Argentina and International Monetary fund negotiators have reached an agreement that will pave the way for nearly $900 million in loan disbursements to the debtor nation by the end of the month, banking sources said yesterday.
The agreement, which was worked out over the weekend, will enable Argentina to continue paying interest on its more than $50 billion in foreign debts while it prepares a new economic plan designed to stimulate economic growth while containing inflation.
Last year, Argentina imposed a wage and price freeze to halt an inflation rate that approached 2,000 percent a year. Although the plan triggered a steep recession, it met with general approval in a population that was becoming terrified by inflation.
In recent months, however, inflation has begun to creep up -- it is now running at an annual rate of about 50 to 60 percent -- although economic growth has been rekindled. But Argentina has failed to stimulate much of an increase in investment spending, which is desperately needed if it is to rebuild its aging production facilities.
Although Argentina had failed to live up to all the conditions of a $1.4 billion loan pact signed a year ago, the IMF staff decided that the violations were sufficiently small and justified by events outside the government's control to justify granting Argentina a waiver. Sources said the government's chief excess was spending more than it agreed to last year.
Top officials in Argentina are expected to approve the agreement by Wednesday, and the executive board of the IMF is expected to approve it next week. The IMF will lend Argentina $275 million, the final portion of the $1.4 billion loan.
The bank committee that negotiates with Argentina cabled the country's several hundred bank creditors over the weekend, also asking for a waiver that will permit Argentina to receive $600 million on June 30, two weeks after the deadline set in last summer's one-year, $4.2 billion loan agreement.