Press Release: IMF Approves Transitional Stand-By Credit Support for Argentina

IMF News, January 24, 2003

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Canonical URL: Press Release: IMF Approves Transitional Stand-By Credit Support for Argentina

The Executive Board approved an eight-month Stand-by Credit Arrangement for Argentina of SDR 2.17 billion (about US$2.98 billion).
The arrangement is designed to provide transitional financial support through the period ending August 31, 2003, and replaces Argentina's previous arrangement with the Fund.
The arrangement is designed to cover all payment obligations to the IMF through August 2003.
The transitional stand-by credit is expected to be succeeded by a multi-year IMF arrangement after the election in late April 2003 of a new government.

The Executive Board approved the authorities' request to extend by one year SDR 2.77 billion (about US$3.80 billion) in payments Argentina would have been expected to make during the first eight months of 2003.
The extension covers:
- Remaining payment under the Supplemental Reserve Facility (SRF): SDR 2.09 billion (about US$2.87 billion).
- Payments under the previous Stand-by arrangement: SDR 683.65 million (about US$938.20 million).
The combined actions affect SDR 4.94 billion (about US$6.78 billion) in payment obligations or expectations in the period January-August 2003.
The extension is allowed under the Fund's general policies governing such payment expectations, including policies under the SRF; at the end of the extension the country is obligated to repay the SRF financing.

Purpose: preserve macroeconomic stability through the transition to a new government expected to take office in May and provide a framework for multilateral development banks to resume support of social programs following Argentina’s clearance of arrears.
Key focuses:
- Maintaining monetary and fiscal discipline.
- Avoiding policy reversals.
- Rebuilding legal certainty.
- Strengthening collaboration with private creditors on a debt restructuring strategy, with momentum expected after early appointment of a debt advisor.
Emphasis on the successor comprehensive medium-term program to:
- Re-establish investor confidence and capital inflows.
- Achieve fiscal and external viability.
- Establish sustainable growth.
- Carry forward fundamental reforms including structural fiscal reforms, increasing openness, restoring financial intermediation, completing debt restructuring, and assuring legal certainty and respect for the rule of law.

Objective: restrain monetary growth to establish a nominal anchor and avoid inflationary pressure.
Centered on maintaining the adjusted monetary base broadly at its end-December 2002 level through mid-2003.
Operational controls:
- Act on net domestic assets of the central bank.
- Limit sales of foreign exchange reserves for intervention.
- Continue a flexible exchange rate policy.
The monetary program would be reviewed regularly and the authorities committed to adopt corrective measures as necessary.

Target: secure a consolidated cash primary surplus of about 2.5 percent of GDP in 2003.
Measures required:
- Spending cuts, revenue measures, and elimination of certain tax exemptions to be approved by Congress by end-March 2003.
- Provincial adjustment via spending controls and administrative reforms.
- Bilateral agreements for 2003 planned to be ratified by provincial legislatures by mid-May 2003.
Authorities intend to work closely with Congress to secure approval of revenue measures needed to meet fiscal targets.
Commitment to remain current on the government's financial obligations to the IMF under the program.

Steps toward a banking strategy include:
- Strengthening the regulatory and prudential framework.
- Initiating reform of public banks.
- Increasing central bank autonomy.
Other structural measures:
- Tax reform aimed at broadening the tax base.
- Reform of intergovernmental relations to encourage fiscal discipline in the provinces.
- Institutional and legal reforms to strengthen the framework for banking sector restructuring.
Program provides for a strong social safety net implemented in collaboration with the World Bank and the IDB.

Argentina has cleared its arrears to the World Bank and the Inter American Development Bank, enabling these institutions to resume their support.
Argentina’s IMF-related statistics:
- Joined the IMF on September 20, 1956.
- Quota is SDR 2.117 billion (about US$2.905 billion).
- Outstanding use of IMF credit currently totals SDR 9.747 billion (about US$13.376 billion).