By Simon Gardner
BUENOS AIRES, Sept 9 Reuters - Argentina defaulted on a $US3
billion ($A4.57 billion) debt to the International Monetary Fund on
Tuesday, the biggest single missed payment in the IMF's history and
likely to further isolate the precarious economy.
The default, which comes nearly two years after Argentina racked
up the biggest sovereign debt default ever in the throes of
economic collapse, means Latin America's No.3 economy joins the
ignominious ranks of IMF defaulters like Liberia, Sudan and
Zimbabwe.
"To avoid compromising 25 percent of (Central Bank) reserves,
the government has decided to suspend the payment that was due
today," the Cabinet Chief's office said in a statement.
"The Argentine government and the IMF have not yet concluded
negotiations concerning a refinancing deal with the multilateral
credit organisations (the IMF, World Bank and Inter-American
Development Bank)," it added.
The IMF was not immediately available for official comment on
the default, which comes as Argentina was striving to reach a
crucial aid deal with the IMF to roll over $US12.5 billion ($A19.03
billion) owed over the next three years.
However, many economists expect some kind of deal to be forged
in coming days or weeks, and played down the default's importance
in the near-term. It could take at least a month before the IMF
institutes any sanctions and penalties.
The economy has shown tentative signs of recovery in recent
months under the stewardship of highly popular new President Nestor
Kirchner.
NEW NAIL IN COFFIN
But the default is another nail in the coffin for investor
confidence in Argentina, still a pariah for many investors after
the government stopped making payments in January 2002 on what is
now $US90 billion ($A137.01 billion) in defaulted, privately-held
debt.
Kirchner's new left-leaning government opposes IMF austerity
plans and refused to use around a quarter of its international
reserves to pay yesterday's debt.
Thousands of unemployed protesters, including mothers pushing
strollers and men waving placards such as "No to the IMF, Yes to
education and bread!", paraded in downtown Buenos Aires, where
people often label the IMF the "International Misery Fund."
Kirchner, part of a growing number of Latin American leaders
reluctant to follow Washington-encouraged pro-market reforms,
argues that he must place priority on helping around half the
country of 36 million people that live in poverty.
"This is not a happy state of affairs, but the market has
learned to live with it (Argentina's default on privately held
debt)," said Gerd Haeusler, director of the IMF's capital markets
department, at a Paris meeting.
While Argentina was a darling of Wall Street in the 1990s after
a bonanza of market reforms, now it is almost impossible for
consumers to get a simple bank loan. Firms must rely on their own
cash rather than credits to expand.
"The day-to-day will not change, but a default is serious
because it means that Argentina is refusing to deal with major
economic issues that surged from last year's collapse and could
eventually undermine the recovery," said Sebastian Rodrigo, a
lawyer who advises local and foreign investors in Argentina.
Argentina, which is not asking for any fresh cash, has so far
failed to agree with the fund over conditions for a wider aid deal,
including compensating banks for losses after last year's currency
devaluation and raising frozen utility rates.
Argentina must resolve its debt obligations with the IMF before
it can get down to restructuring the $US90 billion ($A137.01
billion) worth of defaulted debt held by hundreds of thousands of
creditors from Milan to Tokyo.
Reuters/cbs
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