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Press Release No. 00/17
March 10, 2000
International Monetary Fund
700 19th Street, NW
Washington, D.C. 20431 USA

IMF Approves US$7.2 Billion Three-Year Stand-By Credit
for Argentina

The International Monetary Fund (IMF) today approved a three-year stand-by credit for Argentina in an amount equivalent to SDR 5,398.61 million (about US$7.2 billion) to support the government's 2000-02 economic program. The Argentine authorities have indicated that they intend to treat the credit as precautionary. The new stand-by credit replaces the extended arrangement approved on February 4, 1998 (see Press Release 98/01).

In commenting on the Executive Board discussion on Argentina, Stanley Fischer, Acting Managing Director, said:

"The new Argentine government has embarked on a strong economic program aimed at promoting the recovery and sustained growth of the economy, with continued price stability, and an external current account maintained within financeable limits. The program contains a significant fiscal consolidation, which will permit a gradual increase in national savings to finance the recovery of investment and reduce the external debt burden over time. The macroeconomic adjustment is underpinned by comprehensive structural reforms.

"The strengthening of the public finances involves expenditure restraint, a significant additional tax effort, and measures to strengthen tax administration. The authorities have moved decisively in these areas, and most of the envisaged measures under the program are already in place.

"The structural reform agenda is comprehensive and far-reaching. The reforms in the fiscal area, including the proposals to strengthen the social security system and to modify the revenue sharing regime with the provinces, will be essential to secure a lasting improvement in the public finances, as well as to improve the equity and efficiency of both taxation and public spending. The proposed labor market reform and deregulation should help create the conditions for improvements in productivity and increases in employment. Implementation of these structural measures is critical, both to contribute to the sustainability of the fiscal adjustment and to strengthen competitiveness and economic growth," Fischer said.

ANNEX

Program Summary

The macroeconomic discipline imposed by the convertibility regime adopted in 1991, and a wide-ranging structural reform and privatization effort (supported with successive credit arrangements from the IMF) were instrumental in ensuring Argentina's generally strong economic performance during most of the last decade. GDP growth averaged more than 4% a year between 1992 and 1998, and inflation decelerated rapidly to a sustained low rate.

Nevertheless, some weaknesses remained, which made the economy vulnerable to external shocks. Argentina's economic performance deteriorated significantly from mid-1998, reflecting a series of external shocks in the aftermath of the Russia and Brazil crises, including reduced access to financing, the economic downturn of the region, and a significant terms-of-trade loss.

The new government, which took office in December 1999, recognized that a sustained strengthening of macroeconomic policies and a revitalized structural reform effort would be essential to buttress confidence in domestic and foreign financial markets and to facilitate a sustainable recovery of the economy with continued price stability. The adjustment and reform program that the IMF credit will support is based on a rate of GDP growth of 3% in 2000, which would accelerate to 4% in subsequent years as firm implementation of the appropriate policies strengthens confidence and improved competitiveness facilitates further growth of exports.

To these ends, the program targets a 3% of GDP reduction in the consolidated public deficit over the period 2000-02, about half of which is to take place in 2000. The primary balance of the public sector will shift to a surplus of 3% of GDP in 2002 from a small deficit in 1999. The authorities expect to achieve these results through the elimination of distortions in the tax system; further broadening of the tax base; strengthening of tax enforcement and compliance; increased transparency and cost effectiveness in the use of public resources; and a reform of fiscal relations between the national and subnational levels of government with a view to increasing fiscal responsibility, transparency, and equity. Primary federal expenditures are budgeted to decline significantly in relation to GDP in 2000, reflecting efforts to reduce personnel spending as well as cutbacks in a wide range of other spending programs, all aimed at promoting cost effectiveness and reducing waste.

Besides initiatives aimed at promoting a lasting improvement in the public sector finances, the wide-ranging program of structural reforms includes that of labor market legislation, which seeks to reduce the existing rigidities to create conditions for improvements in productivity and for an increase of employment in the formal sector. Additional reforms are also planned in the social security system to ensure its long-term solvency and to make it more equitable, and in the promotion of competition in sectors that enjoy quasi-monopoly positions or are in need of modernization, such as those in the telecommunications and energy sectors.

The authorities plan to improve and expand social assistance programs within the limits of the budget by identifying and eliminating problems of duplication, deficient targeting, and high administrative costs. Efforts in these areas are to include the consolidation of various nutritional programs, currently operating under different agencies, into a federal nutritional system; the continuation of the work to develop a national registry of beneficiaries of social programs; further auditing of executing agencies and the introduction of performance indicators; and improvements in the household survey carried out by the National Institute of Statistics and the Census.

Argentina joined the IMF on September 20, 1956. Its quota1 is SDR 2,117.1 million (about US$2,832 million). Its outstanding use of IMF credit currently totals SDR 3,102 million (about US$4,150 million).

Argentina: Selected Economic and Financial Indicators

 

Average

     

Est.

Proj.

 

1993-98

1996

1997

1998

1999

2000

(Annual percentage change)

National income and prices

           

Real GDP growth

4.4

5.5

8.1

3.9

-3.1

3.4

GDP deflator

1.7

-0.1

-0.5

-2.0

-2.3

0.9

Export volume growth

13.5

6.7

13.9

11.4

0.0

8.2

Import volume growth

14.9

19.6

30.6

8.7

-13.7

10.2

Terms of trade change

1.0

7.8

-1.2

-5.3

-6.4

3.5

             

Money and credit

           

Domestic credit (net)

13.9

9.8

17.4

10.6

3.0

7.4

Private sector deposits

22.5

22.2

26.9

15.1

3.7

10.5

Interest rates (average)

           

31-60-day peso time deposits

9.4

7.3

7.0

7.6

7.8

...

30-day peso prime rate

11.7

10.5

9.1

10.6

10.8

...

(In percent of GDP)

National accounts

           

Gross domestic investment

19.0

18.1

19.4

19.9

18.9

19.4

Public sector

2.0

1.8

2.2

2.1

1.8

1.5

Private sector

17.0

16.3

17.1

17.7

17.1

17.9

             

Gross national savings

15.6

15.7

15.3

15.0

14.6

14.9

Public sector

-0.3

-1.8

-0.2

-0.1

-2.2

-0.9

Private sector

15.9

17.5

15.4

15.1

16.8

15.8

             

Public finances

           

Consolidated public sector balance

-3.8

-3.6

-2.0

-2.1

-3.8

-2.3

Federal government

-1.0

-2.4

-1.5

-1.3

-2.5

-1.6

Rest of public sector 1/

-2.8

-1.2

-0.5

-0.8

-1.3

-0.7

             

Public sector debt

37.5

41.1

38.9

41.4

47.2

47.7

External debt

25.4

27.0

25.5

27.6

31.4

32.2

Domestic debt

12.1

14.0

13.3

13.7

15.8

15.5

(In billions of U.S. dollars, unless otherwise indicated)

External sector

           

Current account

-9.5

-6.5

-12.0

-14.5

-12.3

-13.3

(percent of GDP)

-3.5

-2.4

-4.1

-4.9

-4.3

-4.5

Trade balance

-2.8

0.2

-4.0

-5.0

-2.2

-2.1

Exports (f.o.b.)

21.2

24.0

26.4

26.4

23.3

26.4

Imports (c.i.f.)

-24.1

-23.9

-30.5

-31.4

-25.5

-28.5

Nonfactor services

-2.1

-1.8

-2.3

-2.4

-2.7

-2.8

Factor services

-5.0

-5.3

-6.2

-7.5

-7.7

-8.8

Transfers (net)

0.4

0.4

0.4

0.4

0.4

0.4

             

Capital account

12.5

9.9

15.6

18.8

14.2

15.8

Of which: foreign direct investment

4.2

4.9

4.9

4.4

10.9

7.1

             

Overall balance

3.0

3.4

3.6

4.2

1.9

2.5

(In percent of exports of goods and nonfactor services)

Total external debt

418.4

385.5

402.0

449.8

529.3

501.3

Total external debt service

55.7

55.8

64.2

63.6

81.6

91.9

Public sector external debt service

35.3

33.8

40.1

35.3

46.3

44.2

Of which: interest payments

15.4

14.8

15.9

17.6

21.7

21.7


Sources: Ministry of Economy, Central Bank; and IMF staff estimates.

   

1/ Includes trust funds, capitalization of interest, and provincial governments' balance.

 

1A member's quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its allocation of SDRs.




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