Argentina avoids IMF debt default

Argentina last night averted making its second debt default in six months after agreeing to pay the $3.1bn (£1.7bn) it owes to the International Monetary Fund.

News of a deal came less than five hours before it would have missed a deadline that would have in effect cut it off from the international financial community.

Anne Krueger, the acting head of the IMF, told President Nestor Kirchner she would recommend the fund approve a second review of a $13.3bn loan deal and keep loan payments flowing, government sources in Buenos Aires said.

Latin American financial markets surged on the news that Argentina had avoided a default that would have put in a club of pariah states such as Sudan and Liberia.

Argentine leaders had repeatedly said they would pay only if the IMF first sent a signal it would approve an upcoming report on Argentina's economic progress as part of a financial accord the two struck last year.

In what analysts called a "game of chicken" the IMF had insisted Argentina must make the payment first.

The IMF has been pressing Argentina to move more quickly in restructuring some $100bn in defaulted debt, a legacy of the country's economic crisis at the turn of the decade.

Mr Kirchner's Government has said it wants its creditors to accept a 75 per cent reduction in the face value of the foreign debt, a proposal that has been strongly rejected by many creditors and IMF officials.

Argentina argues it cannot repay more without endangering a faster-than-expected recovery from deep economic crisis and inflicting more pain on the half of the population living on just a couple of dollars a day.

The $3.1bn payment is part of a financial accord Argentina signed with the IMF in 2003 in an attempt to revive its economy two years after a collapse that pushed nearly half of all Argentines into poverty.

Failure to pay the IMF would have made it more difficult for Argentina to obtain support from the Group of Seven countries in its debt renegotiations, reducing the chances of an agreement with investors who have waited more than two years to begin talks.

Argentina took a similar strategy in September, when it sent $2.9bn owed to the fund a day past the deadline.

The Merval shares index rose 52 points, or 4.5 per cent, on news of the IMF payment, while the 2008 government bond also rose.

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