MercoPress. South Atlantic News Agency

Argentina-IMF medium term agreement.

Argentina formalized this Thursday the agreement reached yesterday with the International Monetary Fund when it made effective the transfer of 2,9 billion US dollars in arrears to the multilateral financial organization.

Last Monday September 9 when frantic negotiations over a medium term accord with the IMF hadn't reached an understanding, as anticipated Argentina postponed the debt repayment of 2,9 billion, "technically" defaulting, as the situation is described in IMF jargon.

The aid package finally agreed means that Argentina in the coming three years will only have to pay interests on its 12,5 billion US dollars with multilateral organizations, (IMF, World Bank and Interamerican Development Bank, IDB), and paves the way for a formal presentation to Argentine private creditors, holders of 90 billion US dollars in sovereign bonds on which the country defaulted January 2002.

Actually the agreement becomes extensive for 21,6 billion US dollars that includes the 12,5 of the IMF, 5,6 billion from the World Bank and 3,4 from the IDB.

"The agreement will strengthen Argentina and help our economic recovery", said President Nestor Kirchner who also thanked the United States government for the "surprisingly important" support during the whole negotiation process.

In Washington IMF Director General Horst Koehler said, "I am pleased to welcome President Kirchner's announcement of Argentina's economic program that aims at restoring strong economic recovery and reducing poverty".

There were the controversial points that prevented a quick agreement.

The primary budget surplus, sufficient to convince creditors that Argentina will honour its debts; a 2,6 billion US dollars compensation demanded by private banks following the 2002 devaluation of the Argentine currency, and increases in public utility rates that have remained frozen since the collapse of the country's economy.

Mr. Kirchner in the middle of an electoral process with crucial Congressional and governorship elections in the coming weeks refused point blank to even talk about bank compensations and raising utility rates. Besides he underlined that he wanted to sign an agreement he could honour and that the incipient recovery of the Argentine economy should not be imperilled. In the first half of 2003 Argentina expanded at an annual rate of 6,5% after having collapsed 11% in 2002.

Finally, and apparently under strong US government pressure and solidarity from other Latinamerican countries, a 3% primary surplus was agreed for 2004, leaving the following two years targets open to future discussion.

Regarding utility rates Cabinet chief Alberto Fernandez indicated that "all 63 contracts involving the privatization or concession of government services will be reviewed. We want complete transparency and there will be no undeserved profit transfers".

Mr. Kirchner also admitted "differences" with Economy Minister Roberto Lavagna during negotiations, but added "I'm most satisfied with his job. Anyhow what's wrong with having differences: the real bad thing is to simulate we're all in agreement".

In a short release the IMF indicated that the Argentine letter of intent "has been signed in Buenos Aires and will be sent to the IMF Executive Board" for a Board meeting at the end of next week.

IMF described Argentina's program as having three fundamental elements: the first, a medium term fiscal framework to meet growth, employment and social equality objectives, while providing a sound basis for normalizing relations with all creditors and ensuring debt sustainability.

Second, a strategy to assure the strength of the banking system and facilitate the increase in bank lending that is essential to support the recovery.

Third, institutional reforms to erase corporate debt restructuring, address issues of the utility companies, and fundamentally improve the investment climate.

"These and other reforms in the authorities' program are carefully sequenced for elaboration and implementation over the next three years, and it goes without saying that the success of the program will depend upon the consistency and rigor with which it is implemented", concludes the IMF release.

Argentina is expected to make a formal proposal to private sovereign bond holders at the end of the coming IMF-World Bank annual assembly to be held in Dubai.