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Wednesday, 22 August, 2001, 07:06 GMT 08:06 UK
IMF agrees extra cash for Argentina
Unemployed Argentineans protest
Argentina's crisis has hit the poor hardest
After 12 tense days of talks, the International Monetary Fund (IMF) has agreed to increase its funding to crisis-hit Argentina by $8bn.

The United States, the IMF's biggest shareholder and a vital ally of Argentina, welcomed the deal.

But both the US and the IMF insisted that tough conditions were tied to the money.

Argentina will have to use much of the money in an exchange programme to help pay down its $128bn debt burden.

Some $5bn of the money could be made available as early as September, once the IMF's board meets to approve the loan.

The new cash takes the IMF's commitments to Argentina to a total of $22bn.

Government agreement

The Argentine government said it agreed to the debt-exchange condition.

Economy minister Domingo Cavallo said that the government would enter into talks with both the IMF and the G7 group of industrialised countries over how best to manage the debt-swap.

Argentine economy minister Domingo Cavallo
Cavallo: Wants talks on debt swap

But the government could face problems from opposition politicians in its attempts to push through IMF-mandated measures.

Moves to trim government spending, including cuts in state-sector wages, have already proved tricky to implement, provoking passionate demonstrations in Buenos Aires and elsewhere.

And the US is expected to be especially tough in policing anti-crisis measures.

US Treasury Secretary Paul O'Neill warned that much work was needed in order to help put the country back on course for recovery.

Trade ties

In parallel with the IMF deal, international trade officials are hoping to boost ties among Latin American countries.

Responding to the IMF announcement, Robert Zoellick, the US trade representative, said he would be meeting ministers from around the region in the hope of increasing economic links.

Mr Zoellick is keen to arrange a meeting of ministers from Mercosur, the trade bloc that comprises Argentina, Brazil, Paraguay and Uruguay.

Country in crisis

Argentina's crisis is far-reaching.

After a three-year recession and a series of domestic and international rescue packages, recent months have seen increasing speculation that the government might have to devalue the peso - currently pegged against the US dollar.

The resulting collapse in Argentine financial markets has raised fears of global "contagion" across developing economies, similar to the fall-out from the Russian economic crisis of 1998-99.

International economic policymakers have been keen to argue that the danger of contagion is less now than it was in 1998.

But emerging markets, especially those in Latin America, have been nervous for most of the summer.

The latest news has provoked a rare surge of optimism among investors.

In early trading on Wednesday, Argentine international government bonds surged by almost 7%.

Michael Reid, Economist magazine
"It is not clear if this package in itself will bring growth"
The BBC's Theo Leggett
"The country is suffering the effects of three years of recession"
See also:

02 Aug 01 | Business
'Give us a chance' says Argentina
20 Jul 01 | Business
Argentina softens economic reforms
19 Jul 01 | Business
Argentina's corporate bail-out
17 Jul 01 | Business
Argentine austerity plan backed
12 Jul 01 | Business
Argentina debt sparks foreign fears
20 Jun 01 | Business
Argentine currency fears grow
13 Jul 01 | Business
Argentina minister appeals for calm
20 Jul 01 | Business
General strike paralyses Argentina
06 Jul 01 | Country profiles
Country profile: Argentina
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