RGENTINA, struggling to cope with its foreign debts, is now working out a new agreement with the lenders. These negotiations try to strike a balance that has more to do with political values than with finance. Argentina is a democracy -- but a recently reestablished democracy, one not yet as firmly rooted as its friends hope it will become. It is also a divided society with a tradition of instability. The government needs new loans to help carry the interest on past debt and to maintain the flow of foreign trade on which the country's prosperity depends. What conditions ought to be attached to those loans?

The inflation rate in Argentina last month was around 25 percent for the month -- which means 1,500 percent a year. To lend unconditionally to a country with unrestrained inflation merely finances more consumption and more capital flight. To raise standards of living, and to reduce the debt, remains impossible as long as the inflation continues at that level. The foreign lenders are justified in making their loans contingent on action by the Argentine government to lower the inflation rate. The lenders want to press hard enough to ensure visi- ble progress. But they cannot press so hard that they damage the government and the cause of democracy.

The key negotiator among the lenders is the International Monetary Fund, for it sets the conditions. Governments and banks will then make their loans contingent on the IMF agreement. At the end of last year a group of banks had undertaken to lend Argentina $4.2 billion, but disbursement halted in March when the IMF declared that Argentina was no longer complying with its earlier agreement. The current negotiations are another attempt to find a way to join economic necessity to political possibility. Why is it so hard? Much of it involves cutting the budget, which means cutting subsidies and social benefits. Americans don't have to go as far as Argentina to find an example of a democratic government that refuses to bring taxes and spending in line with each other.

When Argentina and the IMF have arrived at their agreement, the United States will support it with an immediate loan of perhaps $450 million. That's a sensible and useful decision by the Treasury. To help Argentina avoid default serves both Argentine and American interests. The impact of a default on the American banking system would be manageable, but not without significant costs.

The succession of negotiations, agreements and lapses is an accurate indicator of the strains on the indebted countries. The Latin debt crisis has by no means been resolved. The real hope lies in the resumption of steady economic growth throughout Latin America. That's why the IMF's conditions are crucial.