Argentina Still a Whipping Boy? - Column

Byline: Marcela Sanchez

The International Monetary Fund's decision this week to grant Brazil a new $30 billion loan surprised most people because of the size and the speed with which it was granted. For Argentina-which has spent far more time negotiating a much smaller loan with no success-the fund's decision should have been even more surprising.

But, so far, that does not seem to be the case. Instead, a day after the historic announcement, Argentine officials mostly welcomed the agreement, even suggesting that their country will be next. That is an unfortunate reaction considering that many in Washington believe Argentine officials sorely need a reality check.

For months, Argentina pleaded with the Bush administration to abandon its strong stance against financial bailouts. The administration stubbornly refused, insisting that dishing out more taxpayers' money to rescue investors all too willing to take risks on emerging economies had to stop. Argentina was a classic whipping boy.

This week, in a matter of days, Argentina was transformed from the prime example of a past policy gone awry into the prime exception to a new policy that is pretty much the same as the old one.

Three days before Wednesday's announcement on Brazil, the U.S. Treasury decided to advance funds for a $1.5 billion loan from the fund to Uruguay, the country most affected by the contagion from Argentina's financial agony. That signaled the beginning of a change in Washington's resistance to bailouts. But not for Argentina.

For the region, the change may have come just in time, as many were beginning to view the sustained U.S. opposition to aid as neglect. The hands-off approach, interspersed with collective slaps in the face, had drawn Latin America's ire. If anything, Washington was expected to recognize the differences between Argentina, the most troubled country in the southern cone, and other states in the region.

Now that Washington has finally done that, the question is, whither Argentina?

The message from Washington this week was the same as before: Argentina needs a "sustainable" economic plan. U.S. Treasury Secretary Paul H. O'Neill used that term during his 27-hour visit to the country Tuesday and Wednesday.

Argentina's officials had been hard at work trying to put their house in order. O'Neill indicated they needed to work even harder. If they thought some of that effort could be avoided once Washington realized there really was a "tango effect" in the region, they now would need to think again. Washington has recognized the contagion, yet moved to contain it not by helping Argentina, but by helping its neighbors instead.

Internal political gridlock is hindering the ability of Argentina's transitional government to address Washington's concerns. Argentina, like Brazil, is preparing for new leadership next year. Unlike Brazil, however, the current government in Buenos Aires appears less interested in seriously tackling the economic uncertainties that would help ease the political ones.

Indeed, Brazil has been addressing issues such as fiscal discipline, financial reform and rule of law for years. Argentina, by contrast, is starting down that road anew, moving into its post-crisis mode only after its debt default early this year.

Argentina views Washington's inaction as a form of punishment for its default, and that way of thinking appears to be fueling a dangerously defeatist attitude. Washington's lack of response is not due to anything Argentina has done, but rather the things Argentina continues to leave undone, several analysts and officials in Washington said.

O'Neill's visit to Argentina left the impression that sometime next month there will be some reprieve for Buenos Aires. He expressed confidence that Argentina will not default on its debt to international lenders, such as the IMF and the World Bank, and that as early as next week a draft proposal will arrive at the fund, with serious discussions to follow.

Yet the reprieve will most likely be just that-a temporary and limited financial respite that will help cover some debts and free some of the diminishing foreign reserves. At best, Washington will show itself to be compassionate-most interested in keeping Argentina from falling further to avoid more human suffering.

Certainly, Argentine officials have been realistic. They have not been requesting major new international funds as their payments become due next month. It would be even more farsighted, however, for them to recognize what they would gain if the transitional government could jumpstart a reform process. Indeed, the impact of such a move could be genuinely surprising.

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