As Argentina drafts an austere 2002 budget and tries to boost reserves and rally support for a debt swap, economists on Wednesday wondered whether these measures can head off a looming default or currency devaluation in Latin America's No. 3 economy.

With IMF auditors now in Buenos Aires to check how far Argentina has swayed from a promise to end deficit spending, President Fernando de la Rua's government was on Wednesday due to send to Congress a 2002 budget that shows billions of dollars saved via a bond swap now under way as well as unpopular cuts in public spending.

"The 2002 budget is much more realistic than what has been presented in the past. I think the (IMF) mission will like it, but it will no doubt face a tough debate in Congress," Fundacion Capital chief economist Martin Redrado said.

The opposition Peronists hold sway in Congress since last month's mid-term elections punished De la Rua for the long recession, pay cuts and tax hikes.

"We don't have time to debate (the budget). This could generate more doubts among depositors and complicate the situation even more," said local economist Orlando Ferreres.

Bank deposits have fallen 16 percent so far in 2001, while interest rates have soared and tax revenues slumped, falling an estimated 14 percent so far in November.

That has produced a cash crunch just as Argentina faces around $2 billion in debt payments in December. But economists say Argentina needs $1.3 billion in scheduled IMF aid to be disbursed sooner than planned if the country is to honor those obligations.

"It remains to be seen whether the IMF will deliver or not given that the country expects to post a budget deficit of $7.8 billion this year, above the $6.5 billion deficit target set by the IMF, and it's uncertain how comfortable the IMF will be with the 2002 outlook," said Doug Smith, economist at IDEAglobal.

Next year's outlook hinges in part on an ongoing domestic swap of up to $60 billion in public debt, in which the government is asking investors to accept lower interest rates -- they currently charge the government up to 30 percent -- backed by government tax revenues.

Commitments from banks and pension funds, who hold most of the debt and would be hurt most by a default, already total nearly $40 billion, which analysts say would be deemed a good result.

Fund managers told Reuters they are reluctant to expose themselves further by accepting provincial bonds and loans and were negotiating with the Economy Ministry. Argentina on Wednesday delayed by a week the planned opening of part of the provincial tranche of the swap.

The Economy Ministry will now take offers on up to $16.5 billion in provincial debt up to Dec. 7, but will open and close an exchange on provincial bank loans on Nov. 30, as originally scheduled, an official at state-run Banco de la Nacion said.

The Economy Ministry, meanwhile, issued a statement late on Tuesday denying rumors the IMF, which has bailed out Argentina to the tune of $22 billion already this year, now wants it to devalue its peso currency.

Central Bank Changes Reserves Calculation

With alarm bells ringing about a 40 percent drop since March in the country's reserves -- used to ensure the decade-old system pegging the peso at par to the dollar -- the Central Bank on Tuesday changed the accounting rules used to measure reserves.

It will now include in its calculation bonds offered by banks as guarantees on "repurchase loans," the system by which banks shore up their cash in hand, but only at present market value.

By the new measure, reserves are nearly $21 billion compared to around $18.88 billion under the old measure. Analysts reckon they must remain above $13 billion to support the peso.

Argentina's $132 billion public debt as a proportion of its $284.6 billion economy is not as high as in Japan or Italy. But a lack of economic growth since mid-1998 and a freefall in tax revenues since June has fed investors' default fears all year.

Near bankruptcy, Argentina faces billions in dollars of debt-servicing costs by year's end and has already used foreign reserves to meet debt payments earlier this month.

"Obviously, there is a trend where liquid reserves, which should back the currency, are vulnerable," former Central Bank president Rodolfo Rossi told Reuters.

Since the peso-dollar peg was introduced in 1991 to wipe out hyperinflation, Argentina has been a highly dollarized economy with two thirds of bank accounts and all big contracts in U.S. dollars, as well as 80 percent of mortgages.

Bankers say a devaluation would lead to mass bankruptcies while some foreign economists say it is the only way Argentina can hope to compete with nearby economies like Brazil, whose currency has depreciated about 60 percent in two years.

The MerVal stock index, which has shed half its value this year, fell 3 percent in thin trade while the benchmark dollar-denominated global bond due 2008 (ARGGLB08-RR), was at 35.5 percent of face value.