Argentina has said it will meet a $1bn debt payment to the IMF, avoiding a potentially damaging default.

The deadline for the payment was Friday.

The move comes as Argentina clinched an aid deal with the IMF to refinance its short-term debts.

Argentina has battled for a year for the IMF deal to help end a four-year recession that culminated in the biggest ever sovereign debt default last year.

Rollover pact

Earlier on Thursday, the country provisionally agreed new terms on its short-term IMF loans.

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The country's economy minister, Roberto Lavagna, signed a letter of intent with the IMF earlier on Thursday.

Although it will mean no new cash, the move paves the way for the refinancing of $6.6bn owed to the fund between now and August.

Part of that $6.6bn will be refinanced over three to five years.

The agreement should be made final after the IMF executive board approves Mr Lavagna's letter of intent.

An IMF delegation left Buenos Aires straight after the signing.

No long-term solution

A statement from the US Treasury welcomed the deal, saying it could help "strengthen the progress Argentina's authorities are making in stabilising the country's economic and financial situation".

Eduardo Duhalde is hoping stability is on the horizon

President Eduardo Duhalde said the deal would help his country protect its financial reserves and keep "stability on the horizon".

But the agreement only stands until a new government is elected in April.

And the new administration will have to negotiate a much more ambitious, long-term agreement with the IMF.

Economists said there were still outstanding issues to be negotiated, including increases in public utility charges and court orders releasing frozen banking deposits.

Famine fears

Argentina is experiencing its worst economic crisis in decades and is in default on loans with most major international donors.

Half the country's population is living in poverty and children have begun starving to death in the north of the country.

Earlier this week, Argentina defaulted a crucial $681m debt payment to the Inter-American Development Bank.

The decision could cost the country one of its few remaining sources of foreign credit.