March 10, 2002

ARGENTINE PROSPECTS ANALYZED IN IDB ANNUAL MEETING Finance ministers of Argentina, Chile, Mexico and Peru participate in seminar

FORTALEZA, Brazil –The finance ministers of Argentina, Chile, Mexico, and Peru today examined the Argentine crisis and the lessons it offers other Latin American and Caribbean economies in a seminar held in conjunction with the Annual Meeting of the Inter-American Development Bank.

In his opening remarks, IDB President Enrique V. Iglesias emphasized the efforts the government of Argentine President Eduardo Duhalde has made to emerge from a recession that has affected Argentina’s economy for nearly four years.

“It must be said that in 70 days a great deal has been done,” Iglesias said. “This demonstrates the Argentine government’s resolve to carry out measures to address the difficult situation confronting the country.”

In his presentation, Argentine Economy Minister Jorge Remes Lenicov noted that his country is confronting its most serious crisis since the middle of the 19th century. At the present time, he said, nearly a third of the population has employment problems and more than 40 percent of Argentines live below the poverty line.

Remes said that the government of President Duhalde, who took office in January after the resignations of his four predecessors, is taking financial, monetary, fiscal, exchange, and social measures to address the chaotic situation that led to the devaluation of the Argentine peso and a paralysis of the country’s financial systems.

The new Argentine strategy, said Remes, seeks to resuscitate the economy from its recent blows by means of careful measures founded on political support and acceptance by the society as a whole.

“We know there are no magical formulas, and that this will not happen quickly. We know that reconstruction will take time and that it cannot be done by decree,” he said. We want to restore our economy as a normal economy, similar to that of successful countries.”

These efforts, he added, have been proceeding up until now without access to international credit markets and lines of financing from multilateral organizations.

“In order to resolve this crisis we need international support. To resolve it as quickly as possible we need the international community’s support, not only with words, but also with loans and funds,” he said. “In these things, timing is essential. What must be prevented, at all cost, is that our crisis becomes worse.”

In his remarks, Mexico’s Finance Minister, José Francisco Gil Díaz, provided seminar participants with a comparison of the economic crises that affected his country in 1983 and 1995.

It took the Mexican economy six years to recover from the 1983 debt crisis. In contrast, recovery from the 1995 crisis was achieved in scarcely seven months. The major difference, said Gil Díaz, was the degree of economic opening in these periods. At the time of the first crisis, Mexico’s markets were much more closed than in the second crisis, when industry was able to channel its output into export markets.

Similarly, the Mexican government created special funds to shore up the financial system and protect depositors’ savings. These measures, in addition to others involving the recapitalization of banks, made it possible to restore to health a system crucial to the economy.

Gil Díaz also said that, to resolve the 1995 crisis, Mexican authorities pledged to take a series of economic measures in order to receive a package of international financial assistance that exceeded in volume the amount of resources Mexico ultimately drew down.

Chilean Finance Minister Nicolás Eyzaguirre noted that his country suffered a financial crisis in 1982 that was similar to the current Argentine crisis. That setback cost Chile a 15 percent drop in its gross domestic product and a reduction of 30 percent in domestic demand.

Thanks to reforms carried out since then, Chile has been able to weather several international crises with increasing degrees of success. In 1998, the Asian crisis cost the Chilean economy a drop of a little more than 1 percent of its GDP, while domestic demand fell by 10 percent. More recently, in the midst of the crisis that has struck Argentina, Chile’s economy was able to grow by 3 percent and domestic demand remained steady.

“It is possible, therefore, to improve anti-cyclical policies that permit us to navigate in this unstable global village, without having to fatalistically repeat these boom-and-bust cycles,” added Eyzaguirre.

The experiences of Chile and Mexico in the recapitalization of their banks and the management of private debt during their financial crises could well be applicable to the Argentine situation, said the Chilean minister.

Nevertheless, Eyzaguirre said that the international community should be capable of coming to an agreement over an assistance package for Argentina, based on a sustainable fiscal program, as is being prepared by the Argentine government. This assistance, added to the issuance of public bonds, would provide the liquidity Argentina’s financial system needs.

“Here there must be an effort by Argentina, as Minister Remes Lenicov correctly said, regarding a sustainable program. But on the international community’s part, it should understand that, from the standpoint of political economy, programs must meet a minimum of social acceptability,” said the Chilean minister.

The Minister of Economy Finance of Peru, Pedro Pablo Kuczynski, voiced his concern over the effects that the losses suffered by foreign commercial banks and public utilities companies in Argentina could have in other Latin American countries.

Among the lessons he drew from the Argentine crisis, Kuczynski said it was essential to maintain open markets to ensure a rapid recovery. In this regard, the Peruvian minister said that he expected that the export taxes imposed recently by the Argentine authorities would be temporary measures for covering essential fiscal necessities.

“It is tempting to close the economy by taking protectionist measures, but this delays the recovery, ” said Kuczynski.

At the closing of the session, Iglesias said the agreements Argentina is currently negotiating with the International Monetary Fund will serve as a platform for further cooperation.

“Argentina, on the basis of a coherent and sustainable program as the one that is starting to take shape with the steps taken by its government, can obtain an adequate response from international cooperation. I think we are heading in that direction,” he said.

This cooperation, he added, would involve multilateral institutions, commercial banks and bilateral aid, from both within and outside Latin America.

“This is very important, not only because it reduces the economic cost of crises but also because it reduces social tensions and negative expectations,” Iglesias said. “I am sure the agreements with the IMF that are underway will be very important factors to shorten the period for recovery and help Argentina overcome quickly the difficult situation it is undergoing.”