This could happen only in Argentina, a loose federal state where power often trickles up from the provinces. At independence in 1810, rural landowning strongmen, or caudillos, resisted control from Buenos Aires. Their successors still boss the 23 provinces as semi-sovereign fiefdoms, and often push the central government as well. Argentina defaulted on $141 billion in debt this December, triggering deadly riots that would see Argentina ruled by five presidents in two weeks. Of those five, four were former governors in the provinces, which have been wasting a steady flow of federal tax dollars for years. By the time the latest IMF delegation arrived for negotiations last week with Duhalde, who is seeking $10 billion in emergency relief, the visitors were openly demanding an end to the profligate ways of the provincial caudillo culture.

Such an attack is unusual. The IMF typically avoids meddling in a nation’s internal affairs. But in Argentina’s case, the provincial connection is too critical to ignore. IMF officials believe that a 10 percent cut in spending by each provincial governor would translate into a 60 percent reduction of the federal deficit. Argentina’s provincial governments collect, on average, only 35 percent of the money they spend–the poorest provinces rarely collect more than 10 percent–and get the rest from the Feds, who have no control over spending. “There is no federal oversight, none at all,” says Julio Burdman, director of research at the New Majority Studies Center in Buenos Aires. “The provinces do not collect taxes, but they spend without control. They have total autonomy and no responsibility.”

The results are predictably ridiculous. Provincial officials routinely award contracts at inflated rates to business associates, and give jobs to family members or political allies. “Inconsistency and poor planning, at all levels, have become ingrained over many years,” says Diana Mondino, managing director of Standard & Poor’s in Argentina. “In education, which is decentralized, there are more teachers per class than average in some schools and no teachers at all in others. Or two bridges will be built over one river, and none over the next.”

Until recently, the waste was hidden by a stream of foreign capital, particularly as Argentina opened up during the 1990s under President Carlos Menem. The IMF itself was a key lender until it abruptly suspended a $22 billion loan program last December, forcing the country to default. With the economy in free fall (it’s expected to contract by 12 percent this year), provinces couldn’t just jump off the gravy train. Unable to pay state workers, provinces literally printed money, issuing some $1.75 billion in public bonds, equivalent to almost one in every two pesos in circulation, that quickly became de facto currencies. Meeting behind a cordon of police in a government building in Buenos Aires, the IMF last week was pressing Duhalde to either impose federal control over provincial spending or press provinces to collect taxes and pay their own way. They are also pushing for the retirement of the 20 unofficial currencies now circulating in the provinces. “Argentina should put together an economic plan that’s coherent and consistent,” says Francisco Baker, the IMF’s spokesman on Argentine issues. “They need to bring down the deficit in the provinces and stop using the so-called funny money they’ve been using.”

IMF insiders say its stance on Argentina’s provincial elite is part of a new get-tough policy under managing director Horst Kohler. It has a questionable ally in Duhalde, who was accused of using poverty relief to buy votes as governor of Buenos Aires province. Now he is urging his former peers among the governors to voluntarily cut payrolls. With unemployment at 20 percent and rising fast, the governors are stalling. “The IMF is asking the government to use its federal power to exert some control on the provinces,” says Burdman. “The federal government is, in effect, replying ‘We can’t do it. You do it for us’.” The IMF team appears determined to see real reform. “The IMF view is that if Argentina’s political class can’t get it together, then so be it,” says a senior Western diplomat. “They’ll come in afterward and pick up the pieces.” If it comes to that, the international cleanup crew will find the biggest mess in Argentina’s provinces.