The International Monetary Fund rushed financial aid to Argentina and Brazil Friday in hopes of staving off a regional collapse under the weight of Argentina’s troubled economy.
U.S. Treasury Undersecretary John Taylor, who held urgent talks with Argentine President Fernando de la Rua and other officials in Buenos Aires earlier Friday, said he was “happy” with the announcements. The fund expressed its readiness to speed up disbursement of US$1.2 billion to Argentina to “stabilize the macroeconomic situation” in the country.
For Brazil, IMF Managing Director Horst Koehler recommended a new US$15 billion stand-by loan to help its government strengthen fiscal and monetary policies “in the face of a difficult external environment.”
Koehler said the fund intended to recommend that the next disbursement of funds to Argentina take place in August instead of September.
The payment is part of a US$13.4-billion stand-by loan arrangement approved by the IMF earlier to facilitate Argentina’s economic reforms.
Koehler said an IMF mission currently in Buenos Aires expected to conclude negotiations with Argentine authorities on speeding up disbursement of the money shortly.
“Argentina has demonstrated a strong commitment to the convertibility regime and to decisive implementation of the package of measures designed to achieve a zero fiscal deficit that will help greatly to stabilize the macroeconomic situation and to strengthen confidence,” the IMF chief said in a statement.
“In view of these resolute efforts, the IMF stands ready to support Argentina,” he added.
The Brazilian request was expected to be considered in September, and the first tranche of about US$4.6 billion was to be made available upon approval of the program, the IMF said.
Brazilian authorities were expected to announce next week new policies associated with the lending program, according to the IMF.
Burdened by rising foreign debt and turbulence in Argentina’s economy, Brazil decided to negotiate an extension of its 1998 accord with the IMF for loans totaling US$41.5 billion due to expire at the end of this year.
Last week, in a speech to bankers, Brazilian Finance Minister Pedro Malan said the new loan would only be accepted on terms agreeable to Brazil.
Brazilian authorities are treating the loan as precautionary and plan to use it only if they deem it is necessary, according to the IMF.
Argentina, in the grips of a three-year recession, has adopted a wide-ranging austerity package to avoid defaulting on its foreign debt, and Taylor’s talks in Buenos Aires Friday focused on ways of bringing the Argentine economy back on solid footing.
“I had fruitful and detailed discussions,” Taylor said of his talks without providing details.
But the Argentine government’s efforts got a boost Friday when the White House announced that U.S. President George W. Bush, British Prime Minister Tony Blair and Spanish Prime Minister Jose Maria Aznar had agreed Friday to back Argentina’s financial reforms.
“They all agreed that the focus should remain on the implementation of the current (IMF) package for Argentina,” Bush spokesman Ari Fleischer told reporters.