from Follow the Money

Bush has yet to meet a big IMF bailout he does not like …

November 3, 2005

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Steve Clemons is surprised that Bush was not more hostile toward the IMF in a recent pre-Summit of the Americas press gaggle.  I am surprised that Steve Clemons is surprised.

After all, as governor of Texas, Bush strongly supported the Clinton Administration's bailout of Mexico.  And his Administration has supported:

  • An IMF bailout loan for Turkey in the spring of 2001 (before 9.11), and additional loans in the fall of 2001 and in 2002.
  • A major augmentation (basically a big cash infusion) of Argentina's IMF program in the summer of 2001.
  • Big IMF bailouts for Brazil and Uruguay in 2002.
It is not an accident that IMF loans outstanding peaked in 2003 (see Bailouts and Bail-ins for more), under W's watch.  The big difference between Argentina and the other bailouts that Bush supported?   The 2001 Argentine bailout failed.  I have long argued that rather than lending to Argentina in the summer of 2001 to try to avoid a devaluation and default, the IMF should have lent to "soften the blow" of the necessary devaluation and the unavoidable debt restructuring.

That doesn't mean, though, that Bush's comments on the IMF and Argentina were not totally fascinating - and more or less impossible to understand if you did not have deep knowledge of what has happened since 2001.

Bush stated the following (via Clemons):

First of all, I was more than happy, and my government was more than happy to help Argentina with the IMF crisis.  

We became involved with the government in trying to get the issue resolved.  I think any objective observer would say that the U.S. participation was helpful.  And we were more than pleased to do so.  And by the way, our help was justified by the economic recovery of the country.  

It's been noteworthy for those who were skeptical about U.S. involvement in the IMF to see that the economy is growing robustly and that the government is stewards of the people's money, and that Kirchner and his government did a good job of negotiating on behalf of the people of Argentina.  So we've got a record of involvement.  

Secondly, since he has proven himself to be capable of performing, it seems like to me that the best policy ought to be for the Argentina -- Argentine government to deal directly with the IMF, without the U.S. having to be a middleman.  

And so that's what I'll tell -- I guess I just told him what's going to happen in the private meeting -- (laughter) -- is that -- no, we will, of course, listen to any request from a friend.  But it seems like to me that President Kirchner and his economic team, his financial team, has laid the groundwork for being plenty capable of dealing with the IMF directly.

So what is Bush talking about? 

First, as far as I can tell, he is not talking about the 2001 loan - or at least not in a coherent way.  The 2001 was the last time the IMF provided Argentina with net new money, and it didn't work.  It did not stop Argentina's downward spiral.  At best, it delayed Argentina's devaluation and default for a couple of months.

It also left Argentina and the IMF with a big problem - namely, Argentina was supposed to make big payments back to the IMF over the past few years.   And Argentina actually has made some net payments to the IMF.  The IMF is less exposed to Argentina now than at the end of 2001.  That has not made Kirchner happy. 

Kirchner also thinks that Argentina's recovery has come in spite of the IMF - not because of it.  And Kirchner's is largely right, though I would argue Argentina's recovery also has been helped by Kirchner's fiscally conservative policies.  At least on fiscal policy, he more or less did on his own most every thing the IMF would have wanted -- he just did it more or less on his own.  Argentina has consistently generated larger surpluses than it promised the IMF.

So it is a bit strange for Bush to imply that the IMF deserves credit for Argentina's recovery.   Argentina's recovery was "made in Argentina."

But Argentina would have had to pay far more back to the IMF if the IMF had not extended new loans to Argentina to basically refinance its existing lending as it came due.  In general, after its default, Argentina has been willing to accept new loans from the IMF, but has been far less willing to accept the IMF's post-default policy advice (in part because the IMF lost credibility when it supported the currency board for so long and the currency board failed).

At various points, negotiations between the IMF and Argentina nearly broke down, and the IMF came close to walking away.  Argentina then either would have had to pay the IMF back on its own, without the help of a new IMF loan, or would have defaulted not just on its bonds, but on the IMF.

The US generally worked to avoid a breakdown in talks, and sometimes helped patch together deals where Argentina got funding from the IMF even though it committed to do less than the IMF wanted.  I think that is what Bush is talking about.  He is saying that Argentina should no longer need to rely on the US to broker a deal between it and the IMF.  Fair enough.

Also interesting: Bush thinks Kirchner did a good job negotiating on behalf of the people of Argentina.  I guess that means he likes the terms Argentina put forward in its debt restructuring?

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