Argentina made a $3.15 billion payment to the International Monetary Fund due last night to avert a new debt default with the lender.
As a result of the payment, acting IMF head Ms Anne Krueger told Argentina's president, Mr Nestor Kirchner, she will recommend the IMF's board approve a second review of a $13.3 billion loan deal to keep funds flowing to the struggling economy.
Argentina has been locked in a battle with the IMF for weeks, with the main sticking point being whether Buenos Aires is negotiating in good faith with creditors scrambling to recoup investments hammered when the country defaulted in January 2002.
Failure to pay the IMF would have halted further loans and alienated world markets.
The IMF has been unhappy with progress in Argentina's talks with bondholders and has asked Buenos Aires to take specific steps to keep its three-year loan pact on track.
Argentina had been reluctant to dip into its estimated $15 billion in international reserves to make the payment without assurance the fund would pass the second review of a three-year loan accord.
Argentina has yet to convince angry bondholders to accept its proposal to repay just 25 per cent of the $88 billion it defaulted on and many are clamoring for their respective governments to protect their investments.
Italian Prime Minister Silvio Berlusconi said on Tuesday Italy was working through diplomatic channels to try and convince Argentina to sweeten its debt offer. Bondholders want to recover at least 65 per cent of their investments.
But Argentina argues it cannot repay more than 25 per cent of the defaulted debt without endangering its faster-than-expected recovery from economic crisis and inflicting more pain on the 50 per cent of the population living in poverty.