IMF speeds up cash for Argentina

US envoy Taylor, left, has welcomed the IMF decision

The International Monetary Fund has announced that it will speed up disbursement of a $1.2bn loan to Argentina, to try to tide the country through the coming months and stave off bankruptcy.

The announcement comes after the leaders of the United States, Britain and Spain issued statements supporting austerity cuts by Argentina's President Fernando De La Rua.

I was happy to hear that the IMF has recommended an accelerated disbursement to Argentina

US Treasury official
John Taylor

The BBC's South America correspondent, Tom Gibb, says the IMF money, originally scheduled to be delivered in September, has become necessary because government tax revenues continue to fall as the economy slows further, with factories and businesses closing.

The IMF has also announced a $15bn credit line for neighbouring Brazil, whose currency has been badly buffeted by the crisis in Argentina.

Investors sceptical

The austerity cuts announced last month take 13% off the salaries of state workers and pensions and have sparked strikes and demonstrations in Argentina.

But it now appears the cuts may need to be larger, if the government is to keep its zero deficit policy.

Our correspondent says many investors appear to be betting that Argentina will not be able to keep up on its debt payments.

But the Argentine government has accused Wall Street of speculating on an economic collapse, which would almost certainly lead to a devaluation of the Argentine currency.

Support for austerity plan

US President George Bush , UK Prime Minister Tony Blair and Spain's Jose Maria Aznar on Friday agreed to support Argentina's austerity programme, but did not offer the beleaguered country any extra cash.

"They are all agreed that the focus should remain on the current [IMF] package," a spokesman for Mr Bush said.

The backing came as US Treasury official John Taylor flew to Buenos Aires for talks on Argentina's economic situation, which has threatened to prompt regional and even global economic instability besides domestic unrest.

The Brazilian authorities are strengthening fiscal and monetary policies and implementing their structural reform agenda in the face of a difficult external environment

IMF Director
Horst Koehler

In a statement late Friday, Mr Taylor called his talks "fruitful and detailed" and expressed support for the IMF's new offers of support.

"I was happy to hear that the IMF has recommended an accelerated disbursement to Argentina," the statement said.

Earlier on Friday, Argentine Finance Secretary Daniel Marx said Mr Taylor's visit heralded the granting of "reinforcements" to current loan facilities.

Mr Marx also claimed to have noted a European "willingness to assist [Argentina] as required".

Brazil credit line

After announcing the plan to accelerate Argentina's loan, the IMF Managing Director, Horst Koehler, said he would also recommend the creation of a new standby loan arrangement of $15bn for Brazil.

"The Brazilian authorities are strengthening fiscal and monetary policies and implementing their structural reform agenda in the face of a difficult external environment," Koehler said in a statement.

The announcement follows a week of talks in Washington between a team of Brazilian economic officials and officials from the IMF, World Bank and the US Treasury Department.

Mr Koehler said Brazil could begin receiving loans in September, with the first instalment expected to total $4.6bn.