In agreeing to pay overdue interest on its world debt, Argentina has indicated a willingness to reach accommodation with foreign bankers. It is now important that world banking officials - including the International Monetary Fund - reciprocate by producing an overall debt-payment formula that allows the Argentine government enough latitude not only to meet interest obligations on its massive $45 billion foreign debt but also to satisfy domestic political demands.
The government of President Raul Alfonsin is going to have a difficult time steering a course between calls for austerity by the IMF and the urgings of Peronist-led unions for significant wage increases. But that is exactly what the government must do. Surely, IMF officials recognize that the newly installed civilian government is still fragile, with the Argentine military watching closely for any indication of domestic unrest. There is no greater certainty that Argentina would be better able to meet its debt obligations under the rule of supernationalistic generals than under a civilian government. It was precisely under the former military government, it might be recalled, that Argentina defied the international legal community by taking on Britain in the Falklands war.
There is another aspect of the Argentine debt situation that also needs to be recalled: Argentina is a member of the new 11-nation Latin debt consultation group that grew out of the recent conference at Cartagena, Columbia.
The 11 nations did not go so far as to establish a debtors' cartel - a possibility that certainly worried industrial nations concerned about any possible widespread debt repudiation. At the same time, by agreeing to meet regularly on the debt issue and to seek a new international debt-refinancing system, the Latin nations have apparently moved a notch closer to some form of cartel. Thus, other Latin nations, as well as third-world debtor nations in general, will be watching to see how the IMF and the world banking community deal with the Argentina situation.
Late last week, Argentina announced a payment of $350 million to meet overdue interest obligations. Some $225 million would come from the nation's own reserves. Another $125 million would come from a 45-day bridging loan from Argentina's main commercial creditors. A number of steps were also announced involving other Argentine loan obligations.
Those agreements come alongside continuing longer-range consultations between Argentina and the IMF. The IMF wants Argentina - which has an annual inflation rate of around 560 percent - to impose tough austerity measures, including a cut in public sector wages. The government, by contrast, has promised public sector workers real-wage increases of 6 to 8 percent this year.
The West - and especially the US - has important ties with Latin America. The West must encourage trade with the region and seek to reduce high interest rates since the level of Latin debt payments are linked to US interest rates.
It is vital that Western links with Latin America not be sundered over the foreign-debt issue.