Argentina's crisis has brought widespread misery

The talks with private creditors have been made possible by a groundbreaking deal over the weekend with the International Monetary Fund (IMF), which is holding its annual meeting in Dubai.

The IMF offered Argentina a fresh loan worth $12.5bn over the next three years.

Argentina staged the biggest ever debt default in late 2001, when it pulled out of repayments on loans totalling $140bn.

Now it wants to settle with its private creditors, who have not been paid for two years and now stand to lose most of their investments.

Tough terms

Argentine Economy Minister Roberto Lavagna kicked off the negotiations by outlining his country's repayment proposals.

But observers expect the talks to be long and tough as creditors fight to salvage as much of their investment as possible.

This should be the start of constructive negotiations with investors Jose Maria Barrionuevo Barclays Capital

Mr Lavagna has asked Argentina's private creditors to write off 75% of the value of the government bonds they hold.

Some observers had expected Argentina to ask for as much as an 85% write-off.

Finalising a deal is the key to unlocking any future private investment in Argentina - although that may be a long time coming.

"I think the terms are a good starting point...this should be the start of constructive negotiations with investors," Jose Maria Barrionuevo from Barclays Captial in New York told the BBC in Dubai.

"This is the beginning, but the most important thing is that negotiations will happen," said Dr Stefan Engelsberger, the president of a small group of private investors who bought Argentine bonds.

Mr Engelsberger said his group had suspended lawsuits trying to win compensation for the 200m euros they had lost, but warned that the cases would be reopened if negotiations failed.

Other bondholders were more scathing, saying the terms of the proposals were harsher than expected.

Italian bondholders rejected the plan outright, saying it was "not an option."

"Surely, with this proposal, the first thing that will occur to Argentina's creditors will be to take legal action," said Martin Caselli, an Argentine lawyer advising foreign investors.

Recovery hopes

The talks offer fresh hope for Argentines wearied by nearly two years of economic crisis.

Millions of people have lost their jobs since Argentina's economy collapsed over a period of several weeks in late 2001 and early 2002.

The crisis bankrupted hundreds of businesses, stripped a once large middle class of its savings and brought malnutrition to the poorest citizens.

Argentina devalued its currency, the peso, by ending its parity with the US dollar, a measure introduced 13 years previously in a successful battle against hyperinflation.

Emergency laws blocked people from taking cash from their own bank accounts, in order to stem the flow of money from the country.

A degree of stability has returned. The devalued peso has helped boost Argentine exports and brought foreign tourists and investors flooding into what is now a much cheaper country.

The economy is growing again, albeit slowly, but millions of Argentines are still finding it difficult to make ends meet.

Tens of thousands have emigrated and many of those who remain have lost all faith in their political and economic leaders.