Argentina, sagging under foreign debt, gropes for a way out

Argentina and its foreign creditors are growing increasingly frustrated with the country's foreign debt situation, in which the developing world's third-largest debtor has been digging itself deeper and deeper into debt just to make interest payments. While Argentine government officials and foreign bankers emphasize that they are not about to take unilateral action, both sides are saying they cannot indefinitely follow the current strategy.

Treasury Secretary Mario Brodersohn is suggesting that Argentina might have to declare a de facto debt moratorium next year if the country does not have enough money to meet interest payments.

Foreign bankers, for their part, are saying that they may stop lending if the country's economic and debt crisis does not improve. The Bank of Boston, which has major activity in Argentina, decided this week to actually write off $200 million in Latin American loans.

The steps Argentina and the banks are contemplating call for foreign creditors to lend Argentina billions of dollars every year so it can service interest payments on its debt.

In return, Argentina has promised to meet a number of economic performance targets established by the International Monetary Fund and to deregulate its state-controlled economy.

Both sides have said that this policy would ease Argentina's debt burden while making the changes needed in its economy to promote long-term growth.

Argentina's debt crisis seems worse than before, however.

Its foreign debt has risen from $43 billion to $54 billion over the past four years, and today the country is more dependent on foreign loans than ever before. Among developing countries, only Brazil and Mexico have higher foreign debts.

Bankers complain that Argentina hasn't done enough to deregulate its economy, one of the most state-dominated ones in the noncommunist world.

They - and many Argentines - blame the country's protectionist policies for turning what was the world's sixth-wealthiest country 60 years ago into an underdeveloped nation with an unpayable foreign debt.

They say the protectionist policies have allowed Argentine private industry to become inefficient and uncompetitive and state companies to run huge deficits while providing shoddy service.

Argentina's President, Ra'ul Alfons'in seems to agree. For the past two years, he has sought the privatization of many of the more than 300 state companies, the reduction of high tariffs, the removal of most import barriers, and the elimination of many industrial companies' investment subsidies.

But his attempts to deregulate the economy have been blocked by major business groups and the country's powerful labor federation, the General Confederation of Labor (CGT).

Businessmen fear that deregulation would increase competition, while the CGT worries that privatizing state companies would increase unemployment among its members.

If businessmen and the CGT continue to block needed reforms, bankers say, then they'll probably cut off lending.

``If financing [from foreign banks] keeps going to unproductive sectors, then there's only so much you can do,'' a foreign banker said. ``No bank wants to stop lending. But if Argentina's requests for money are not accompanied by measures making its [financial] needs lessen in the future, then I think the game at some point has to stop.''

The IMF is also known to be unhappy that Argentina is not doing more to reduce the government's role in the economy.

The IMF held up disbursal of a $750 million loan from foreign creditors in October because public-sector deficits and inflation had soared above target levels. United States Treasury Secretary James Baker Jr. reportedly had to pressure the IMF to grant a waiver to release the funds.

Argentina had warned that without the money it could not meet interest payments, Mr. Brodersohn said in an interview. He added that Argentina doesn't want to declare a debt moratorium, as Peru, Ecuador, and Brazil have done in the past two years.

``But we can't forever be increasing our debt to pay interest,'' he said.

As it stands, Argentina will go even further into debt next year. The country will need about $2.5 billion in bank loans in 1988 because its trade surplus is projected to be $2 billion, while interest payments will be $4.5 billion.

Mr. Alfons'in has increasingly said that the IMF and industrialized countries are not doing enough to help debtor nations like his. He has demanded a reduction in interest rates to what he says are their ``historic'' level of 4 percent, calling on the United States to cut its budget deficit to achieve the interest rate drop.

Brodersohn said that agriculture export subsidies by the European Community and the US have cost agriculture-dependent Argentina $7 billion in lost sales.

``We agree that we have to make changes, but so do the industrialized countries,'' he said.