RIYADH/BUENOS AIRES (Reuters) - Argentina on Saturday agreed to start consultations with the International Monetary Fund that could lead to a new financing program, days after the global lender said the country’s debt situation had become “unsustainable”.

Argentine Economy Minister Martin Guzman told IMF Managing Director Kristalina Georgieva that the heavily indebted Latin American country would initiate formal consultations with the IMF that could lay the groundwork for a new program, the Argentine government and the IMF said in separate statements.

Guzman and Georgieva met on the sidelines of a meeting of finance officials from the world’s 20 largest economies in Riyadh, Saudi Arabia.

“The minister informed the managing director of the government’s intention to initiate Article IV consultations, which the minister called a valuable step that will deepen mutual understanding between the Argentine government and the IMF on the way toward a new program with the agency,” the government it said.

Article IV talks would allow the IMF to inspect Argentina’s accounts before a new agreement is signed. This would give an assurance to bondholders as they head into restructuring talks that Argentina, notorious for mismanaging its debt, is under IMF supervision. The South American country has defaulted on debt obligations eight times so far and Guzman has said he wanted the upcoming bond revamp to be done in a spirit of cooperation.

Finance officials at the G20 meeting expressed relief that Argentina’s new government had agreed to remain engaged with the IMF, saying it lowered the risk of a messy default at a time when the global economy is facing heightened risks due to the fast-spreading coronavirus.

But Mark Sobel, a former senior U.S. Treasury official and adviser to the London-based OMFIF think-tank, said the decision to consult with the IMF, but not move directly into a new program, reflected the new Peronist government’s historic aversion to the Fund.

FILE PHOTO: Argentina's Economy Minister Martin Guzman gestures during a conference hosted by the Vatican on economic solidarity, at the Vatican, February 5, 2020. REUTERS/Remo Casilli/File Photo

“They’re not walking away, but they’re also not going to be in a Fund program for a bit, and who knows when,” he said.

TOUGH NEGOTIATIONS

Georgieva said on Saturday she had a “very fruitful exchange of views” with Guzman about putting the country on a path to more sustainable and inclusive growth.

She said the newly elected Argentine government - initially deeply skeptical about continued involvement with the IMF - had agreed to deepen its engagement with the Fund through formal consultations as it worked to “secure a sustainable and orderly resolution of Argentina’s debt situation”.

Argentina is facing tough negotiations with creditors and the IMF to restructure around $100 billion in debt that the country’s government says that it cannot pay unless given time to revive stalled economic growth.

The IMF, which wrapped up a visit to Argentina earlier this week, has said the country’s debt situation had become “unsustainable” and that private creditors would need to make a “meaningful contribution” to resolve the crisis.

Georgieva, a Bulgarian and the first official from an emerging market economy to head the IMF, commended the efforts of the Argentine government to put in place policies aimed at stabilizing the economy, reducing poverty and dealing with its debt.

“In this context, I welcomed the Argentine authorities’ commitment to continue to deepen our engagement including through an Article IV Consultation and steps toward a Fund-supported program in the future. The modalities of these next steps will continue to be discussed,” she said.

The IMF gave Argentina a $57 billion standby financing agreement in 2018, but that program was agreed by the previous government and has been essentially on ice since the election.

The Argentine government said Guzman’s meeting with the IMF chief “deepened mutual understanding and set the stage for future talks”. It was not immediately clear when those talks would begin.