U.S., Other Creditors Approve $500-Million Loan to Argentina

The United States and a group of other industrial countries have approved a $500-million bridge loan to assist Argentina, the Treasury Department announced Thursday.

It did not identify the other nations involved, although monetary sources said the issue was discussed by finance ministers and central bankers from the United States, Japan, West Germany, France, Britain and Canada during a round of meetings last weekend in Paris.

Argentina announced a wage and price freeze Wednesday night and has been negotiating with bankers in New York this week for about $2.15 billion in new loans and other financing.

The bridge loan apparently became necessary when the International Monetary Fund, which has approved an economic program and new loans for Argentina, was unable to disburse money until the country reached an accord with its creditor banks.

Argentina has threatened to withhold interest payments on its foreign debt if commercial banks do not quickly grant it the fresh loan package of $2.15 billion.

Only last week Brazil took just such action, raising fears the foreign debt situation was boiling over into a new crisis. But Thursday’s loan was taken as a signal that Argentina, whatever its public rhetoric, will follow a more moderate tack.

Argentine chief debt negotiator Mario Brodersohn held talks on the issue with Treasury Secretary James A. Baker III and Federal Reserve Board Chairman Paul A. Volcker on Wednesday, U.S. officials said.

On Thursday, members of the bank steering committee for Argentina met with Brodersohn in New York for negotiations on the country’s $52 billion in bank debt.

One banker, who asked that he and his bank remain unidentified, said Thursday that even before the new loan was announced, most members of the steering committee did not expect Argentina to follow Brazil in halting debt payments. “Argentina seems to be following its own course,” he said. “It has an economic program and an agreement with the World Bank,” and the negotiations are going on.

Support for Program

The Treasury said in a statement released here that “our willingness to participate in this multilateral short-term financing indicates our support for Argentina’s economic program to achieve sustainable growth and a viable balance of payments position.”

In announcing a four-month wage and price freeze, Argentine officials said Wednesday that the country needed a more serene climate if it was to carry out reforms aimed at promoting more open markets and fostering a sustained economic expansion.

In other developments Thursday in the Latin debt crisis:

- Chile reached agreement with its bank lenders on a $10.6-billion refinancing package that includes a retiming of interest payments and frees up $440 million in new money for the nation.

Although Chile is one of the “Baker 15” countries, tapped by Treasury Secretary Baker for World Bank assistance in return for structural adjustments in their economies, the package was completed without participation of the World Bank because of U.S. “displeasure” over Chile’s human rights record.

The agreement culminated weeks of talks between the 12-bank committee headed by Manufacturers Hanover Trust and Hernan Somerville, chief debt negotiator for Chile.

- Mexican Treasury Secretary Gustavo Petricioli announced that Mexico has won agreement from international banks on almost all of the $7.7 billion in aid they pledged last year. He said Mexico expects to begin receiving the money March 20.

About 500 foreign banks had given preliminary commitments last September to contribute to the loan package. But some, especially some of the smaller ones, apparently worried that heavily indebted Mexico might never be able to repay, have been reluctant to participate.

But Petricioli said that, as of Tuesday, Mexico had received firm commitments for $7.448 billion, nearly 97% of the amount initially sought.

- In Washington, Baker said Brazil’s shut-off of interest payments on its foreign debt reflects the country’s reluctance to have an uncontrolled rundown of its foreign exchange reserves, which now amount to just under $4 billion.

In testimony before the Senate Appropriations Committee, Baker said Brazil has pledged to meet all its financial obligations. On the debt crisis in general, he rejected extreme suggestions, ranging from huge amounts of new loans to a cutoff of finance to debtor nations. Instead, he urged a continuation of the U.S. policy of moderate lending and economic adjustment.

Brazilian Finance Minister Dilson Funaro is scheduled to meet today with Baker.