In a cry for help in a time of political and economic chaos, Argentina is seeking a financial aid package and the International Monetary Fund (IMF), the World Bank, and the Inter-American Development Bank (IDB) are coming to the rescue.

The package, which came about as a rumor almost two weeks ago, sent a tremor of fear through the country. Spreads widened as people absorbed and processed the realization of the true state of the country. However, now some believe that financial aid just might be what the doctor ordered.

The specific terms of the package have yet to be announced, although one source said it will probably be in the range of $15 billion to $20 billion. The source also said that the package is expected to be more flexible in terms of financing than was originally rumored.

The financial aid was announced the same week that Standard & Poor's Rating Services lowered the sovereign rating to BB-minus from BB and removed Argentina from CreditWatch negative. Furthermore, S&P also placed 11 Argentine structured finance transactions on CreditWatch with negative implications.

"Our main concerns are related to the growth; the expected growth [now] is not what has already been projected," said Juan Pablo de Mollein of S&P. According to Bruno Boccara, a sovereign analyst for S&P, the fiscal situation along with the political and economic problems also contributed to the downgrade.

President Fernando de la Rua has put a freeze on federal and provincial spending and the Argentine authorities project that the fiscal balance will therefore be met in 2005 rather than 2003, as previously announced.

S&P is expecting a growth rate of 1%, which Boccara termed as "optimistic," and Argentine authorities are projecting a 2.5% growth rate for next year. According to S&P, the budget deficit for 2000 is expected to be in the vicinity of $6 billion and for 2001, the projection is $6.4 billion.

According to Fitch, the financial aid package could save Argentina from a downgrade if it re-establishes investor confidence. "We think what's critical is investor confidence," said Roger Scher of Fitch.

Fitch believes that the framework of Argentina's economic policy is solid and could strengthen in the weeks ahead. Therefore, they do not have any plans to lower the sovereign rating. S&P also said that it expects Argentina to recover. "They always do," Boccara said.

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