SANTIAGO, Jan 19: A senior International Monetary Fund official on Friday warned against large central bank interventions in the Argentine foreign exchange market, which she said would be “questionable.”

The IMF’s Anne Krueger, who has been critical of Argentina’s new dual exchange rate, said recent dollar sales by the country’s central bank to prop up the newly-floated peso were small scale.

They are small interventions that basically smooth out fluctuations and are in small amounts. I think one might make a case for it. I think large scale interventions would be probably very questionable, Krueger, the lending body’s first deputy managing director, told a news conference in Chile.

The Argentine Central Bank stepped into the foreign exchange market for the fourth straight day Friday in an attempt to stop a devaluation of the peso from spinning out of control and adding to the bankrupt country’s economic crisis.

Latin America’s third-largest economy this month abandoned a decade-old currency peg to the US dollar and introduced a dual exchange system, with one official fixed rate of 1.40 pesos a dollar and a floating peso for cash deals.

In the first week of trade, the floating currency has fallen sharply, forcing the central bank to intervene.

The bank sold an unspecified amount of dollars Friday at 1.85 pesos, although the currency later withered to 1.95/2.00 per dollar by midday as nervous buyers sought refuge in dollars on fears the country would sink even further into chaos.

The IMF has not looked kindly on the dual exchange rate, but was encouraged by Argentina’s statement this week it hoped to float the currency completely within five months.

A unified exchange rate system is the only system that is workable in the long term, Krueger said Friday.

Krueger also said she doubted Argentina would get a loan accord with the IMF within a month, a time frame Argentina said was feasible.

I think it would be very difficult to have anything within a month, she said.

Argentina has said it could request up to $20 billion in fresh aid to see it through what promises to be a turbulent 2002.

Krueger said the new Argentine government had not yet formally asked for support and that, even if it did so now, the process of IMF approval would not be that fast.

The lender last month froze a $1.3 billion payment on its overall $22 billion package to Argentina because the government failed to curb spending as promised.

Krueger reiterated the IMF position that it will help Argentina, which has defaulted on part of its $141 billion public debt, once the country comes up with a sustainable economic plan.

In addition to scrapping the twin currency system, the lender wants to see Argentina craft a new monetary policy, restore the banking system, complete its budget and agree on mechanisms for renegotiating debt with creditors, she said.

Those are the broad outlines of what would be required to get fund support, but how the authorities choose to do that is their choice, she said.

A technical mission is currently in Argentina, working with Argentine officials monetary and banking problems. A second mission to look at debt and fiscal issues will land in Buenos Aires early next week, Krueger said.—Reuters