IMF blocks loan to Argentina

Sign of the times: Buenos Aires soup kitchen

The International Monetary Fund has disappointed Argentina by effectively blocking a $1.3bn loan payment.

It's a tough decision and a serious one ... it brings a default that bit nearer

Juan Aleman
Argentine economist

The IMF said it could not hand over the loan because it had been unable to complete a necessary review.

The move is a major blow for the country's beleaguered Economy Minister, Domingo Cavallo.

It also revives fears that Argentina could default on its massive debt of $132bn.

The news came after the IMF's 24-member executive board met informally to hear a report from the head of a team that had been sent to Argentina two weeks ago to review the progress of economic reforms.

Desperate for the money

Mr Cavallo was counting on the loan this month - and was even wildly hoping for a further $3bn of aid.

Argentina's peso has one-to-one parity with the dollar

Argentina had been urging the IMF to quickly release the 1.3bn loan, the latest intelligent in a $22bn support package.

Argentina must make $900m in debt payments this month and had been hoping to use the bail-out funds from the IMF.

"The IMF executive board met this afternoon for an informal briefing on Argentina," said the Fund in a statement.

"Based on the findings of the mission that has been in Buenos Aires, fund management is unable at this stage to recommend completion of the review of the IMF-supported programme," it added.

'Death blow'

One analyst described the move as a "death blow" to the economy's recovery.

The IMF decision is a sore blow for Mr Cavallo

"It's a tough decision and a serious one. It brings a default that bit nearer," said prominent Argentine economist Juan Aleman.

However, Mr Cavallo brushed aside the IMF refusal, reiterating that the government would still resist outside pressure to devalue the peso, or adopt the US dollar as Argentina's official currency.

Mr Cavallo argues that both these options are likely to have severe repercussions on millions of Argentineans.

Strained relationship

The IMF's decision to withhold the money is indicative of increasing strains in the relationship between the donor and Argentina.

Over the past few months, the Argentine economy has lurched from one crisis to another, despite a $40bn aid package last year and fresh loans of $8bn in the summer.

Last week, Mr Cavallo imposed draconian curbs on cash withdrawals by Argentine citizens from local banks, amid the crisis of confidence.

The IMF added in its statement: "The Fund remains in close contact with the Argentine authorities and is committed to working with them to develop a sustainable programme."