World Economic News
Brazilian Default Has International Financiers Worried
A potential Brazilian default worries international financiers, according to what "one of Latin America's most influential Finance Ministers" told Argentina's daily La Nacion April 12. Attending the meeting of the Inter-American Development Bank (IADB) in Okinawa, Japan, this unnamed minister said he agreed with IADB President Enrique Iglesias that Brazil was a real worry, despite the fact that its economic situation had "improved" enough that it recently decided it didn't need an agreement with the IMF.
This worry about Brazil, plus discussion of Argentina's debt restructuring, were topics of hot debate at the IADB meeting, taking place a week before the IMF's annual conference April 16-17. There was significant bludgeoning of Argentina in Okinawa over the issue of reopening the completed bond swap, which will intensify at the IMF summit. An hysterical Japanese Finance Minister Sadakazu Tanigaki used his speech before the IADB to charge that the Kirchner government had acted in "bad faith" in its negotiations with creditors, without giving them other options. "We cannot allow Argentina's way of dealing with its debt to become a bad precedent, because then this would constitute a moral hazard," Tanigaki said.
Moral hazard? From Berlin, where President Nestor Kirchner is on a five-day state visit, an unidentified high-level member of the government's delegation stated that the IMF "isn't acting in good faith," because, by pressuring the government to reopen the bond swap to the "holdouts," it is now effectively demanding 100% bondholder participation. Finance Minister Roberto Lavagna warned against the IMF's "discriminatory" stance toward Argentina, and told media that he replied to Tanigaki "with absolute clarity and firmness." When you talk about good faith, he said, "you have to start at home, because Japanese as well as Italian banks acted in bad faith when they sold to retail investors what had been clearly defined as bonds for sophisticated institutional investors."