Nation Offers Reform for Credit

AS the International Monetary Fund prepares for its annual meeting in Washington next week, Argentine officials are racing to put the finishing touches to a letter of intent that they hope will pave the way for a $1.5 billion standby credit from the international lending organization. Economy Minister Nestor Rapanelli wants the accord ready by the IMF meeting, as a token of his government's efforts to bring Argentina back to the international financial fold after 18 months in the wilderness, officials say.

The deal would signal new faith in Argentina on the part of the fund since President Carlos Menem took the helm of Latin America's third-largest debtor last July. ``I think a better path can be opened for the country and its people,'' IMF envoy Joaquin Ferran said here recently, welcoming the opportunity to ``confront the problems with realism.''

But Buenos Aires' history of broken promises to its creditors makes some observers cautious.

``Argentina has a tremendous credibility gap - an 84 percent gap to be precise,'' says one foreign banker, in a sardonic reference to the 16 cents on the dollar that Argentine debt is worth on the secondary market.

Nonetheless, bankers are enthusiastic about the economic policies President Menem has espoused since taking office in the midst of a hyperinflationary maelstrom. His belt-tightening approach has included all the IMF approved ingredients - sharp increases in public-service charges, a three-month wage freeze, hefty cuts in government spending - and more. Last week, the president signed a decree putting the state telephone company up for sale, launching a massive privatization drive intended to dismantle the state sector.

``It's not often the IMF finds these sort of things already under way before a standby is agreed,'' says Carlos Carballo, Argentina's chief foreign-debt negotiator.

But he acknowledges that Buenos Aires is still far from being in its creditors' good graces. Argentina's total debt, expected to top $63 billion by the end of this year, includes $5 billion of interest arrears accumulated since April 1988, when the previous government stopped making interest payments. Nor have bankers forgotten the failure of Argentina's last IMF standby, abandoned in January 1988 after only a few months when Buenos Aires failed to meet the loan's conditions.

Officials here say they expect the new standby within weeks of the IMF meeting, and plan to use some of the money to pay off interest arrears with the IMF itself, the World Bank and the Inter-American Development Bank.

The World Bank, meanwhile, last week sent Shahid Husain, its vice president for Latin America, here. He said he was ``very impressed with what the government has achieved in these two months to stabilize the economy.''

His visit raised hopes that the bank might unblock a $1.3 billion credit approved at the end of last year but frozen last January. Only $150 million had been disbursed, because Argentina failed to meet the conditions attached to the loan. Mr. Husain would not comment, but promised that the World Bank ``will work with the Argentine authorities on reforms to public enterprises, the financial sector, and foreign trade.''

Commercial bankers are also looking forward to working with the new government. ``The banks are prepared to support the new economic program,'' said local Citibank chief Richard Handley last week, praising the ``tremendous effort'' that the authorities have made since July.

Mr. Carballo made official contact with the steering committee of creditor banks in New York this month, telling them, he says, that ``Argentina takes responsibility for its debts and will pay them. We have no desire to make the debt into a political issue.''

But he does not foresee negotiations with commercial bankers until the beginning of next year, and says it is ``totally premature'' to say when Buenos Aires might restart making interest payments.

``Other questions are much more urgent,'' he argues.

When the negotiations do start, Carballo predicts ``they are going to be very difficult and very complicated.'' But the creditor bankers were ``fairly friendly'' at his New York meeting, he adds.

Privately, Argentine officials say they hope to benefit eventually from former United States Treasury Secretary Nicholas Brady's plan for debt relief. But bankers here are showing more enthusiasm for debt capitalization as the privatization program gets under way.