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Argentina Will Not Pay Debt to World Bank - 2002-11-14

Argentina has decided not to pay some $800 million in debt due Thursday to the World Bank, but only the interest on the debt. The decision could put Argentina into a technical default, deepening the country's financial crisis.

Argentine officials say the country is making the $77 million interest payment as a good faith effort to meet its obligations. The $805 million owed to the World Bank came due on Thursday.

Argentina stopped debt payments to private creditors early this year. And until now, it has not defaulted on its $14.5 billion debt to multilateral lending institutions. A default would close off Argentina's last avenues for aid.

Argentina, which is in the midst of a deep economic recession, has been negotiating for months with the International Monetary Fund to reschedule its debt. However, these talks have not produced an agreement, as the Fund continues to press Argentina to make more structural economic reforms.

President Eduardo Duhalde declared that Thursday's decision does not mean his country has gone into default. He said Argentina intends to meet its obligations. President Duhalde also added, "Argentina has the firm conviction to honor its obligations, once an accord is reached with the IMF."

Mr. Duhalde went on to say agreement has been reached on almost all the technical points, but other requirements remain.

The World Bank in a statement welcomed Argentina's declared commitment to repay its debt. However, the bank said its policy on late payments will apply, and Argentina has only a 30 day grace period to make good on the $805 million payment that was due Thursday. Otherwise, the bank said, Argentina will be subject to penalties.

Argentina, which has a total public debt of $151 billion, devalued its currency earlier this year. The currency has lost more than 70 percent of its value, while Argentina's international reserves also have declined significantly. Because of this, economist Jose Luis Espert says, Argentina cannot afford to pay the money that was due to the World Bank on Thursday.

"It would be an important decline in international reserves, because the international reserves in our Central Bank are near $9.4 billion, so a decline of $800 million is a very important decline," he said.

Argentine Economy Minister Roberto Lavagna, who has been in Washington this week negotiating with the IMF, returns home on Friday. He is expected to provide details on the talks, including what further steps Argentina needs to take, before an agreement can be reached.