Argentina has moved a step closer to starting negotiations with the International Monetary Fund over a new funding programme after the IMF's board approved its annual review of the country's economy.

Yet the review--a summary of the board's discussion expected to be made public this week--indicates that the forthcoming talks could be complicated.

According to sources familiar with the so-called Article IV review, the Washington-based institution is pushing for a minimum primary fiscal surplus (the surplus before interest payments) equivalent to 4 per cent of gross domestic product next year. The government's target this year is 3.6 per cent.

Other demands cover structural reforms centring on a robust regulatory framework for Argentina's privatised utility companies, and banking reform, including compensating private banks for the losses suffered as a result of the currency devaluation in 2002.

The review is also understood to insist on defining a strategy for dealing with private creditors who rejected this year's sovereign debt restructuring, and setting up stronger rules to underpin fiscal arrangement between the central government and the country's 24 provincial administrations.

Rodrigo Rato, managing director of the IMF, on Monday underlined the need for "more budgetary efforts to cut the debt-to-GDP ratio", and called for a "framework of budgetary and structural reforms".

The insistence on the surplus and structural reforms is unlikely to go down well with the Argentine government. President Néstor Kirchner's administration admits it needs a new agreement after Argentina unilaterally suspended the previous one last year when it fell behind on several structural criteria.

In particular, it says a Fund agreement is essential to bridge its financing needs for this year and next. Argentina must repay the IMF about $1.6bn (€1.3bn, £870m) in capital this year, and about $3bn next year. It is determined to secure an agreement that will enable it to roll over all of its commitments to the Fund over the next few years in return for meeting a few macroeconomic and structural targets.

The IMF has a poor image among Argentines, and with elections scheduled for October the government is keen to avoid signing anything that could be construed as capitulation. That, say analysts, virtually guarantees long and potentially acrimonious negotiations.