The International Monetary Fund (IMF) has agreed to give $8 billion in emergency funds to pull Argentina back from possible bankruptcy.
IMF managing director Mr Horst Koehler said he intended to recommend an increase in standby credit from $14 billion to $22 billion. The IMF also said it would back restructuring of Argentina's $128 billion public debt to avoid default.
In return, Argentina has agreed to fully enforce tough austerity measures passed last month to eliminate its budget deficit, the IMF said in a statement.
The announcement came after over a week of talks between Argentine and IMF officials. The deal must first be ratified by the IMF's executive board when it meets in September before the money can be disbursed, the IMF statement said.
Argentina is suffering the effects of three years of recession that saw salaries drop 12 per cent and unemployment rates rise more than 16 per cent.
There is widespread resistance to the government's plan for drastic cuts in public salaries and pensions.
Reserves have fallen by almost $11 billion since March as bank deposits dropped by nearly $6 billion. People have been taking money out of the banks, fearing Buenos Aires will abandon the one-to-one peg between the peso and the dollar, established by law in 1991.
But Argentine officials have said Buenos Aires will neither devalue the national currency nor default on its debt.
AFP