WASHINGTON, Oct 12: Two weeks of intense talks between the International Monetary Fund and Argentina ended on an upbeat note on Friday with the troubled nation’s negotiators heading home a little closer to a deal that could restart aid.

Argentine Finance Secretary Guillermo Nielsen said on Friday the talks had produced “an advanced draft letter of intent” that could lead to a new IMF deal — something Buenos Aires has been hoping to win since the lender cut the Latin American nation off in December for broken promises.

I am heading back to Buenos Aires with an advanced draft of the letter of intent, the result of two weeks of intense work with the (US) authorities and staff of the IMF, Nielsen said in a written statement.

The draft letter of intent with the IMF usually signals that both sides of the talks are close to resolving differences and that a new lending agreement is close to being reached.

But while both sides have indicated this week that much progress has been made, Nielsen made clear that there are still unresolved issues that need to be hammered out.

On some issues we had different approaches, Nielsen said, without specifying what those differences were.

On Thursday IMF spokesman Tom Dawson told reporters that the two sides had, “made some progress.” But he cautioned that more remained to be done on working out a monetary anchor and on how best to resolve a freeze on bank deposits.

On Friday, the IMF issued a brief statement, saying only, IMF staff have had constructive discussions with Mr. Nielsen and other Argentine officials in the past two weeks, and, as reflected in his statement, good progress has been made.

Argentina is working to secure the much-needed deal to avoid defaulting on its multilateral debts — something that would freeze vitally needed social loans at a time when thousands of its citizenry are falling into poverty each day as the economic crisis persists.

To avoid that, Argentina must seal an IMF deal by the end of October to avoid defaulting on a large payment it must make to the World Bank by mid-November at the latest. Iraq and Sudan are among the small group of financial pariahs who have defaulted on multilateral debts.

But while a draft letter of intent often signals an IMF deal is near, that is not always the case. Indeed, after talks with the IMF in August, the Argentine delegation announced with great fanfare they had reached a “draft letter of intent.”

But with little political cohesion in Argentine, where President Eduardo Duhalde wins only single-digit approval ratings in opinion polls, that August blueprint never resulted in aid from the IMF being restarted.

With foreign reserves dwindling and its economy in a worse recession than the U.S. Great Depression of the 1930s, Argentina wants to win a deal that would roll over payments it owes between now and the end of 2003 on earlier loans made by the IMF, World Bank and Inter-American Development Bank.

Having already defaulted on most of its $140 billion of commercial debts in January, the IMF deal is Argentina’s best hope of reviving its catatonic economy.

But with Argentina seeking as much as $15 billion, the IMF is keen to make sure any cash it commits will not be wasted.

While Nielsen made progress over the past two weeks, his biggest hurdle will be winning support at home for the plan in a difficult political climate.

The IMF has made clear that any new involvement with Argentina will have to come with clear commitments. Sources familiar with the talks said the lender will seek “stringent” and “water-tight” conditions in exchange for any new loan.

Among those conditions will be strict control of the money supply to avoid an inflationary spiral with the central bank given limits on how much it can expand the monetary base. Those limits will likely be set in quarterly targets which, if breached, could result in IMF aid being frozen again.

The printing of scrip and quasi-money by provincial governments — a massive drain on the nation’s budget in the past — will also be forbidden under any IMF deal.

Also, the IMF will want Buenos Aires to lay out a clear plan about how to deal with a banking freeze, which was initiated in December after a run on banks and has helped contribute to the economy’s chaotic demise since then.

To date, the IMF has been unhappy with the way Buenos Aires has handled the issue and wants a more coherent plan.

While that leaves Nielsen and Economy Minister Roberto Lavagna with much to do if they are to seal an IMF pact by the end of the month, there have been come encouraging signs.

This week Duhalde’s government secured a quorum in Congress to begin debate on dropping impeachment proceedings against the nation’s Supreme Court judges after failing for months to make any progress on that issue. Tension between the high court and the government stemming from the impeachment issue has crimped Duhalde’s ability to push through his agenda and was widely seen as an impediment to an IMF deal.

If Duhalde can build on that political progress and win domestic backing for the commitments the IMF needs, the lender has signaled it stands ready to help.

But as one top Argentine negotiator told Reuters earlier this week, We have to be cautious. A deal is not closed until it is closed.—Reuters