Argentina is nearing an agreement with the International Monetary Fund that will provide the Latin nation with an urgently needed infusion of cash, government officials said.
If the pact is concluded, as seems probable, it will be the latest in a series of developments indicating that the Third World debt crisis is unlikely to threaten the health of the global financial system this year.
As one of the first steps in the proposed agreement, the U.S. Treasury will join with several other western governments to provide an emergency "bridge" loan of more than $500 million to Argentina to tide the nation over until it receives loan disbursements from the IMF and its foreign creditor banks.
The accord, which hasn't yet been approved by the IMF's top management, is aimed at providing short-term relief rather than a long-term solution to Argentina's problems. But even that could represent a significant improvement in Argentina's fortunes. In recent weeks, as Argentine officials have negotiated intensively with the IMF, the nation's monetary reserves have dwindled to dangerously low levels and its interest payments to banks have fallen into arrears.
Late last year, some U.S. officials and bankers were voicing worries that Buenos Aires might formally suspend payment on its foreign loans, which would undermine confidence in the world banking system. Within the Reagan administration, there was concern that a suspension of Argentine debt repayment could mar the performance of financial markets and the U.S. economy during the election campaign.
Now it appears likely that Argentina will obtain enough fresh cash to clear up overdue payments and meet current obligations at least over the next few months.
This development comes on the heels of an important turnaround by Brazil, South America's other major troubled debtor. On Feb. 1, the Brazilian Finance Ministry renounced the moratorium on debt repayment that it declared last year. Brazil also said it wanted to restore ties with the IMF, an international agency that provides loans to financially strapped countries on condition that they revamp their economic policies.
Prospects for a relatively peaceful year in the ongoing debt crisis were also enhanced in late December when Mexico unveiled a novel plan aimed at shrinking its debt burden. Under the plan, Mexico is offering banks the opportunity to cancel their Mexican loans in exchange for smaller amounts of new Mexican bonds backed by U.S. Treasury securities. Announcement of the plan provided new hope to troubled debtors that they could reduce their debt loads without repudiating their obligations.
Argentina, whose $52 billion in debt makes it the smallest of the "Big Three" debtors, has experienced a series of ups and downs in tackling its debt problem, and officials cautioned yesterday that the country isn't completely out of danger. The Buenos Aires government escaped financial disaster as recently as last October, when it received an emergency bridge loan from the United States and other governments.
Jose Luis Machinea, president of Argentina's central bank, told reporters in Buenos Aires upon returning from a trip to Washington that his country was close to announcing a new agreement with the IMF, which would allow Argentina to receive $225 million of a previously arranged IMF loan. The IMF had held up disbursement of the loan because Argentina was failing to meet goals for stabilizing its economy. An IMF accord would also allow Argentina to receive more than $500 million from its bank creditors, who were awaiting the IMF's stamp of approval before making disbursement.
Machinea was quoted in yesterday's Financial Times as saying that an IMF accord is imminent and that Argentina is agreeing to keep its 1988 budget deficit below 3 percent of gross domestic product, compared with more than 7 percent last year. Buenos Aires is also agreeing to increase its trade surplus.
The nearness of an IMF pact may have helped avert default on Argentina's dollar-denominated "Bonex" bonds, which were issued in 1982 by the military government that controlled the country at the time. Yesterday was the deadline for a payment of $443.7 million in principal and interest on those bonds, and the central bank announced that payment was being made. Previously, Argentine officials -- including President Raul Alfonsin -- had warned that they would reluctantly have to declare default on the bonds if the nation's coffers weren't replenished. Washington Post special correspondent Richard Kessler in Buenos Aires contributed to this report.