Going for Broke

Oct 5, 2003

Argentina extracted a favorable deal from the IMF but its victory could be short-lived if the country fails to address critical policy weaknesses.

Say what you like about Néstor Kirchner, but Argentina's president has shown the world he knows how to negotiate. He rightfully claimed victory over the International Monetary Fund in September before proceeding to make a predictably aggressive offer a few weeks later to bondholders sitting on $75 billion in defaulted Argentine government debt. Kirchner had a strong hand and played it well. Argentina is growing again as it emerges from the wreckage of the 2001-2002 crisis. Its president is hugely popular at home and key western governments, led by the US, were fed up with the IMF's fruitless hardline tactics against Argentina and pushed it toward a more conciliatory position. Armed with an undemanding three-year IMF deal, Kirchner and Economy Minister Roberto Lavagna believe they have little to lose in talks with bondholders. Lavagna made an aggressive opening bid to bondholders during the IMF/World Bank meetings in Dubai in late September,...

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“The crisis has been a setback for reserve diversification."

Jan Dehn, Ashmore Investment Management