Press Release No. 02/39

IMF Extends Argentina's SRF Repayment by One Year

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 2.091 billion (about US$2.8 billion), which arises on September 9, 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 September 9, 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:

"Executive Directors agreed to the Argentine authorities' request for an extension of the repurchase expectation of about SDR 2 billion that arises on September 9 under the Supplemental Reserve Facility (SRF). Directors recognized that the economic and social situation in Argentina remained very difficult and were concerned that it was taking much longer than had been anticipated to formulate a coherent and comprehensive policy package that would address these difficulties in a sustained way. However, they welcomed the greater stability of economic and financial indicators recently, and the improvement in the public finances in the second quarter of 2002. They commended the authorities for keeping control over public spending in very difficult circumstances, and for their decision to remain current with their multilateral obligations.

"Directors expressed the expectation that this recent progress could be consolidated by quickly securing the domestic political consensus for the policy issues that remained outstanding for a Fund-supported program, especially the development of a clear monetary anchor and well defined bank restructuring strategy, enhancing the autonomy of the central bank, and implementing the bilateral agreements with the provinces.

"Directors also emphasized that respect for the rule of law and for contractual obligations is a sine qua non for a sustainable program. In this context, Directors were concerned about several recent political initiatives related to the banking system and the enforcement of creditors' rights that appeared to reduce the coherence of the emerging policy framework, and by the fiscal implications of the recent ruling by the Supreme Court that appeared likely to lead to the restoration of some expenditure cuts implemented last year.

"Given the authorities' policy intentions, Directors agreed that shifting the SRF disbursement to an obligations basis would signal the Fund's support for the Argentine authorities at a difficult time. At the same time, Directors stressed the Fund's continued readiness in every way possible to help the authorities put in place the comprehensive program that is required to begin a sustained economic recovery," Mr. Köhler said.