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Argentina: Government Defaults on Internatioal Loan

January 15th, 2003

Argentina has failed to make a crucial $681m debt payment, dealing a further blow to hopes of an economic recovery. The country told the Inter-American Development Bank (IADB) it "is not in condition" to meet the payment, which was due on Wednesday. The decision could cost Argentina a key source of foreign credit.

The country is experiencing its worst economic crisis in decades and is in default on loans with most major international donors. Half the country's population is living in poverty and children have begun starving to death in the north of the country.

IMF negotiations

Argentina's economy minister Roberto Lavagna told the IADB the delay in payment would be "brief" and "will be resolved in the framework of broader refinancing agreements with multilateral organizations". But the Washington based bank has still suspended its loan programme to Argentina.

The decision could complicate Argentina's ongoing negotiations with the International Monetary Fund (IMF) over a possible short-term loan package. The country needs the cash to avoid defaulting on its IMF obligations.

Political quarrels

The IMF board will on 23 January consider a letter of intent from Buenos Aires, and decide whether to grant aid to the country after a year of negotiations. Argentina has already defaulted on World Bank debt. President Eduardo Duhalde's government has repeatedly refused to use reserves to pay its debt dues unless it has concrete guarantees that it will be granted aid.

The IMF's programme is likely to contain a number of conditions and the fund could negotiate a more comprehensive programme following the presidential elections on 27 April. Any deal would be the first between Argentina and the IMF since August 2001, when the IMF cut off billions of dollars in funding. The fund has long called for new measures to stabilise the country's banking system, to keep inflation under control and to end political quarrels.

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