IMF Hears Argentina's Cry

The International Monetary Fund on Friday approved a $6.78 billion loan package for Argentina, ending 11 months of arduous negotiations and giving South America's second largest economy some breathing room from creditors until the country can elect a new president.

The IMF announced the decision by its executive board in a brief statement, saying the loan package was designed to provide "transitional financial support" through Aug. 31 of this year.

After that time, the agency said it expected it will have been able to negotiate a longer-term loan package that would provide fresh resources to help Argentina emerge from the worst financial crisis in its history.

The IMF's approval of the transitional loan came even though the agency could not come to terms with Argentina on an IMF-approved plan to deal with the country's economic problems. Normally, the organization refuses to provide new loans until such an agreement is in place.

However, the government of Argentine President Eduardo Duhalde balked at some IMF demands, calling them too stringent, and threatened to default on IMF loans coming due this month if no agreement was reached on new loans, an action that would have cut the country off from its last source of foreign credit.

The IMF action Friday will essentially provide the country with enough resources to stay current on its IMF obligations through August.

Argentina is scheduled to elect a successor to Duhalde in late April. The new president is to take office in May.

The IMF hopes the new administration will have the political support needed to enact tough economic reforms that will allow the IMF to provide new loans to help end the country's lengthy economic downturn.

Critics say the economic crisis in Argentina is a result of profligate spending by the government, and a flawed policy of tying the national currency to the dollar.

Earlier this month, the IMF said that to get the funding, Argentina had to "focus on achieving a clear political consensus in favor of reforms, building a sound fiscal framework, restoring confidence in the banking sector, increasing trade openness, and restructuring debt."

But Argentina has claimed the IMF's suggested policies would have severe social consequences. And some economists blame the crisis on high American interest rates and the hangover from financial panics in other emerging economies in 1998.

The Argentine economy had unemployment of 20 percent and saw GDP shrink by 9 percent from 1999 to 2001.

Last week, IMF managing director Horst Köhler said "difficulties in securing a political consensus in Argentina have been a core problem impeding progress toward a program."

"That said, we all take note that, in recent months, the economic situation has somewhat stabilized, though it remains fragile," he said.