One mission of the International Monetary Fund (IMF) is to help keep capital markets a safe place to invest. Last week, the IMF showed it's more interested in keeping its own portfolio safe.
The fund was able to get Argentina to pay $3.1 billion owed to it, but the deal didn't do much for pensioners and other bond holders who want Argentina to pay up on $82 billion it owes them.
Two years ago, Argentina defaulted on those bonds, the biggest such default in history. Under the rules of the IMF, it should not lend more money to Argentina unless it is acting in good faith in paying back private creditors.
But in last week's deal, IMF executives promised to ask their board to release more money from its $13.5 billion loan to Argentina if, in return, the country actually negotiates with bondholders.
Even though the Argentine economy is now booming, the government has largely ignored its creditors - many of them retired Europeans - and has only vaguely offered a quarter of the value of the bonds.
And Argentina's president, Nestor Kirchner, also hasn't done much to implement IMF-required economic reforms, such as raising utility rates.
In effect, Argentina is holding the IMF hostage by threatening a default on loans to the fund, while stiffing private creditors. Clearly, the Bush administration needs to stop putting up with Argentina's cavalier financial irresponsibility, and put some backbone in the IMF board.