Argentina must do a deal with its creditors or risk missing out on crucial foreign investment in the future, the International Monetary Fund and United States' Treasury said on Wednesday.
Argentina's record 2001 default on $88 billion worth of bonds fuelled a crisis that has impoverished millions and its offer of 25 percent of the money back has been rejected by creditors. It has won billions in IMF funding, but continued support is conditional on sealing a deal with creditors.
"A successful debt restructuring is a critical component of Argentina's recovery. Argentina needs substantial investment," Randal Quarles, Treasury assistant secretary for international affairs, told a seminar on the Argentina debt crisis.
IMF acting chief Anne Krueger, whose board approved a $3.1 billion loan to Buenos Aires on March 22, made the same point and added that while the country enjoyed its best hope in years of securing economic success, its commitment was lacking.
"I would, in all candour, be happier if the government had felt able to do more in order to reduce program vulnerability to shocks," Krueger said. "I would, too, feel more confident about the outcome if Argentina showed greater conviction in the program to which it is committed."
DO A DEAL: Argentina signed a $13.1 billion IMF loan agreement in September to help it recover from the 2001 crisis, whose fallout saw the economy shrink 20 percent from 1999 to 2002. The March payout was the second instalment under this plan.
Quarles said any debt deal must be attractive enough to include the majority of creditors, but the United States held no view on what amount of money would be fair.
"If the bulk of creditors accept a deal Argentina puts forward, there is no reason the US should have a view on that (fairness)," he said, adding that while no one had an interest in the country failing, Argentina had the most to lose. "We expect Argentina, acting in its own self-interest, to follow through on its commitments," he said.
Adam Lerrick, an economist who consulted for the Argentine government and is now advising some of the bondholders, noted the country was saving itself $700 million in interest payments every month or $20 billion since the default.
But he said that everyone was interested in striking a deal that the country could live with.
"The entire negotiation is about debt sustainability. Recovery values are just the residual," he said.
Krueger said the fund would not get involved in the debt talks unless it disagreed with the macro-economic implications of the deal and stressed the outlook was not all bad.
"If the government does stick to its commitments on all aspects of policy reform, I believe Argentina has a better opportunity than for many years to achieve the economic stability essential for lasting success," she said.