$1.4-Billion Package Tied to Austerity Measures : IMF, Argentina Agree on New Loan Program

Argentine negotiators and the International Monetary Fund have reached an agreement in principle on a renewed $1.4-billion loan program to help the South American nation deal with its $48.4-billion foreign debt and mounting domestic economic problems, IMF and Argentine officials said Friday.

The agreement came only days before an informal deadline early next week, at which time U.S. banking regulators were expected to downgrade Argentina’s credit rating, which would in turn have forced creditor banks to put up extensive new loan-loss reserves.

In return for the new loan program, the government of Argentine President Raul Alfonsin is expected to adopt new austerity measures to deal with runaway inflation, estimated at more than 1,000% annually.

In addition, as soon as the IMF formally announces the agreement, the United States is prepared to join other nations in financing a “bridge loan” of $300 million to $450 million to tide over the battered Argentine economy until the IMF loan is in hand, Treasury spokesman Robert Levine said.

Sources close to the negotiations said Argentina’s chief debt negotiator, Mario S. Brodersohn, and its undersecretary of political economy, Jose Luis Machinea, had been working non-stop with IMF officials during the past few days and had reached tentative agreement on a new austerity program late Thursday.

That agreement, in turn, was hardened in the form of a “verbal agreement in principle” during talks Friday, Argentine officials said. Brodersohn and his IMF counterparts are now expected to spend the weekend formalizing the agreement in writing.

“The minutiae can take quite a time to be sorted out,” cautioned an IMF official who asked not to be identified. “But the broad parameters are probably there. What remains is to dot the i’s, cross the t’s and fix the final numbers.”

Alfonsin himself disclosed the agreement during a televised interview in Buenos Aires on Friday.

Still Being Drafted

Argentine officials in Washington declined to give any details of the new agreement, explaining that the communique setting forth the terms was still being drafted and would not be available until early next week.

The renewed agreement, once formalized, will unfreeze a $1.4-billion loan, negotiated last December, that was suspended in March as Argentina’s economy drastically worsened.

During extensive negotiations with the IMF last year, Alfonsin’s government had been reluctant to impose on a fragile new democratic government the disciplines of lower public spending and wage restraints that the IMF deemed necessary to stabilize the economy.

But, as the inflation rate more than doubled early this year to its current annual rate of 1,010%, the government changed its policy and began to accept austerity measures that had been deemed politically unwise.

The United States had also helped out last December with a $500-million bridge loan. The new Treasury loan, however, is to include contributions from other countries in Latin America and Europe.

Treasury officials declined to identify them, but a Buenos Aires financial newspaper reported Friday that they are Colombia, Venezuela and Spain.