Imf, Argentina, Debt

Imf, Argentina

Commentary: Argentina’s debt crisis shows IMF skidding down a slippery slope

Commentary: Argentina’s debt crisis shows IMF skidding down a slippery slope

18.10.2019

Commentary: Argentina ’s debt crisis shows IMF skidding down a slippery slope

It’s high time we ask how the IMF ’s mandate for dealing with emerging-market debt crises should be refocused, says Kenneth Rogoff.

How can the IMF be effective in helping countries regain access to private credit markets when any attempt to close unsustainable budget deficits is labeled austerity?

The IMF’s difficulty in saying no to Argentina partly reflects an acrimonious history stemming from the failed loans from the late 1990s through 2001.

There is a case to be made that by pushing the IMF to go easy in its loan programme, US President Donald Trump’s administration made Argentina’s latest economic calamity worse. After all, Argentine President Mauricio Macri’s father was a business partner and friend of Trump.

But while non-government organisations might cheer if the IMF were to convert its loans to grants, pretty soon the Fund’s coffers would be bare. This, too, might make some people happy, but it would be a disaster for global financial stability.

Booming commodity export prices allowed the economy to continue growing, but when the cycle turned, it all fell apart.

The normal prescription for an incoming administration would have been to take the pain of budget consolidation early on, and hope that the economy recovers well in advance of the next election. Instead, Macri decided to close the budget gap slowly, and use his political honeymoon to cut taxes and liberalize markets.

The short answer is that the IMF cannot do it alone. The only way to square the circle is with a huge increase in aid flows.

Kenneth Rogoff, a former chief economist of the IMF, is Professor of Economics and Public Policy at Harvard University.

Read more: CNA

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