Argentina Resumes Its Payments on Foreign Debt

Argentina has made a $40-million payment to foreign creditors, the first since foreign debt payments were suspended more than two years ago, government officials said Thursday.

Carlos Carballo, undersecretary of economy, confirmed that payments had been renewed following “arduous” discussions in New York between Central Bank Vice President Javier Gonzalez Fraga and individual creditor banks.

The payment, ministry sources said, is considered “a gesture of goodwill” aimed at aiding Gonzalez Fraga in talks scheduled to began this week with a consortium of private creditors.

Argentina, the developing world’s third largest debtor, owes a total of $60 billion in loans plus unpaid interest that could reach $8.5 billion by the end of the year.

Ministry sources said the government hopes to negotiate an agreement to pay $300 million in overdue interest by the end of the year. The creditors reportedly have sought payment of $500 million.

In the event negotiators reach agreement, Argentina would make another interest payment of between $70 million and $80 million, ministry sources said.

The 11-month-old government of President Carlos Menem is seeking debt forgiveness, approval for debt capitalization and new loans.

Negotiations with a steering committee that represents private banks, which are owed a total of $40 billion, are likely to be difficult. Citibank, for example, reportedly has written off 40% of its loans to Argentina as uncollectible and resents having done so.

Nevertheless, the International Monetary Fund has indicated that it approves of Menem’s policy of budget austerity and privatizations, and recently unblocked payment of a $1.7-billion loan granted last October and suspended five months later.

Carballo said $240 million of the unblocked funds “have already entered the country” and that a new installment of the same amount would be disbursed by early August.

Argentina is emerging from two bouts of hyperinflation and is mired in recession. Inflation, which hit 96% in March, dropped to 11% in April but is expected to be slightly higher for May.