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OPINION AND ANALYSIS | 05-09-2019 09:47

Will the crisis in Argentina hurt the IMF's reputation?

Experts say a fundamental mistake by the IMF was to push for too-strict cuts even when the Argentine economy entered recession.

The surgeon usually takes responsibility for whatever happens inside the operating room. Should a multilateral organisation do the same when one of its member countries does not reach the goals agreed upon as part of a major loan programme?

The International Monetary Fund (IMF) has now failed twice to bring durable reforms to Argentina. Experts say the disappointing result could damage the IMF's reputation.

"They have to worry about their reputation because this is the second time they made a mess of Argentina and everybody knows it in the world," said Mark Weisbrot, co-director of the Center for Economic and Policy Research. "The IMF is going to continue to loose influence in the world. That has been the trend for 20 years now."

President Mauricio Macri's decision to get financing from the IMF brought bad memories to many Argentines, who blame the Fund for the financial crisis in 2001 that left millions of people unemployed and sent the poverty rate above 50 percent. That year the country entered a historical default for US$100 billion and it was able to return to the financial markets 15 years later only after a laborious legal fight with creditors.

Macri last year got a US$57-billion loan, the largest in IMF's history, as part of a strict programme to cut public spending.

"The problem is the IMF responses are always politically disastrous and make it impossible for any reformer to survive," said Benjamin Gedan, director of the Wilson Center's Argentina Project.

Both experts say a fundamental mistake by the IMF was to push for too-strict cuts even when the Argentine economy entered recession. While the Fund took the unusual step to include expand some social spending for vulnerable groups as part of the programme, it failed to gather support among the general population.

The Associated Press asked the IMF whether it takes any responsibility for the 15-point lead that left-leaning Alberto Fernández held over the conservative Macri in last month's presidential primaries, an outcome that made the populist candidate a heavy favourite in the presidential elections set for October 27 and panicked financial markets fearful of a return to the interventionist policies in place under the poll leader's running-mate, former president Cristina Fernández de Kirchner, who preceded Macri in office.

"Our focus has been and remains on helping Argentina. IMF staff remains in close contact with the authorities and the Fund will continue to stand with Argentina during these challenging times," IMF spokesperson Gerry Rice replied.

Economists fear that the 30 percent depreciation of the peso since the primaries will send the inflation rate over 50 percent by yearend.

Gedan said the inability to read the political reality in the country places the Fund in an "impossible" situation because "the reformers are almost certainly leaving office and the IMF is being asked to continue to lend, when the next government has shown no commitment on meeting the IMF requirements."

The Fund has yet to make a final disbursement of US$5.4 billion, originally planned for this month.

Former IMF leader Christine Lagarde has acknowledged a possible mistake by the IMF in its handling of the most recent Argentine crisis.

"It is an economic situation which it was incredibly complicated," she said at the American Enterprise Institute in June, weeks before stepping down as the Fund's head. "I think many players, ourselves included, underestimated a bit when we started trying to help and put together with the Argentine authorities a program."

Lagarde described the inflation rate as the "most surprising component" because "instead of stabilising and gradually declining as we had anticipated, it is showing much more resilience than we had thought."

by LUIS ALONSO LUGO, Associated Press


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