No one doubts, either in Argentina or elsewhere, that mistakes were madein managing that country's convertibility system. It is also important, however, toreflect upon the role played by the international financial community in generating theconditions that ultimately led to the collapse of Argentina's monetary and financialregime. First of all, favourable expectations spurred what proved to be an avalanche ofprivate capital, and the subsequent flight of that capital was one of the factors thattriggered the crisis. In addition, while recognizing that the ultimate responsibilityrests with the national government and despite the reservations that the IMF may have hadand may have expressed to the authorities, the fact remains that the Fund backedArgentina's economic programmes throughout the 10 years that the convertibilityregime was in place. In fact, at the annual IMF meeting in 1998, Argentina's economicpolicy was heralded as "the best in the world".

Be that as it may, and regardless of past events, the Fund and theArgentine authorities have a joint duty to develop an alternative regime. In order toaccomplish this task, the Fund must avoid making three potential mistakes: taking too longto act; failing to show a constructive, flexible attitude; and making publicpronouncements which adversely affect expectations of economic agents.

Given the chaotic breakdown of the convertibility regime in late 2001 andthe uncertainty surrounding any alternative scheme in a country where hyperinflation isstill fresh in people's minds, time is an implacable enemy. Under these conditions,any new programme must anchor expectations, and the provision of that anchor requires theinvolvement of the international community. Of course, this has been true of all the majorcollapses experienced by emerging economies in the last decade, and in most of those casesthe international community responded with great speed. The same speedy action should betaken with regard to Argentina. If the idea is to teach the country a lesson and, at thesame time, teach those who invest in high-risk markets that they have to bear theconsequences of their decisions in order to avoid the much-touted problem of "moralhazard", those objectives have already been achieved. Argentina and its privatecreditors have already incurred heavy costs. In addition, the assets of IMF stakeholdershave been properly safeguarded: debts owed to the Fund will undoubtedly be accorded toppriority in Argentina's debt servicing.

This brings me to a second point. As things stand in Argentina today, thetype of macroeconomic management that the authorities should work towards is quite clear:normalization of the payments system and bank credit; orderly public finances, withaccounts in balance or nearly so, a new agreement between the central government and theprovinces, and a better tax system; stable rules for the determination of monetary policythat will keep inflation low, and an orderly currency float; renegotiation of the externaldebt, ideally leading to fresh capital inflows. This is the programme that has beenannounced by the Minister for Economic Affairs and the Governor of the Central Bank, andthey therefore deserve international support.

The main problem lies in the fact that, under the existing conditions ofuncertainty and lack of confidence, a great deal of pragmatism will be required in orderto achieve those results, and the parties involved will have to be willing to learn asthey go along. This is the only way that the economic authorities can gradually gaincredibility. The limit placed on bank withdrawals -the "corralito"- cannot beentirely dismantled until confidence in the new monetary and exchange rate regime has beenbuilt up. Production activity has to be returned to some degree of normalcy in order fortax revenues to recover so that a lasting fiscal balance can be achieved. Trying to bringabout a fiscal adjustment by making even greater cuts in expenditure does not lead tofiscal equilibrium but rather to deeper recession and fiscal imbalances, as became clearin 2001. Refraining from firm intervention in the foreign-exchange market wheninflationary expectations are based entirely on the exchange rate would simply open thedoor to hyperinflation and then dollarization. It is important to recognize that no oneknows exactly how events are going to play out in the coming days and months, nor has adetailed, alternative route been plotted out. This is why, once the final objectives areclearly defined, pragmatism is the only possible avenue. This is precisely what theeconomic authorities have once again demonstrated, and why they deserve internationalsupport.

An international authority as influential in forming expectations andbuilding confidence as the IMF should be particularly careful when formulating itsstatements, and should take special care to be constructive and precise when it does so.This is of vital importance because the Fund is not simply a provider of new resources; itmust also help to foster favourable expectations and build up credibility in a neweconomic scheme. There will always be some degree of conflict between the Fund's roleas a "trusted adviser" to governments and the "transparency" of itsactions for the general public. Given the position that Argentina is in today, the formershould prevail. There should thus be a great deal of dialogue between the Fund and thegovernment and the Central Bank, and very few -and carefully considered- publicstatements. Fortunately the events unfolding during the last few days lead me to believethat the Fund may be heading in the proper direction.