An International Monetary Fund (IMF) team, led by Mr. Roberto Cardarelli,
visited Buenos Aires from October 31 to November 10, 2017 to conduct
discussions for the 2017 Article IV consultations. At the conclusion of
this visit, Ms. Cardarelli issued the following statement:
“Argentina has been engaged in a systemic transformation of its economy.
The removal of foreign exchange controls, modernization of monetary policy,
resolution of the dispute with bond holders and return to international
capital markets, and the realignment of utilities tariffs have corrected
the most urgent macroeconomic imbalances. Institutions have been rebuilt
and strengthened, and notable progress has been made in restoring
integrity, transparency, and efficiency to all levels of government. New
anti-corruption measures have been adopted and procurement processes and
corporate governance have been improved. These efforts have yielded
budgetary savings and laid the foundation for stronger private sector
investment in the years to come.
“These, and other policy changes, have resulted in a steady recovery from
the recession that began in mid-2015. Growth is forecast to be 2¾ percent
for this year and 2½ in 2018. Inflation remains stubbornly high and it is
expected to gradually decline. Stronger domestic demand has led to a
greater current account deficit, while the high general government deficit
has led to a rapid rise in foreign currency borrowing, pushing up gross
external financing needs. The slower-than-targeted decline in inflation and
significant foreign inflows have contributed to upward pressure on the real
exchange rate. These factors pose vulnerabilities to the medium-term
outlook.
“Accelerating the pace of reforms would help reduce these vulnerabilities.
The government is committed to continue reducing public expenditure in
order to cut the tax burden and achieve the fiscal deficit targets. The
federal authorities have announced a 2 percent of GDP reduction of the
primary federal deficit in the next two years, based on a reduction of
economic subsidies and other measures, whereas provinces are committed to
reduce their deficit by about ¾ percent of GDP. This fiscal plan goes in
the right direction, although a larger fiscal rebalancing would allow for
lower real interest rates; reduce upward pressures on the peso; facilitate
a faster elimination of monetary financing of the fiscal deficit and better
anchor inflation expectations; and reduce vulnerabilities to a sudden
tightening of external financing conditions.
“The authorities’ proposed tax reform is a good step forward to overhaul
Argentina’s inefficient tax system. The proposal gradually reduces the
effective tax rate on labor income for low-income workers, increases the
progressivity of the system, and incentivizes formal employment. Expanding
the coverage of the personal income tax would allow to lower social
security contributions. The gradual reduction of the statutory tax rate for
reinvested corporate income is welcome and should help support investment.
The phase-out of the financial transaction tax will remove a distortion
that holds back financial deepening and financial inclusion. Incentivizing
provinces to eliminate the gross turnover tax will also support investment,
growth and job creation.
“Further progress on supply side reforms would help facilitate Strong,
sustained, and equitable growth going forward. The authorities should be
commended for measures to reduce the red tape and ongoing initiatives to
significantly reduce administrative costs associated with trade and setting
up firms. However, there remains scope to remove barriers to trade,
investment and firm entry, and address anti-competitive business practices.
Creating quality jobs for all Argentines is the most effective and
sustainable way to reduce poverty, raise output, increase productivity, and
provide opportunities. A reform of labor market institutions would help
reduce informality, address gender discrimination, and ensure the benefits
from higher growth are shared more equally. Allowing for more flexible work
arrangements and active labor market policies can help increase the
employability of all workers.”
