Argentina, once South America's second largest economy, continued its downward economic slide by negating on its World Bank loan Thursday.
The country informed the World Bank that an $805 million dollar loan payment would not be made in full and submitted a $79.2 million partial payment. The default comes after missing a deadline last month.
Christopher Neal, a World Bank spokesperson, said the World Bank cannot consider new loan requests from Argentina until its obligations have been met. Consequently, the World Bank cannot grant a new loan request that was expected from Argentina later this month.
\We are concerned about the situation. While we recognize the important gesture made by Argentina, the bank's policy on repayments applies for the remaining balance,"" Neal said.
Argentina has $9 billion in reserves, but is unwilling to use it to pay the $805 million it owes to the World Bank and the $2.2 billion in other expenses prior to January to comply with standards set forth by the International Monetary Fund for a potential loan.
Argentina affirmed plans to pay the World Bank, but is relying on the International Monetary Fund's support, even though 11 months of negotiations have not yet produced an agreement.
""Argentina fully intends to meet its obligations once an [IMF] agreement is reached. This does not close the door'we are still ready to continue talks,"" Argentine President Eduardo Duhalde, said.
UW-Madison Professor of agricultural and applied economics, Jean-Paul Chavas, said that in general the IMF follows strict policies. Chavas added that private investors from the United States and other countries can be another source of income, but the failure to pay their debts puts them in a difficult position.
""Investors around the world are looking where to put their money, but probably now the incentive to invest in Argentina is not great,"" he said.
Argentine leadership hopes that the failure to pay the World Bank debt will motivate its decision makers to agree to satisfy IMF demands.
""From our point of view this is not a default, rather an unfortunate but necessary action on the way toward reaching an agreement,"" Duhalde said.
