MercoPress. South Atlantic News Agency

Argentina “pre-defaults”

The World Bank confirmed this Thursday that it received a partial payment of 79,2 million US dollars from Argentina against a scheduled payment of 805 million US dollars that was due last October 15. However the World Bank said that “it welcomes statements by government officials that Argentina remains committed to rectifying the situation as soon as possible”.

The World Bank official release in Washington follows Argentina's announcement that it will only pay interests on the outstanding 805 million US dollars loan because "the country's current level of international reserves impedes Argentina from paying the whole sum". Otherwise the reserves level "would drop below the nine billion US dollars recommended by the International Monetary Fund to ensure the strength of the current monetary program"

Argentina's Economy Minister Roberto Lavagna had previously met with the World Bank's vicepresident for Latinamerica and the Caribbean David de Ferranti, and Paul Levy head of economists of the Argentina desk.

In its release the Argentine government specifies that by making effective "interest payments on the current loan due, Argentina seeks to continue negotiations for a definitive agreement with the IMF and avoid a default".

Since last February Argentina has been discussing an assistance program that will enable the country to roll over repayments of 14,5 billion US dollars to multilateral credit institutions, maturing in the coming 14 months.

The pre-default scenario was not unexpected given the ongoing sour discussions with the IMF and the fact Argentina repeatedly has been unable to comply with growing demands, particularly regarding fiscal policy and a political commitment from all Argentine parties with presidential aspirations that any understanding reached will stand beyond the current electoral timetable.

The current caretaker government of President Eduardo Duhalde scheduled elections for March 30th with the new administration taking office the following May 25th.

First reactions from private bankers and investors was negative saying that "this is bad news for Argentina, but not necessarily for the rest of the continent since Argentina has clearly differentiated itself from other countries", said Micahel Gavin an economist from UBS Warburg investment bank in New York.

Analysts believe the situation also becomes a problem for the World Bank and the Interamerican Development Bank that still have disbursement of loans to Argentina in the line.

According to World Bank policy, no penalties are assessed on loan payments made within 30 days of the scheduled due date. If a payment becomes 30 days overdue, no new loans to the borrower can be presented to the Bank's Board, and the borrower looses eligibility for reductions of interest charges falling due over the following six months. Full payment by Argentina of amounts overdue by 30 days would result in the immediate lifting of the restriction against consideration of new loans.

"Meanwhile the Bank will continue to disburse under existing loan arrangements previously approved, and can do so as long as no payment becomes 60 days overdue", according to the World Bank charter.

This means that if by December 14th Argentina does not make the full payment of 805 million US dollars, the country will cease to have access to 2 billion US dollars for "social programs".

In Buenos Aires, Alfredo Atanasof, Chief Minister said that Argentina is actually waiting disbursement of 7 billion US dollars in loans.