The IMF accord is a victory for Argentina, which won the financing despite rejecting IMF demands to expand savings and raise utility rates.

Latin America’s second largest country, both in economic and geographical terms, was due to pay $2.9 billion on Tuesday. It has promised to do so before final approval of the loans on 19 September.

“This is the first step towards a debt restructuring,” Edwin Gutierrez, who helps manage $1.25 billion of emerging-market debt, including Argentine bonds, at Deutsche Asset Management in London, told Bloomberg News.

“They seem pretty determined to present something to investors,” he added.

Bond restructuring

"There was a minimum level of reforms that had to be met or we could not be on board"

US Treasury Secretary John Snow

The deal, which still has to be agreed by the Fund’s board, also signals a basis for restarting stalled talks with bondholders over revised terms for the $95 billion of debt the country defaulted on in 2001.

US Treasury Secretary John Snow praised the accord which he described as "a pretty good agreement."

“We indicated to Argentina in our discussions with them that a bad agreement was worse than no agreement, there was a minimum level of reforms that had to be met or we could not be on board,” Snow said in Washington.

The IMF agreed to lend $12.3 billion to Argentina over three years, with the World Bank and Inter-American Development Bank providing the rest.

The financing is aimed at boosting investor confidence in the country.

Private bankers dissatisfied
 
Still, private bankers were muted.

“One has to ask what is going to restore the overall trust in investment which is necessary to sustain economic recovery there?” Charles Dallara, a managing director for The Institute of International Finance (IIF), told AFP.

Argentina owes the IMF more than $14 billion.

Dallara said that for the IIF it's "highly doubtful" that the accord will pave the way to a restoration in sustainable job growth. Unemployment in Argentina stands at 18% with more than half of the once rich country’s population living in poverty.
 
Still, Argentina’s business community was jubilant. The Asociacion de Bancos Argentinos, which represents many of the country’s banks, said the agreement signals “the principle of a new phase” which should allow President Nestor Kirchner to restructure Argentina's debts. 

New tax structure

The accord still requires Argentina to produce a primary budget surplus -- excluding debt payments -- of at least three percent of gross domestic product (GDP).

Argentina's peso rose 1.4% to 2.8945 per dollar at 15:01 in New York, its biggest gain since May 26.

As part of the agreement, the government agreed to establish a new tax-sharing structure with provinces and begin to strengthen the nation's state-run banks.
 
The government, which has blamed IMF policies for the default and subsequent devaluation, refused demands to let utilities raise rates and to boost compensation to banks that became insolvent after the nation's default, Economy Minister Roberto Lavagna said at a press conference on Wednesday night.

Argentina owes the IMF more than $14 billion.

International banks operating in Argentina, including Citigroup Inc. and FleetBoston Financial Corp., lost at least $11 billion after the government defaulted and devalued its currency in 2002. Most utilities in the country also stopped paying their obligations.