Patching up a long and acrimonious rift, the International Monetary Fund and Argentina said yesterday that they had reached a provisional agreement on an accord that would give Buenos Aires just enough loans and other financial concessions to avoid defaulting on about $6.6 billion of debts it owes the IMF in coming months.
Under the terms of the accord, Argentina would not receive new IMF loans to revive its crisis-stricken economy, nor would it pledge to undertake extensive reforms of the sort the fund often requires. Rather, the deal would simply tide the country over until after a new government can take charge following an April 27 presidential election. It would postpone payments due on some loans to the IMF between now and August while providing enough money for the Argentines to repay the fund a bit less than $3 billion in other debts that can't be rescheduled.
"It is essentially what is referred to in the vernacular as a rollover agreement," IMF spokesman Thomas Dawson told reporters.
For that reason, critics have blasted the impending accord as setting a bad precedent because the fund, under pressure from dominant member countries, including the United States, has yielded to Argentine threats to default on obligations to the IMF and go further into arrears with the fund's sister institutions, the World Bank and the Inter-American Development Bank. Indeed, Argentine officials would not promise until late yesterday afternoon to make a $1 billion payment to the IMF due today, after the IMF issued a statement confirming that an agreement signed by its team in Buenos Aires would be sent to its management and executive board for approval.
Argentina has already lost access to private foreign credit by defaulting in December 2001 on its debts to commercial banks and bondholders, and a default to the IMF would have worsened the country's pariah status, perhaps damaging its relationship with the international financial system irreparably.
The IMF, which cut off lending to Argentina just before the default to private creditors, has taken a very tough line until now against resuming aid, asserting that the government has failed to take the steps needed for a sustainable recovery.
Defending the pact as "the best that we can do at this point in time," Dawson said it would help Argentina maintain progress in such areas as keeping inflation under control. "The intent is to provide a degree of breathing room so that the fund-Argentine relationship can go forward," he said.
Some economists praised that reasoning as sound. The agreement "increases the likelihood that given more time to hold presidential and congressional elections, Argentina ultimately will be able to pull its act together," said Edwin M. Truman, senior fellow at the Institute for International Economics. "It is a long shot, but even at long odds, the benefits of possible success outweigh the costs of failure."
But Lacey Gallagher, director of Latin America economic research at Credit Suisse First Boston, said: "The purpose of the fund is to support sustainable programs, and Argentina is not offering a sustainable program. I don't think it helps the fund, or Argentina, to get a program without a clear purpose other than to roll over the fund's own credits."