Just eight months since Argentina declared its $100 billion debt restructuring over, it is already being regarded by many as an event that changed the way the international financial system will work in the future.
Critics fear and champions cheer that Roberto Lavagna, the 63-year-old minister of economy, made history when he drove 76% of creditors to accept the deepest haircut on the largest restructuring ever undertaken. Whatever evaluation is made of the Argentine debt restructuring, there is little question that it broke with existing precedents established at least since the massive debt crisis of the 1980s. Not only did Argentina "go it alone" in the sense that there was no financial "rescue" by the IMF or the developed countries, it proceeded under only a transitional eight-month agreement with the Fund.
The country's unique exercise of autonomy can, to a great degree, be laid at the feet of IMF policy bungling which continued throughout 2002, as the economy began racking up unexpectedly rapid signs of recuperation, followed by equally surprising high growth rates in 2004 and again this year. Lavagna never wavered and marched to the sound of a different drum on almost every issue from export taxes to exchange-rate policy. It seems to have paid off – for now.
EM: A significant part of the international financial community – whether it likes what you've done or not – thinks that you and your team have, in a sense, changed the rules of the game for dealing with the IMF. What do you think about that assessment?
RL: For 11 years, Argentina followed an economic experiment unusual in a country with an economy of its size: convertibility. It was unusual in the context in which the majority of countries had a different exchange-rate policy. During this period, Argentina was considered the exemplary country [of emerging markets]. This model entered a situation of structural deterioration at the end of 1994 which ended, finally, in the crisis at the end of 2001 – the worst suffered by Argentina in a least 150 years.
One has to have enough courage to admit that something was very deeply wrong. As the policy recommendations coming from the IMF and other financial institutions in general did nothing more than repeat what they had been insisting on over a great deal of time, it was very clear that we had to take a different path and do so very explicitly. The experiment had exhausted itself, the crisis was enormous and those who had participated in the experiment – aside from the Argentine government, the international organizations themselves – were still going down the same road. Consequently, it became imperative to confront these ideas in some way, and to do so with great clarity.
EM: Do you think that, given your criticisms of the Fund, and in light of the way in which Argentina restructured its debt, Argentina's experience serves as an example to other developing countries?
RL: I have avoided making ideological statements with regard to the Fund but, yes, I have spoken about the facts. As I've said before, the Fund played a negative role in the Argentine crisis; because it didn't want to, didn't know how to or couldn't understand – it didn't help [the situation].
This was born out by two facts. First, in the midst of what, as I said, was its worst crisis, Argentina made net cancellations on its debt to the international financial organizations for more than $13 billion, of which around $7 billion or a little more went to the IMF. The Fund absorbed net resources at a moment when Argentine society needed support for its recuperation.
Second, since we did not have an approach that was ideologically opposed to the Fund, in a number of ways, we exhausted all the means of negotiating, discussing, explaining – evidently without achieving any change on the part of the Fund. This is the reality. This is not a speech.
In 2001 the IMF financed capital flight from Argentina with new loans. It was unable to finance anything – just the opposite: it collected money when the moment came to get Argentina out of a critical situation. These are facts. There is no ideological discourse here.
The second comment is related to this. We began already in 2002 – and with even more intensity since the economy had started recuperating and after a new government took over in 2003 – with the idea that if we had to choose between the prescriptions of the Fund or cancel debt, it was better to cancel debt. Therefore, we initiated the policy of debt cancellation.
As we know, this was, in general, not occurring. Now we see that other countries have also chosen to do this. Russia, for example, cancelled all of its debt with the IMF but not, for example, with Germany, which was another important lending source. Brazil, just over two weeks ago, announced, not a total cancellation but, yes, an anticipated cancellation. Turkey has also slowly begun to cancel its debt, as has Indonesia. Whether this serves as an example for others I can't say. But, again, I'm simply stating what has happened. None of us has proposed to other countries that they choose this option. Some [countries] are so distant that we certainly can't be said to have influenced them.
The third fact is, we might say, still under discussion. Within the financial group of the G20 there is a discussion on how to modify some of the rules on how the [sovereign debt restructuring] system functions. There we have made some very strong proposals, such as regarding the use of bond coupons tied to GDP growth. I saw just the other day that [economist] John Williamson, [architect] of the "Washington Consensus", has made a similar proposal as a means of stabilizing the markets.
We have also proposed that retail creditors be treated preferentially and that those who originally bought debt also be treated differently; and that, on the other hand, those who purchased debt post-default be penalized in some way. Moreover, we have proposed that there be a transparency code – which today does not exist. These are ideas that we would like to see incorporated into this code. Accordingly, I have written to all of the ministers of economy and central bank presidents of the countries participating in the G20 anticipating these suggestions, which have been made public. We will follow up on this in the next meeting in China in two or three months, where we will push for them.
As you see, there are at least three conclusions that can be drawn from the Argentine case.
EM: As a result of your comments and criticisms and those of others who have examined and written about the Fund's performance in Argentina, have you seen any changes in the organization with regard to its treatment of Argentina?
RL: Never. No change at all. Not only have there been no fundamental changes, in some – not all – sectors of the Fund there has clearly been a tendency to transform the IMF into a lobbyist for creditors. Many of what were the central objectives of the IMF – that it helps countries in crisis, that it is a multilateral entity – are being lost. Instead, it is being converted into an organism that plays a pro-cyclical role and at times definitively helps to maintain a model, such as was the case with convertibility. At the same time, it has been losing something of its independence to judge, not those countries that are, after all, the owners of the IMF, but as I recall all of the countries are partners in the IMF, not bankers. The IMF's capital and its founding charter give us, the countries, the central role. But instead, as I said, some areas in the Fund appear to have taken on the role of agents or channels for the transmission of pressures from creditors.
EM: You will undoubtedly have to hear the concerns of the financial community, especially during the World Bank/IMF annual meetings.
RL: Look, it's very simple: if there are comments whose goals are to change essential aspects of Argentine economic policy, we will listen in a well-educated and polite manner, as one should, but they will have no influence. It seems to me that this is something that the Fund is beginning to understand, and it's a function of seeing results. Argentina is not going to change its policy. We have complied with paying but that is not the reason the Fund exists, nor why it was created. It should have a different ambition, which is not just to get paid but to help now; not to overcome because Argentina got out of its crisis on its own – but to help consolidate, learn the lessons that can be applied to other countries. That's what it seems to me it should be.