Argentina defaults on IMF debt

Argentina on a US$3 billion debt to the IMF on Tuesday, the biggest single missed payment in the IMF's history.

The default, which comes nearly two years after Argentina racked up the biggest sovereign debt default ever in the throes of economic collapse, means Latin America's No.3 economy joins the ignominious ranks of IMF defaulters like Liberia, Sudan and Zimbabwe.

"To avoid compromising 25 percent of [Central Bank] reserves, the government has decided to suspend the payment that was due today," the Cabinet office said in a statement.

"The Argentine government and the IMF have not yet concluded negotiations concerning a refinancing deal with the multilateral credit organizations [the IMF, World Bank and Inter-American Development Bank]," it added.

The IMF was not immediately available for official comment on the default, which comes as Argentina was striving to reach a crucial aid deal with the IMF to roll over US$12.5 billion owed over the next three years.

However, many economists expect some kind of deal to be forged in coming days or weeks, and played down the default's importance in the near-term.

It could take at least a month before the IMF institutes any sanctions and penalties.

The Argentine economy has shown tentative signs of recovery in recent months under the stewardship of highly popular new President Nestor Kirchner.

But the default is another nail in the coffin for investor confidence in Argentina, still a pariah for many investors after the government stopped making payments in January last year on what is now US$90 billion in defaulted, privately held debt.

Kirchner's left-leaning government opposes IMF austerity plans and refused to use around a quarter of its international reserves to pay Tuesday's debt.

Thousands unemployed protesters, including mothers pushing strollers and men waving placards saying things such as "No to the IMF, Yes to education and bread!" paraded in Buenos Aires, where people often label the IMF the "International Misery Fund."

Kirchner, part of a growing number of Latin American leaders reluctant to follow Washington-encouraged pro-market reforms, argues that he must place priority on helping around that half of the country's 36 million people that lives in poverty.

"This is not a happy state of affairs, but the market has learned to live with it [Argentina's default on privately held debt]," said Gerd Haeusler, director of the IMF's capital markets department, at a Paris meeting.

While Argentina was a darling of Wall Street in the 1990s after a bonanza of market reforms, now it is almost impossible for consumers to get a simple bank loan.

Firms now rely on their own cash, rather than credit, to expand.

"The day-to-day will not change, but a default is serious because it means that Argentina is refusing to deal with major economic issues that surged from last year's collapse and could eventually undermine the recovery," said Sebastian Rodrigo, a lawyer who advises local and foreign investors in Argentina.

Argentina, which is not asking for any fresh cash, has so far failed to agree with the fund over conditions for a wider aid deal, including compensating banks for losses after last year's currency devaluation and raising frozen utility rates.

Argentina resolve its debt obligations with the IMF before it can get down to restructuring the US$90 billion worth of defaulted debt held by hundreds of thousands of creditors from Milan to Tokyo.