IMF attack threatens Argentina's rescue plan

The International Monetary Fund has attacked Argentina's economic policy, describing it as unsustainable.

South America's second-largest economy is on the verge of chaos, but needs IMF support for a debt swap.

Already desperate Argentines have staged their eighth general strike in two years, sacked supermarkets and wrecked cash machines in protest against a partial bank freeze introduced to prop up the financial system.

But the IMF's chief economist Kenneth Rogoff says: "It's clear that the mix of fiscal policy, debt and the exchange rate regime is not sustainable."

Argentina is struggling to pay off its £90.7bn debt because of a four-year recession that has sparked deflation, spiralling unemployment and an 11% drop in industrial production in November.

The IMF earlier this month held back £894m after Argentina failed to meet previously agreed budget deficit targets.

Argentina is now asking creditors to exchange existing government debt for longer-term bonds with lower interest rates, but this is unlikely without IMF support.

The second, international phase of restructuring Argentina's debt is expected to begin in late January and should be over in February.

Economy minister Domingo Cavallo wants to cut more than £6.2bn from his 2002 budget, reducing public spending from £33.7bn to £27.2bn.

But the proposed cuts have angered some opposition lawmakers, who worry that further austerity measures could spark widespread social unrest.