In this issue:

Argentina-IMF Negotiations Break Down

Argentina's Priorities Not Those of IMF

Brit Water Pirates Demand Rate Hike, Threaten Collapse

Malaysia Studies Request To Build Algeria Road

Moscow. Jakarta Reach Nuclear-Power Accord


From Volume 2, Issue Number 34 of Electronic Intelligence Weekly, Published Aug. 26, 2003

World Economic News

Argentina-IMF Negotiations Break Down

British economist John Dodsworth, head of the IMF mission in Buenos Aires, left for Washington on Aug. 18, without having reached a "technical agreement," on which a new three-year agreement sought by the Kirchner government, would be based. Negotiations will now reportedly be transferred to the IMF's Board of Directors, most of whose members are on vacation through Aug. 31, when the current short-term agreement with the Fund expires. The likelihood of reaching an agreement by Sept. 2, the original target date, is virtually nil, raising concerns about what will happen on Sept. 9 when, without any new agreement in hand, Argentina is supposed to pay $2.9 billion to the Fund.

Negotiations broke down over the issue of the primary budget surplus, on whose size the two sides could not agree. Moreover, the IMF's insistence that the primary budget surplus be fixed at 4% to 4.5% of GDP—President Nestor Kirchner says he can only accept 3% of GDP—would only be effective (from its standpoint), if private foreign creditors holding defaulted Argentine bonds, accept a 50% to 70% writedown in the bonds' value. Were that writedown to be smaller, then the Fund would demand a primary budget surplus of 5%.

Exacerbating the situation is the eruption of public political battles between Kirchner and Vice President Daniel Scioli, who is said to maintain ties to former President Carlos Menem. After Scioli made remarks last week saying that utility rates would be raised by next October—a key IMF demand—Kirchner publicly contradicted him, and subsequently sacked the Tourism Minister and his staff, all of whom were factionally aligned with Scioli. Rumors are circulating that Scioli may be ousted also, or forced to resign, and the economics team is said to be worried that all of this will affect negotiations with the IMF, as it gives the impression that the government is weak. Finance Minster Lavagna met Aug. 19 with U.S. Assistant Secretary for Western Hemisphere Affairs Roger Noriega, to discuss the IMF negotiations, although no statements were released afterward.

Argentina's Priorities Not Those of IMF

Clarin's economics editor Daniel Muchnik underscores that the IMF's priorities are not those of the Argentine people, who are in desperate need of jobs, food, and relief from the austerity dictates still in place to guarantee foreign debt payment. "What are priorities for Argentina won't be found in an agreement with the Fund," he writes in the Aug. 17 edition.

And yet, look at the situation on the ground. Official poverty remains at 54.7%, and between May of 2002 and May of 2003, indigence increased from 24.8% to 26.3% of the population. Recently, Finance Minister Roberto Lavagna boasted that unemployment is dropping steadily, reaching 16%, down from 21%. But Muchnik points out that this "decline" is due only to the existence of World Bank-financed "Heads of Household" anti-poverty plans, which give a small monthly subsidy to the unemployed. Otherwise, unemployment would be at 21.4% still. And that doesn't include another 18.8% who are underemployed. At least 45% of those who have jobs, 8 million out of an economically active population of 14 million, have no access to social security; while another 4 million are employed in the "informal" economy, with no benefits whatsoever.

The situation in metropolitan Buenos Aires is indicative of the tragedy. Between May of 2002 and May of 2003, a total of 308,943 new jobs were created, but at the same time, 315,743 people lost their stable full-time jobs, and entered the informal economy. Almost 1.5 million workers in this formerly industrialized region, (45% of the region's workforce), are now "employed" in the informal economy.

While the IMF screams that Argentina must "reduce spending," Pagina 12 points out Aug. 17 that public spending in the country is now 1.5% below the average for the latter part of the 1990s, and dropped 3% within the last year. It is considerably lower than most other Ibero-American countries.

Brit Water Pirates Demand Rate Hike, Threaten Collapse

Since water was privatized in Britain 13 years ago, the water pirates have concentrated on patching their systems, but are now demanding rate hikes, so that they can replace large sections of their networks, The Independent said Aug. 17. The occasion for these demands is the start of a five-year price review by their regulator Ofwat. "This time customers are going to have to take more of the costs," said Water UK chairman Bob Armstrong. "This will not be insignificant and it will attract attention from the consumer groups."

"In water, we have a classic case of time-expired infrastructure; in some cases this is up to a third of a companies' assets," Armstrong said. "The problem needs addressing in this price review, or eventually we'll get to a Railtrack-style issue," he threatened. Water UK estimates that replacing just a quarter of the British water grid would cost £50 billion. In London, more than half of the 20,000 miles of water main is more than 100 years old, and a third is more than 150 years old, yielding a leakage rate of 30%.

Malaysia Studies Request To Build Algeria Road

Malaysia will study a request to build an $8-billion road across Algeria, New Straits Times reported Aug. 18. The east-west road, over 2,000 km long, is described as "part of the Algerian government's infrastructure program to develop a sophisticated road system to enhance its economic development." The deal was worked out during Prime Minister Dr. Mahathir's visit to Algeria this month.

Moscow. Jakarta Reach Nuclear-Power Accord

The Russian government has approved a draft agreement with Indonesia on cooperation in the nuclear energy industry, Interfax news agency reported Aug. 20. The draft calls for the two countries to exchange nuclear materials, equipment, and technology while fulfilling their obligations under the Nuclear Nonproliferation Treaty and other international export-control agreements.

The report said Indonesia would be forbidden to use materials and technologies it receives from Russia to create explosive nuclear devices. Russia and Indonesia will work together on developing nuclear-power plants and research reactors, as well as other projects.

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