Argentina has won a year's extension on the repayment of a key loan from the International Monetary Fund.

The extra time has allowed the country to avoid defaulting on a separate loan from the Inter-American Development Bank, keeping that source of funding alive.

The IMF said in a statement that it agreed to delay the loan repayment because Argentina could not have make it without "undue hardship or risk".

The leniency could be a positive sign for the ongoing negotiations over new loans between the IMF and Argentina.

Analysts say new funds are essential if Argentina is to pull itself out of the severe recession that culminated in a currency devaluation, a freeze on saving withdrawals from banks and a default on its debt.

Walking the tightrope

The IMF's managing director Horst Koehler said that current talks on restarting Argentina's loan programme are centered on banking sector reforms and developing a "credible" monetary policy framework.

Mr Koehler also praised Argentina for keeping a tighter control on its public spending, another criteria of the IMF releasing fresh funds.

The financial crisis has resulted in widespread social unrest, including fatal riots last December, because of rising poverty and unemployment.

The protests were recently intensified amidst rising anti-US feelings which reflect widespread criticism of Argentina's efforts to bow to the wishes of the IMF.

President Eduardo Duhalde and finance minister Roberto Lavagna face the challenge of finding a balance between satisfying both the IMF and the Argentine people.