Argentina reached tentative agreement with the International Monetary Fund yesterday on a tough new austerity program that will pave the way for a $1.18 billion loan from the IMF and unlock $4.2 billion in new bank loans for the cash-starved nation.

Before Argentina can receive any of the new money, however, the IMF has demanded that the government of Raul Alfonsin take tough economic measures to reduce the country's more than 1,000-percent inflation rate, make its exports more competitive and slash its massive federal budget deficit, according to government and banking sources.

U.S. Treasury officials said the United States was working with a number of industrial and Latin American governments to put together a temporary loan to Argentina to enable the country to pay some of the $1.2 billion in overdue interest it owes its commercial bank lenders.

Some governments are balking at the temporary loan. Banking officials said West Germany has refused to participate.

Argentina officials have expressed hope that the new IMF agreement and payment of about half the interest overdue to commercial banks will convince U.S. regulators not to downgrade the $8 billion of Argentine loans on the books of domestic banks.

Federal banking regulators are meeting this week to examine foreign loans by U.S. banks. Should they decide to downgrade the status of these loans, it might imperil the new $4.2 billion bank loan to Argentina.

Even with the IMF agreement and the impending payment of about half the overdue interest, Moody's Investors Services Inc., a major U.S. bond-rating agency, yesterday downgraded outstanding debt issues of Manufacturers Hanover Corp., the nation's fourth-largest bank, because of its sizable loans to Argentina.

Argentina agreed to an IMF program last December, but fell out of compliance by March. Since then, its economy has worsened. Its latest monthly inflation rate of 25 percent works out to an annual rise of 1,300 percent -- compared with 700 percent at year end. Domestic investment has virtually dried up, and output is declining.

Yesterday, apparently as part of the "up-front" measures the IMF has demanded, Argentina announced a big, 18 percent devaluation of its peso. The move will make imports more expensive and exports cheaper and is designed to help Argentina build up foreign currencies it needs to pay its $48 billion in foreign debts -- $25 billion of which it owes to banks.

Last week, the Argentine government raised fuel prices 30 percent and is expected to announce soon a large increase in public utility rates. Both these actions will reduce government subsidies and, as a result, its budget deficit.

The devaluation and the price increases initially will worsen the country's inflation rate. Over the longer run, however, they are supposed to have a beneficial effect both on Argentina's international and domestic financial crisis -- reducing its need to borrow from abroad to finance its debt payments and cover its federal deficit.

U.S. government and international financial officials have said that as difficult as the austerity measures are that Argentina must adopt, the alternative is worse. They point out that nations such as Peru and Bolivia, which in effect abandoned IMF programs and stopped paying bank interest, are in worse shape than countries such as Mexico and Brazil that adopted austerity programs.

The IMF loan and the bank loan are supposed to ease Argentina's "adjustment" to near self-sufficiency. Nevertheless, the austerity program undoubtedly will lead initially to a severe recession -- as did similar programs in Mexico and Brazil in 1983. Alfonsin had promised he would not resort to a recession to solve Argentina's inflation and debt problems, but financial officials said he has become convinced that runaway inflation could ruin the country.

But Mexico and Brazil resumed economic growth last year, and Mexico has trimmed its inflation rate from about 120 percent in 1982 to 59 percent last year.

Brazil, however, in the final year of a military dictatorship, failed to take a number of the anti-inflation measures it promised. As a result, the IMF cut off Brazil last February.

Brazil has built up large international reserves because of a massive trade surplus and can live without new money until its newly elected government negotiates a new IMF pact.

Argentina, however, needs foreign funds to pay bank interest and import vital goods. It has not paid interest since January, husbanding its export earnings to buy vital imports.

Once the IMF executive board approves the new Argentine program -- which likely will be in August or September -- the agency will disburse $472 million to the country, which it will use to repay the loan from the United States and other governments. There will be three further installments of $236 million each before next March.

William R. Rhodes, the Citibank executive who heads the bank committee that negotiates with Argentina, said in a statement that the agreement "should allow us to make rapid progress" in completing the $4.2 billion loan to Argentina. All but a handful of banks have agreed to make the loan and also to stretch out repayment of about $13.4 billion in Argentine loans that already have come due or will in 1985.

Banking sources said the final documents on the loan will go out at the end of the month to Argentina's several hundred bank lenders, but that the banks will not disburse any cash until the IMF does.