U.S. says big challenges still ahead for Argentina
Tue May 3, 2005 07:15 PM ET
By Laura MacInnis
WASHINGTON, May 3 (Reuters) - Argentina has several hurdles yet to clear as it seeks to entrench economic stability and foster growth three years after its huge debt default, a senior U.S. Treasury Department official said on Tuesday.
"Argentina faces some significant challenges in the near term," Randal Quarles, Treasury's acting undersecretary for international affairs, told a Washington conference.
"While the general macro situation has been good -- growth has been strong, inflation has been contained -- the issue for Argentina will be addressing what we think are the obstacles to sustained economic growth."
Such obstacles, Quarles said, include a need to improve the country's business environment and to encourage more banking sector competition.
"While the debt restructuring has accomplished an important step in this process, these other elements are very significant," he said.
Argentina defaulted on $81.8 billion in public debt in 2002 at the height of an economic crisis in which millions sank into poverty and the country's banking system collapsed.
In February, about 76 percent of creditors accepted an Argentine government offer to exchange nearly $103 billion in defaulted bonds and interest for new debt, a deal giving them about 30 cents for each dollar first invested.
Argentina has signaled it will not negotiate with the bondholders who rejected the swap, but has come under pressure from International Monetary Fund and creditor countries to chart a course toward reconciliation.
The IMF and Argentine authorities are in early stages of talks toward a resumption of a $13 billion accord which was suspended last year to let the country focus on restructuring its defaulted debt.
In Washington on Tuesday, Argentine Central Bank President Martin Redrado said he had discussed Argentina's monetary policy strategy with IMF officials as well as the country's Congress in order to foster confidence.
"We know we have to invest in our credibility," Redrado told the Council of the Americas conference, held at the U.S. State Department.
The central bank chief said believed the recent jump in Argentine consumer prices, which rose 4 percent in the first three months of 2005, was a temporary trend and would not raise year-end inflation forecasts.
"We clearly know that this is not a permanent factor," Redrado said, adding tax collection in the second quarter of the year would help absorb excess money supply in the economy.
Redrado said he did not anticipate seeing a monetary policy impact once Argentina issues new bonds to swap participants, a long-awaited transaction that has been delayed pending a ruling in a U.S. court case.
Still, he said foreign exchange values might be impacted if U.S.-based portfolio managers choose to trade in their new peso-denominated debt for dollars after the bonds are issued.
"I see more volatility in the foreign exchange market than in the monetary market," Redrado said.
While some analysts have raised concerns that rising U.S. interest rates could constrain Latin American output, Redrado said Argentina's growth prospects might be more closely tied to conditions in its trading partner China.
"I think we are more China-dependent than interest rate dependent," he said, noting Argentine exports to China have grown at a blistering clip in past years. "In terms of growth, the China factor is a critical element."
Though Redrado stressed at several points the independence of Argentina's central bank from the governing executive, his speech was interrupted partway through by an aide holding a mobile phone who said President Nestor Kirchner needed to speak with the central banker at once.
Redrado returned to the podium a few moments later and apologized to the audience, explaining that when Kirchner wants a piece of information, he typically wants it right away.
"Everything is all right," he added.
(Additional reporting by Doug Palmer)
http://www.reuters.com/newsArticle....U0ZASYCRBAEOCFEY?type=topNews&storyID=8378911
