The United States is prepared to join with other nations to lend Argentina up to $450 million to help the financially embattled nation pay off $1.2 billion in overdue commercial bank debts, Argentine and U.S. sources said yesterday.
The loan is contingent upon Argentina reaching an agreement with the International Monetary Fund, the international financial rescue agency, on economic policies designed to reduce the nation's 1,000 percent inflation rate and eventually cut its need to borrow from foreigners. Sources said that Argentina and the IMF are close to an agreement and that it could be reached today.
The IMF also will lend about $1.18 billion to Argentina between now and March 27. The size of the multinational loan will be determined by the amount of money the IMF will release to Argentina in the first loan disbursement. The lender countries will be repaid when Argentina receives the IMF funds.
Argentina's key source of new money, however, is commercial bank loans. In December, banks agreed to lend Argentina $4.2 billion in new money this year, but the loan has been held up because the IMF cut off the debtor nation in March when Argentina fell out of compliance with the economic plan it had agreed to only three months earlier.
Government and banking sources said a number of the several hundred banks involved in the Argentine lending consortium are getting restive because of the slow pace of new negotiations with the IMF and the mounting interest arrearages on the $25 billion of outstanding bank loans to Argentina.
Argentina will use much of the $4.2 billion in new bank money to pay interest on old bank loans.
Argentina and its chief bank lenders also are worried that because of the mounting overdue interest, U.S. regulators will classify as substandard many loans to Argentina on the books of U.S. banks. If that happens, sources said, a large number of U.S. regional banks that are reluctant participants in the $4.2 billion loan may drop out of the agreement.
The U.S. regulators meet next week and will review loans to Argentina. Banking and goverment sources said that if Argentina remains seriously behind in its interest payments and has not reached an agreement with the IMF, the regulators will have little choice but to downgrade the status of Argentina's loans.
Argentina has total foreign debts of about $48 billion -- $25 billion owed to commercial banks, with $8 billion of that owed to U.S. banks.
In December, when Argentina reached its first pact with the IMF, it paid about $850 million in overdue bank interest -- bringing its payments current through Nov. 4 -- and promised to pay the rest as soon as it could, and certainly before midyear.
But the country managed only one more small interest payment before it fell so seriously out of compliance with the IMF program that the multilateral agency said it would require the country to revise its economic policies, and that until it did, the country would receive no further IMF funds.
The banks, which always key their loans to a country's compliance with IMF programs, also delayed disbursing the $4.2 billion until a new agreement was reached.
In the interim, the economic situation in Argentina deteriorated rapidly. Inflation that had been running at an annual rate of about 700 percent in December accelerated. In May, prices rose 25 percent -- an annual rate of 1,350 percent -- and for the 12 months ended in May, prices rose 1,000 percent.
A major bank failed last month, and the country had to put a freeze on all bank accounts denominated in foreign currencies to halt a run.
President Raul Alfonsin, whose democratic government replaced a military dictatorship in December 1983, has become convinced that the country must take dire measures to halt its runaway inflation, pay its foreign debts and try to prevent a serious recession.
Government sources said the IMF and Argentina have agreed on nearly all steps the country needs to take -- including devaluation of the peso to make its products more salable abroad, restraints on the growth of money and credit and an increase in interest rates to encourage domestic savings and discourage some types of borrowing.
The major sticking point, a government source said, is how much of a federal budget deficit Argentina can incur, and the source said the two sides have nearly resolved that difference.
Reductions in federal spending hit hard at poor persons who are the beneficiaries of subsidies and at the large numbers of workers on the state payrolls. This week, the government raised energy prices 30 percent. It has faced widespread labor unrest even though most of the stringent measures have not yet been imposed.