of converting the dollar denominated debts of ordinary Argentines into pesos.

Economy minister Jorge Remes Lenicov is expected to meet with foreign investors on Monday.

Inflation fears

To protect consumers and stave off further unrest, the economy minister is now grappling with the threat of inflation and has urged local firms not to hike prices in the wake of the devaluation.

"We spoke with supermarkets yesterday and they promised to only mark up imported goods," he said.

Although the protests have calmed down, one fear for the government now is that many middle class Argentines will start to quit he country.

Adapted from bbc.co.uk: Monday, 7 January, 2002.



E-mail Steve Margetts