Press Release No. 02/33

The Executive Board of the International Monetary Fund (IMF) today approved a request from Argentina to extend by one year the repayment expectation of SDR 741 million (about US$985 million), which arises on July 17, 2002 under the Supplemental Reserve Facility (SRF).

The IMF approved financing for Argentina under the SRF as part of a stand-by credit on January 12, 2001 (see Press Release No. 01/3) to ease a short-term financing constraint. Repayment of an SRF is normally expected in two installments made at one year and at 1½ years after the SRF disbursement, which in Argentina's case would be on July 17, 2002. A borrower may request an extension of up to one year of the expected repayment period under the SRF. An extension can be granted if repayment would cause undue hardship and provided the borrower is taking actions to strengthen its balance of payments. At the end of the extension the country is obligated to repay the SRF.

In commenting on today's decision by the IMF Executive Board, Horst Köhler, Managing Director and Chairman, said:

"The Fund granted the Argentine authorities' request for an extension of the repurchase expectation under the Supplemental Reserve Facility, as Argentina's external position is not sufficiently strong for it to meet the current repurchase expectation without undue hardship or risk.

"The economic situation in Argentina remains extremely difficult, even though the decline in output may be decelerating in some sectors and preliminary data indicate a firming of industrial production in the second quarter of 2002; the public finances have also improved in the same period. The authorities are to be commended for keeping control over public spending in this situation, and for their decision to remain current with their multilateral obligations—thereby retaining access to multilateral lending.

"There has been some recent progress in key policy areas, including the satisfactory amendments to the insolvency law and the repeal of the economic subversion law. Building on the growing support of key provinces for the bilateral agreements aimed at ensuring an orderly adjustment of the provincial finances, the authorities are working to complete the process of putting in place the bilateral agreements with the provinces and finalizing the fiscal framework. The next stage of the Fund's dialogue with the authorities will focus mainly on the adoption of a strategy to strengthen the banking sector, enhancing central bank independence, and developing a credible monetary anchor. Progress in the negotiations in these areas would facilitate reaching a strong and comprehensive program designed to underpin a sustained economic recovery, and warrant Fund support," Mr. Köhler said.