The International Monetary Fund, having seen fixed currency regimes tumble one by one during the 1990s, has spent much of the last year struggling with two countries, Turkey and Argentina, where such regimes have once more been tested.

In Turkey's case, the IMF is coping with the results of the regime being tested to destruction. The lira's crawling peg against the dollar collapsed in February after a row between Bulent Ecevit, the prime minister, and the president Necdet Sezer.

Since then, the IMF-backed reform efforts have concentrated on trying to rebuild a shattered banking system damaged by holding large unhedged dollar liabilities, suddenly made more expensive by the collapse of the crawling peg. It has also embarked on a general drive to control government spending and restructure the corporate sector, particularly telecommunications.

The reform process has not been without its frustrations. IMF board meetings on Turkey were repeatedly postponed as sticking points, particularly appointments to the board of the telecommunications company, Turk Telekom, damaged confidence that the government was serious about reducing state influence in industry.

But despite continued in-fighting within the Turkish government, threatening political instability, the IMF is broadly pleased with the progress the Turks have made. Kemal Dervis, a former vice-president of the World Bank, was appointed as economy minister and has managed to push through spending cuts and liberalisation beyond what many in the IMF privately thought was possible.

The events of September 11 have also raised the stakes both economically and politically. Turkey's status as the only Muslim country in the US-led military alliance prepared to offer troops has given it heightened strategic significance. Meanwhile, a massive drop in tourism has hit Turkey's exports particularly hard, and the rise in risk aversion in financial markets has made the prospect of rolling over its government debt far harder.

This has made it easier for the IMF and its large shareholder countries to recommend a new lending package of around $10bn for Turkey without making it look like a blatant political bribe of the sort that disfigured IMF and World Bank lending during the Cold War.

There is no doubt that the reform process has been painful and still has a very long way to go. Investors have remained wary of backing reform in Turkey, with fears of high inflation continuing to weigh on bonds. The IMF's governing board has insisted on an update on how the reform process is going before backing the management's recommendation of another $10bn.

But when the package comes on stream, Turkey will at least have bought itself some more time to convince sceptics that it can stick with the reform programme and bring down the debt burden.

Argentina, on the other hand, seems to have run out of IMF and Group of Seven goodwill. Having tried and failed to break out of a vicious circle of rising debt burden, higher interest rates, lower growth and weak government tax revenues, it has been forced into a debt restructuring that many are calling a default.

Argentina's problem is far more intractable than Turkey's. Having gone one step further and instituted a currency board in 1991, backing its peso currency issues with dollars, the de facto dollarisation of the debt stock and the economy has spread much further. This means a devaluation would almost certainly be followed by an outright forced debt default as Argentina struggled to meet its dollar-denominated debt service obligations.

Argentina's public debt burden is not colossal. External public debt is only one-third of national income - though it will look rather more if the peg collapses and the peso falls against the dollar. The real problem is that the debt is so large - about 300 per cent as a proportion of exports, necessitating massive growth in exports to earn enough dollars to service the debt. In the meantime, the sky-high interest rates on the debt are sucking away government revenues.

The latest of a series of IMF lending packages came in August with an $8bn increment subsequently described by Michael Mussa, the IMF's former chief economist, as "the worst decision the fund made" during his ten years there. Of the package, $3bn was earmarked to help Argentina achieve a "voluntary and market-based" debt rescheduling.

But with the risk premium on Argentine bonds having risen sharply, a truly voluntary deal - rather than presenting bondholders with the choice of a partial writedown or the chaos that could follow a suspension of interest payments - looks beyond reach.

The Argentines seem now to have accepted that they cannot escape from the vicious circle without a substantial reduction in debt service, giving both the government and the economy some breathing space. They are proposing a deal which would save some $4bn in debt service at the expense of reducing interest payments on debt: a move which, to most observers, looks like a default.

But this in itself has put the country into largely unknown territory, as doubts rise about its ability to persuade its creditors to accept a "voluntary" reduction in their debt, even if the alternative seems to be a chaotic and litigious mess.

Mr Mussa thinks that Argentina has at most "one more shot" at an international lending progamme to make a restructuring of its debt stick. But this means therewill have to be a substantial reduction in the burden to guarantee that the country can break into a virtuous circle of lower debt payments, less fiscal stringency, higher growth and higher tax revenue.