## ARGENTINA'S TAX SYSTEM AND REFORM CONSIDERATIONS

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### A. Argentina’s Tax System — Key Findings
- General government tax revenue is high by regional standards: about 27 percent of GDP in 2025.
- Tax system characteristics and challenges:
  - Over 155 taxes, subject to frequent changes.
  - System characterized by high statutory rates, a narrow base shaped by multiple special regimes, and an excessive number of taxes.
  - Heavy reliance on indirect taxes and highly distortive taxes—trade, financial transactions, and provincial turnover taxes—currently account for over one-quarter of tax revenue (about 7 percent of GDP).
  - Low VAT and CIT compliance rates relative to the region (Pelaez, 2024).
- Federal fiscal structure and intergovernmental arrangements:
  - Major taxes (CIT, PIT, wealth, excises, VAT) are collected federally and shared through a complex coparticipación scheme.
  - Provinces mobilize own revenues via cascading turnover tax (ingresos brutos), stamp and property taxes; municipalities tax economic activities and consumption.
  - In high macroeconomic volatility and spending rigidities, federal government increasingly depends on distortive trade and financial transactions taxes which are not co-participated; provinces rely on turnover taxes (Centrangolo et al., 2010).
  - Federal-provincial coordination challenges have limited reform progress (Afonso et al., 2025).
- Recent adjustments since early 2024:
  - Expanding the PIT base through a lower exemption threshold.
  - Eliminating distortive FX access taxes and rationalizing trade taxes (effective weighted average import tax declined from 16.4 percent to 5.5 percent; export taxes from 8.3 to 6.7 percent since end-2023).
  - Reducing statutory wealth tax rate and social security contributions.
  - Introduction of a large investment regime (RIGI) to attract large FDI in energy, mining, agro-industrial sectors.
  - These measures have reduced tax revenues by about 2.5 percent of GDP.

### B. Tax Reform Considerations — Recommended Reforms and Expected Yields
- Overall objective: balance equity and efficiency while strengthening the fiscal anchor; reforms at federal and provincial levels.
- Federal-level reform priorities:
  - Reduce tax expenditures in core taxes (VAT, PIT, CIT).
  - Improve PIT efficiency (including autonomous workers, monotributo).
  - Simplify the CIT.
  - Strengthen excises.
- Estimated potential gains from reforms (Percent of GDP):
  - Removing tax exemptions: 0.8
  - Eliminating VAT tax exemptions while compensating vulnerable households: 0.4
  - Elimination of Special Economic Zones' tax exemptions: 0.4
  - Expanding income tax base and uniformizing categories: 1.4
  - Expanding PIT base (in line with 2019 tax scale): 0.4
  - Aligning monotributo with general PIT system: 1.0
  - Updating excises with inflation erosion and uniformizing: 0.5
    - Fuel excises: 0.3
    - Tobacco excises: 0.2
  - Strengthening provincial property tax collection: 0.6
  - Total: 3.3
- Specific reform measures and rationales:
  - Reduce tax expenditures:
    - Tax expenditures are about 3.5 percent of GDP (VAT 1.2 percent of GDP, monotributo 1 percent of GDP, special regimes 0.5 percent of GDP).
    - Unifying VAT rates with targeted compensation for vulnerable households could yield 0.4 percent of GDP.
  - Expand PIT base:
    - PIT revenue is 1.8 percent of GDP.
    - Reform should lower the exemption threshold so that at least 20 percent of workers pay PIT (as in 2019), raising about 0.4 percent of GDP, harmonize deductions, and simplify rate structure.
  - Reform monotributo:
    - Align effective burden and social contributions with general regime, reduce threshold effects, leverage digital tools to simplify compliance.
  - Simplify CIT:
    - Top CIT rate of 35 percent exceeds global average.
    - Consider turnover-based minimum tax combined with a flat 30 percent CIT rate credited against it; more balanced treatment of investment income at personal level to reduce bias toward debt financing.
  - Strengthen excises:
    - Adopt mixed specific and ad-valorem structure for tobacco, alcohol, sugar-sweetened beverages.
    - Index tobacco excises to inflation could generate 0.2 percent of GDP.
    - Adjusting fuel excises for inflation erosion could yield about 0.3 percent of GDP.
- Use reform yields to phase out distortive taxes:
  - Gradually reduce export taxes (especially soy, wheat, corn) and unwind financial transactions taxes; offset revenue losses via expanded tax base, better taxing agricultural sector, and growth effects on exports and financial intermediation.
- Subnational reform opportunities as co-participated taxes rise:
  - Strengthen property taxation:
    - Immovable property tax revenue is 0.3 percent of GDP; reducing exemptions, taxing rural properties once export taxes decline, and improving valuations could raise up to 0.6 percent of GDP.
  - Replace provincial turnover taxes (ingresos brutos) with less distortive sources:
    - Consider a dual VAT (federal plus provincial) in a broadly revenue-neutral manner; transition arrangements and transfers to mitigate provincial revenue risks (example transition over about 10 years suggested).

### C. Reform Implications — Impact of Reducing Distortive Taxes
- How distortionary taxes affect growth and intermediation:
  - Export taxes create wedge between international and domestic prices, lowering producer prices and reducing incentives to invest, expand cultivated area, and adopt productivity-enhancing technologies.
  - Since 2000, Brazilian soybean production has more than tripled while Argentina’s increased by only about 40 percent.
  - Financial transactions tax (scheduled to expire in December 2027) encourages cash transactions, promotes informality, weakens financial intermediation, and hinders financial deepening.
- Empirical findings and quantitative estimates:
  - A 1 percent reduction in export taxes on soybeans and derivatives relative to other crops is associated with about a 0.5 percent increase in soybean production, exports, and harvested area.
  - Eliminating export taxes could increase exports of raw and processed oilseeds and cereals by around 10 percent, raising annual FX earnings by about US$5 billion and boosting GDP by about 0.4 percentage points.
  - A 0.1 percentage point reduction in the net financial tax rate could increase bank deposits by about 3 percent in the long run (Fenochietto et al., 2015).
  - Reducing export taxes—particularly when offset by higher direct taxation to preserve fiscal balance—promotes stronger investment and long-term growth (Grundke and Folders, 2010; Cicowiez et al., 2016).
- Distributional and price considerations:
  - Lower export taxes would broaden income tax base by increasing taxable profits and labor income in agriculture.
  - Higher domestic food prices from removing export taxes are expected to be modest and could be offset by targeted and temporary support if needed (Cabello and Ciancio, 2021).

*Source: ARGENTINA'S TAX SYSTEM AND REFORM CONSIDERATIONS, May 11, 2026.*

### References ______________________________________________________________________________ 7

### ARGENTINA'S TAX SYSTEM AND REFORM CONSIDERATIONS

### A. Argentina’s Tax System — Key Findings
- General government tax revenue is high by regional standards: about 27 percent of GDP in 2025.
- The tax system is complex, highly distortive, and unstable:
  - Over 155 taxes, subject to frequent changes.
  - System characterized by high statutory rates, a narrow base shaped by multiple special regimes, and an excessive number of taxes.
  - Heavy reliance on indirect taxes and highly distortive taxes—trade, financial transactions, and provincial turnover taxes—currently account for over one-quarter of tax revenue (about 7 percent of GDP).
  - Low VAT and CIT compliance rates relative to the region (Pelaez, 2024).
- Federal fiscal structure and intergovernmental arrangements exacerbate distortions and complicate reform:
  - Major taxes (CIT, PIT, wealth, excises, VAT) are collected federally and shared through a complex coparticipación scheme.
  - Provinces mobilize own revenues via cascading turnover tax (ingresos brutos), stamp and property taxes; municipalities tax economic activities and consumption.
  - In high macroeconomic volatility and spending rigidities, federal government increasingly depends on distortive trade and financial transactions taxes which are not co-participated; provinces rely on turnover taxes (Centrangolo et al., 2010).
  - Federal-provincial coordination challenges have limited reform progress (Afonso et al., 2025).
- Recent adjustments since early 2024 have included:
  - Expanding the PIT base through a lower exemption threshold.
  - Eliminating distortive FX access taxes and rationalizing trade taxes (effective weighted average import tax declined from 16.4 percent to 5.5 percent; export taxes from 8.3 to 6.7 percent since end-2023).
  - Reducing statutory wealth tax rate and social security contributions.
  - Introduction of a large investment regime (RIGI) to attract large FDI in energy, mining, agro-industrial sectors.
  - These measures have reduced tax revenues by about 2.5 percent of GDP.

### B. Tax Reform Considerations — Recommended Reforms and Expected Yields
- Overall objective: balance equity and efficiency while strengthening the fiscal anchor; reforms at federal and provincial levels.
- Federal-level reform priorities:
  - Reduce tax expenditures in core taxes (VAT, PIT, CIT).
  - Improve PIT efficiency (including autonomous workers, monotributo).
  - Simplify the CIT.
  - Strengthen excises.
- Estimated potential gains from reforms (Percent of GDP):
  - Removing tax exemptions: 0.8
  - Eliminating VAT tax exemptions while compensating vulnerable households: 0.4
  - Elimination of Special Economic Zones' tax exemptions: 0.4
  - Expanding income tax base and uniformizing categories: 1.4
  - Expanding PIT base (in line with 2019 tax scale): 0.4
  - Aligning monotributo with general PIT system: 1.0
  - Updating excises with inflation erosion and uniformizing: 0.5
    - Fuel excises: 0.3
    - Tobacco excises: 0.2
  - Strengthening provincial property tax collection: 0.6
  - Total: 3.3
- Specific reform measures and rationales:
  - Reduce tax expenditures: tax expenditures are about 3.5 percent of GDP (VAT 1.2 percent of GDP, monotributo 1 percent of GDP, special regimes 0.5 percent of GDP); unifying VAT rates with targeted compensation for vulnerable households could yield 0.4 percent of GDP.
  - Expand PIT base: PIT revenue is 1.8 percent of GDP; reform should lower the exemption threshold so that at least 20 percent of workers pay PIT (as in 2019), raising about 0.4 percent of GDP, harmonize deductions, and simplify rate structure.
  - Reform monotributo: align effective burden and social contributions with general regime, reduce threshold effects, leverage digital tools to simplify compliance.
  - Simplify CIT: top CIT rate of 35 percent exceeds global average; consider turnover-based minimum tax combined with a flat 30 percent CIT rate credited against it; more balanced treatment of investment income at personal level to reduce bias toward debt financing.
  - Strengthen excises: adopt mixed specific and ad-valorem structure for tobacco, alcohol, sugar-sweetened beverages; index tobacco excises to inflation could generate 0.2 percent of GDP; adjusting fuel excises for inflation erosion could yield about 0.3 percent of GDP.
- Use reform yields to phase out distortive taxes:
  - Gradually reduce export taxes (especially soy, wheat, corn) and unwind financial transactions taxes; offset revenue losses via expanded tax base, better taxing agricultural sector, and growth effects on exports and financial intermediation.
- Subnational reform opportunities as co-participated taxes rise:
  - Strengthen property taxation: immovable property tax revenue is 0.3 percent of GDP; reducing exemptions, taxing rural properties once export taxes decline, and improving valuations could raise up to 0.6 percent of GDP.
  - Replace provincial turnover taxes (ingresos brutos) with less distortive sources: consider a dual VAT (federal plus provincial) in a broadly revenue-neutral manner; transition arrangements and transfers to mitigate provincial revenue risks (example transition over about 10 years suggested).

### C. Reform Implications — Impact of Reducing Distortive Taxes
- Distortionary taxes constrain growth, exports, and capital market development:
  - Export taxes create wedge between international and domestic prices, lowering producer prices and reducing incentives to invest, expand cultivated area, and adopt productivity-enhancing technologies.
  - Since 2000, Brazilian soybean production has more than tripled while Argentina’s increased by only about 40 percent.
  - Financial transactions tax (scheduled to expire in December 2027) encourages cash transactions, promotes informality, weakens financial intermediation, and hinders financial deepening.
- Empirical findings and quantitative estimates:
  - A 1 percent reduction in export taxes on soybeans and derivatives relative to other crops is associated with about a 0.5 percent increase in soybean production, exports, and harvested area.
  - Eliminating export taxes could increase exports of raw and processed oilseeds and cereals by around 10 percent, raising annual FX earnings by about US$5 billion and boosting GDP by about 0.4 percentage points.
  - A 0.1 percentage point reduction in the net financial tax rate could increase bank deposits by about 3 percent in the long run (Fenochietto et al., 2015).
  - Reducing export taxes—particularly when offset by higher direct taxation to preserve fiscal balance—promotes stronger investment and long-term growth (Grundke and Folders, 2010; Cicowiez et al., 2016).
- Additional distributional and price considerations:
  - Lower export taxes would broaden income tax base by increasing taxable profits and labor income in agriculture.
  - Higher domestic food prices from removing export taxes are expected to be modest and could be offset by targeted and temporary support if needed (Cabello and Ciancio, 2021).

*Source: ARGENTINA'S TAX SYSTEM AND REFORM CONSIDERATIONS, May 11, 2026.*

### References

### References; Lessons from Stabilization Programs (selected excerpts)

### A. Argentina’s Stabilization: A Comparative Perspective
- Fiscal adjustment:
  - Fiscal tightening of about 5 percent of GDP implemented within one month of taking office by the Milei administration.
- Disinflation and exchange rate policy:
  - Rapid initial disinflation supported initially by an exchange rate anchor under a crawling peg regime.
  - Upon approval of a new IMF program in April 2025, the central bank allowed for greater exchange rate flexibility by introducing an exchange rate band (which widened over time) and removed most FX restrictions and controls.
  - The new FX regime was complemented by a strict monetary targeting framework, where liquidity conditions would be tightened as needed to protect the upper end of the band.
  - As market conditions normalized, exchange rate flexibility was further enhanced and a reserve purchase program was introduced.
- Outcomes and challenges:
  - Improved confidence and deregulatory reforms led to a rapid recovery in economic activity and demand.
  - Despite rapid disinflation, reserve accumulation and recovery of money demand have lagged relative to other stabilization programs, in part due to heightened political uncertainty during 2025.
  - With inflation now in double digits, policymakers face a tradeoff between disinflation, reserve accumulation, and economic recovery ahead of the 2027 elections.

### B. Features of Successful Stabilization Episodes (cross-country evidence)
- Core lessons:
  - “The fiscal anchor is nonnegotiable.” An ambitious and credible fiscal anchor is essential to bring down inflation, restore debt sustainability, reduce spreads, and avoid overreliance on tight monetary policy.
  - Monetary and FX frameworks evolve: reliance on the exchange rate as a nominal anchor tends to be eventually abandoned; transition toward a new, transparent and well-communicated nominal anchor is essential.
  - External stability is a key priority: successful programs prioritize unsterilized foreign reserve accumulation to enhance resilience to external shocks and attract financial inflows.
  - Focus on growth and structural reforms: durable disinflation episodes coincide with sustained expansion after an initial contraction and comprehensive reform packages that support productivity and stable long-term capital inflows.
  - Strengthening institutions: legislation establishing fiscal rules and medium-term frameworks and strengthening the central bank’s autonomy and accountability enhances credibility.
  - Disinflation takes time: reducing inflation from triple to double digits tends to be quick; bringing it down to single digits takes much longer—on average an additional 3-4 years in successful cases, and about five years in Peru and about seven years in Uruguay for highly dollarized economies.

- Empirical and theoretical support:
  - Recent work by Arellano et al. (2026) finds a positive relationship between spreads and inflation in EMs.
  - Obstfeld et al. (2017) find countries with fixed exchange rates are more likely to experience financial vulnerabilities.
  - Calvo (1991) shows sterilization of reserve inflows during disinflation may raise inflationary expectations by increasing domestic-currency government debt.
  - Historical example: Peru in the early 1990s quickly rebuilt reserves after lifting FX restrictions and normalizing creditor relationships.

### C. Transitioning to a More Robust Monetary Policy Framework
- Evolution of frameworks:
  - Early stages: rigid nominal anchors (exchange-rate pegs or monetary aggregate targets) can help establish credibility.
  - As inflation declines and money demand becomes less predictable, effectiveness of rigid anchors diminishes; successful programs transition toward interest-rate-based operational frameworks with inflation expectations as intermediate targets.
  - Operational tools: standing facilities and liquidity facilities can smooth short-term interest rate volatility (example: Peru introduced a liquidity facility on Jul 6, 2001 priced at the average rather than the top-decile market rate).
- Theoretical underpinnings:
  - Early skepticism about interest-rate rules (Sargent and Wallace, 1975) was superseded by results showing systematic interest rate responses to inflation can anchor prices (McCallum, 1981; Taylor, 1993; Woodford, 1994).
  - Strict reliance on monetary aggregates becomes less effective as inflation declines because the link between money and prices weakens and money demand is harder to forecast (Svensson, 1997).
  - By the late 1990s, advanced-economy central banks had largely operationalized interest-rate instruments (Bindseil, 2004; Borio, 1997).
  - Examples of transitions: Chile (1999), Peru (2002), Colombia (late 1990s).

- Model-based insights and simulations:
  - A small-scale forward-looking open-economy model calibrated to Argentina (based on Portillo and Ustyugova, 2015) shows:
    - Rigid adherence to monetary targets under volatile money demand generates substantial volatility in interest rates, inflation, and output.
    - A sudden drop in money demand requires aggressive monetary expansion that raises inflation and later requires sharp tightening; a sudden increase in money demand leads to overly tight monetary conditions and contraction in activity.
    - A monetary framework focused on inflation forecasts allows the central bank to look through temporary money demand shocks, reducing volatility and better anchoring disinflation.
  - Simulations highlight critical conditions for sustaining disinflation:
    - Maintaining sufficiently tight monetary conditions is necessary to support money demand while foreign reserve accumulation is underway.
    - Stronger central bank credibility—reflected in a stronger balance sheet, greater independence, and clear communication—enhances the effectiveness of monetary policy while reducing associated output costs.
    - Gradual transition to an interest-rate-based operational framework with inflation targets supports the stabilization process as disinflation becomes more challenging.

### Key quantitative and empirical points (as presented)
- Fiscal tightening implemented: about 5 percent of GDP.
- New IMF program approval date referenced: April 2025.
- Political uncertainty and reserve/re-monetization context: events cited in 2025 and with reference to the 2027 elections.
- Comparative timing to achieve single-digit inflation: on average an additional 3-4 years in successful disinflation cases; about five years in Peru; about seven years in Uruguay.
- Definition used for disinflation episode: year-on-year inflation declines at least 50 percent and does not bounce back by more than 10 percentage points during the subsequent year.
- Successful disinflation criterion: moderate inflation of less than 40 percent is maintained over 5th to 7th years after the first y/y decline of more than 50 percent.

*Prepared by Jean-Marc Fournier, Andres Gonzalez, and Juan Yépez Albornoz; source content compiled from the provided IMF chapter and reference list.*

### References

### References

### Referenced works
- Arellano, Bai, Mihalache (2026). Monetary Policy and Sovereign Risk in Emerging Economies (NK-Default). Quarterly Journal of Economics.
- Bindseil, Ulrich. 2004. The Operational Target of Monetary Policy and the Rise and Fall of Reserve Position Doctrine. ECB Working Paper No. 2004.
- Borio. Claudio E. V. 1997. Monetary policy operating procedures in industrial countries, BIS Working Paper No. 40.
- Burton, David, and Stanley Fischer. 1998. Ending Moderate Inflations. International Monetary Fund.
- Calvo, Guillermo. A. 1991. The Perils of Sterilization. IMF Staff Papers, Vol 38, No 4.
- Dornbusch, Rudiger and Stanley Fischer. 1993. Moderate Inflation. The World Bank Economic Review, Volume 7, Issue 1, January 1993, Pages 1–44.
- Goldfajn Ilan, and Valdes Rodrigo. 1999, The Aftermath of Appreciations, The Quarterly Journal of Economics, Vol 114, No 1.
- McCallum, Bennett T. 1981. Price Level determinacy with an interest rate policy rule and rational expectations. Journal of Monetary Economics.
- Portillo, Rafael and Yulia Ustyugova. 2015. A Model for Monetary Policy Analysis in Uruguay. IMF Working Paper No. 15/170.
- Obstfeld, Ostry, Qureshi, 2017. A Tie That Binds: Revisiting the Trilemma in Emerging Market Economies, IMF Working Paper No. 2017/30.
- Sargent, Thomas J, and Neil Wallace. 1975. “Rational” Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule. Journal of Political Economy, 83(2): 241–254.
- Svensson, Lars E. O. 1997. Inflation forecast targeting: Implementing and monitoring inflation targets. European Economic Review, Volume 41, Issue 6, pp. 1111-1146.
- Taylor, J.B. (1993), “Discretion versus policy rules in practice”, Carnegie-Rochester Conference Series on Public Policy, 39, pp. 195-214.
- Urrutia, Miguel, Hofstetter Gascón, Marcel, and Hamann S. Franz A. 2014. Inflation Targeting in Colombia, 2002-2012, IDB Working Paper Series, No. IDB-WP-487, Inter-American Development Bank (IDB), Washington, DC.
- Velarde, Julio and Martha Rodrıguez. 1992. El programa economico de agosto de 1990: evaluacion del primer año. Documento de Trabajo No. 2, Universidad del Pacıfico.
- Woodford, Michael. 1994. Credit policy and the price level in a cash-in-advance economy, Economic Theory, Vol. 4, No. 3, pp. 345-380

### Key findings and analysis from "STRENGTHENING ARGENTINA’S EXTERNAL POSITION"
- Context and challenge
  - Argentina’s external position remains vulnerable despite recent progress, affecting market access and shock management.
  - Argentina maintained a positive net international investment position (NIIP) over the past two decades, which masks underlying imbalances.
  - Private savings are substantial but much held outside the formal financial system in U.S. dollars abroad or in cash.
  - Counterpart weaknesses: weak public sector balance sheet, low reserve coverage (38 percent of the IMF’s ARA metric), and high public external debt vulnerabilities (197 percent of exports).

- Drivers of recent NIIP changes (between end-2023 and end-2025)
  - Public sector external liabilities increased amid lower spreads and higher indebtedness, including official creditors to support reserves.
    - Sovereign spreads fell from about 1900 bps at end-2023 to about 560 bps by end-2025.
    - Gross public external debt holdings (net of reserves) rose reflecting valuation gains and some increase in external government borrowing (including IMF support and BCRA operations).
  - Private sector liabilities rose amid stronger market sentiment:
    - Local equity markets up 111 percent in USD terms.
    - International listings up 135 percent.
    - Argentine corporates issued about US$8 billion since end-2023.
  - Resident holdings of foreign assets rose, especially during 2025, with easing of capital account restrictions; a large share of dollar savings entered the domestic banking system, adding to gross international reserves via banks’ reserve requirement deposits at the BCRA (US$20 billion).

- Empirical relationships and implications
  - A US$1 deterioration in Argentina’s public sector IIP is associated with an increase in private sector external assets of 60 cents (based on annual data, 1996-2024, public sector IIP defined as reserve assets less gross public sector liabilities at face value).
  - Maintaining public external debt in check while rebuilding reserves is essential to support market access, limit exchange rate volatility amplification, and encourage longer-term inflows and asset repatriation.
  - Deepening domestic capital markets and encouraging FDI are important to boost domestic savings and long-term investment in the tradable sector.

- Case for organic reserve accumulation
  - Adequate reserve buffers are necessary to absorb shocks, support confidence, contain exchange rate volatility, and reduce abrupt adjustment risk.
  - Empirical literature indicates inadequate reserves predict external crises; benefits of accumulation are highest when initial coverage is low.
  - Organic (non-borrowed) reserve accumulation reduces sovereign risk more than accumulation financed through public borrowing, including from official creditors (Sosa Padilla and Sturzenegger, 2021).
  - Estimates for Argentina suggest increasing reserves by 1 percent of GDP could lower sovereign spreads by about 100–150 basis points if achieved through stronger trade surpluses, with somewhat smaller—though still significant—effects if driven by capital inflows.

- Evidence from other emerging markets
  - Successful reserve accumulation episodes (e.g., Peru, Chile, Brazil in the 90s and early 2000s) were typically supported by stronger trade balances and sustained long-term capital inflows, particularly FDI, under credible macro frameworks and exchange rate flexibility.
  - Large-scale reserve accumulation (~1 percent of GDP annually for 5-10 years) is feasible and has occurred in over 100 instances in the last 35 years; typically driven by improved trade balances, later-stage FDI, export growth from structural reforms, and competitive exchange rates, with limited government external borrowing role.

- Political-economy considerations
  - Sustaining reserve buildup requires durable consensus around strong policy frameworks and recognition of reserves as a public good.
  - Short-lived stabilizations often reflected insufficient priority on reserve buffers and time-consistency and institutional challenges, notably in extractive economies.

- Policy implications and priorities
  - Generate sufficiently large trade surpluses over the medium term to support reserve accumulation and stable market access to refinance debt obligations while meeting external interest and dividend obligations.
  - Carefully calibrate export-promotion in energy and mining to avoid boom-bust dynamics and mitigate Dutch disease risks.
  - Maintain greater exchange rate flexibility to absorb external shocks and consider saving commodity windfalls.
  - Focus on organic reserve accumulation (trade-balance-driven) where possible, complemented by policies to deepen domestic capital markets, attract FDI, and limit public external debt accumulation.

### Key statistics and tables (preserved exactly as presented)
- Reserve coverage: 38 percent of the IMF’s ARA metric.
- Public external debt vulnerabilities: 197 percent of exports.
- Sovereign spreads: about 1900 bps at end-2023; about 560 bps by end-2025.
- Equity market performance:
  - Local markets up 111 percent in USD terms.
  - International listings up 135 percent.
- Corporates issuance since end-2023: about US$8 billion.
- Banks’ reserve requirement deposits at the BCRA added: US$20 billion.

- Net International Investment Position, 2023-25 (In Billions of U.S. dollars)
  - 2023 / 2024 / 2025 / Diff 2023/2025
  - Overall NIIP: 105.4 / 56.3 / 48.5 / -57.0
  - Public NIIP 1/: -108.6 / -115.8 / -145.0 / -36.4
    - Assets: 30.9 / 37.6 / 49.0 / 18.1
    - Gross Liabilities: 139.5 / 153.4 / 194.0 / 54.5
      - o/w valuation gains 2/: 0.0 / 17.2 / 33.3 / 33.3
  - Private NIIP: 214.0 / 172.1 / 193.5 / -20.6
    - Assets: 409.0 / 418.3 / 445.7 / 36.7
    - Gross Liabilities: 194.9 / 246.2 / 252.2 / 57.3
      - FDI: 135.6 / 178.7 / 181.0 / 45.5
        - o/w valuation gains 2/: 0.0 / 32.2 / 29.9 / 29.9
      - Portfolio and other: 59.4 / 67.6 / 71.2 / 11.8
        - o/w valuation gains 2/: 0.0 / 10.7 / 5.0 / 5.0
  - Memorandum Items
    - FX bank deposits in ARG: 15.8 / 31.4 / 36.9 / 21.1
  - Notes:
    - 2/ Accumulated stock since end-2023.
    - 1/ General government and central bank.
  - Sources: INDEC; and Fund staff calculations.

- Episodes of Large Reserve accumulation in 1990-2025: Key Drivers (change comparing to before the Episodes; Sample Average)
  - Reserves: 1.1 (in percentage points of GDP)
  - Trade balance: 1.4 (Whole episode); 0.9 (First 3 years)
  - Exports: 1.7 (Whole episode); 0.8 (First 3 years)
  - FDI: 0.2 (Whole episode); 0.1 (First 3 years)
  - Official lending: 0 (Whole episode); 0 (First 3 years)
  - Terms-of-trade improvement: -1 -2 -3 -1 (in percent)
  - REER depreciation: 55 68
  - Note: Reserves to GDP ratio of less than 5 percent
  - Sample basis: 120 non-overlapping episodes in non-resource rich, large (GDP over US$ 5 billion) middle-income economies, when reserves grew by more than 5 percentage points of GDP within 7 years, and remained stable or continued growing for at least 3 years after the episode.

*International Monetary Fund*

### References

### 1argea2026002 - References

### Labor Market Reform Implications — Key findings
- Argentina’s stringent labor market regulations have contributed to significant segmentation and informality, weighing on productivity.
- Key features raising formal hiring and firing costs: strict employment protection, centralized collective bargaining, high labor tax wedge, and legal uncertainties.
- Informality has grown as a share of overall employment, producing a dual labor market with protected formal workers and a sizable informal and self‑employed workforce facing low and volatile incomes.
- Around 90 percent of employed workers in the formal sector are covered by sectoral agreements, limiting firms’ ability to set wages and working conditions below agreed sectoral standards.
- The Labor Modernization bill aims to decentralize collective bargaining, reduce formal hiring costs, legal uncertainties, and entrenched rigidities; certain provisions have delayed implementation dates (example: the new employer-funded severance system goes into effect in June; certain specialized labor regimes will only be repealed in January 2027).
- Staff analysis: closing Argentina’s labor market structural gap with regional peers could raise employment by up to 5 percentage points over the medium term; aligning hiring and firing regulations and collective bargaining systems more closely to Latin American peers could yield employment gains of over 5 percentage points within two years.
- In the absence of complementary reforms, labor market liberalization could reduce employment by around 2 percentage points over the medium term.
- Decentralization of collective bargaining is expected to raise employment and formality; higher contractual wages under centralized agreements are associated with weaker formal employment growth (evidence from a monthly micro‑level panel for 2014–25).

### Selected empirical results (panel regression highlights)
- Dependent variables: Δln e(+12) = 12-month forward cumulative log employment growth; ln w(+3) = log 3-month forward median wage.
- Key coefficient estimates (Panel Regression: Contractual Wages, Employment):
  - ln(contractual wage): -0.1109*** (Std. error 0.0186) — specification (1), Sample: Full.
  - ln(contractual wage): 0.0621** (Std. error 0.0293) — specification (2), Dependent variable ln w(+3), Sample: Full.
  - ln(contractual wage): -0.3160*** (Std. error 0.0429) — specification (3), Sample: High coverage.
  - ln(contractual wage): -0.0237* (Std. error 0.0139) — specification (4), Sample: Low coverage.
  - Δln EMAE (t−1): 0.0382*** (Std. error 0.0122) — specification (1).
  - ln(median wage): 0.6407*** (Std. error 0.0417).
  - Δln e (lag 1): 0.4997** (Std. error 0.2153).
- Observations by specification: 1,596; 1,722; 684; 912.
- R² (within) by specification: 0.062; 0.431; 0.177; 0.008.
- Notes: All specifications estimated with two-way fixed effects (sector and time) using PanelOLS with entity-clustered standard errors. Standard errors in parentheses. *** p<0.01, ** p<0.05, * p<0.10.

### Complementary reform considerations and policy recommendations
- Labor reforms are most effective when embedded in a broader and well‑sequenced reform agenda that eases binding constraints: external sector reforms, governance improvements, business deregulation, and improved tax compliance and collection.
- Account for business cycle considerations, political economy, and distributional risks when implementing reforms.
- Use targeted complementary policies to mitigate potential short‑term adjustment costs, especially while opening to trade and financial flows.
- Complement proposed labor reforms with well‑designed active labor market policies and stronger education and training systems:
  - About 25 percent of individuals aged 25–34 lack an upper-secondary qualification.
  - The redesigned Volver al Trabajo program combines training, work placements, hiring incentives, and continued income support.
  - Consider expanding and modernizing technical and vocational schools to better align skills with evolving demand.
- Pair deregulation, openness, and pro‑competition reforms with measures that reduce barriers to formal hiring and strengthen spillovers from primary activities to other sectors to lower dislocation and adjustment costs.
- Macroeconomic policy settings should support the reform process: prudent policies supporting a more flexible exchange rate are essential to allow better adjustment to shocks and structural transformation.
- Historical lesson: ambitious labor reforms in the early 1990s under the convertibility regime, amid an overvalued exchange rate and downward nominal wage rigidities, led to unintended increases in informality and inequality.

### Notable quantitative and comparative facts from the chapter
- Employment gains from closing labor market gaps estimated at over 5 percentage points within two years; similar gains over the medium term.
- Potential employment decline of around 2 percentage points in absence of other reforms.
- Nores Koljatic et al. (2025) simulations: locally determined wages could raise equilibrium employment by 4–20 percentage points.
- High school drop-out rates: about 25 percent of individuals aged 25–34 lack an upper-secondary qualification.
- Labor tax wedge comparisons and sectoral employment indices and time series referenced (figures and heatmaps presented in chapter).

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*Source: 1argea2026002 - References*

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_Source: https://www.imf.org/-/media/files/publications/cr/2026/english/1argea2026002.pdf_