Press Release: IMF Augments Argentina Stand-By Credit to $21.57 Billion, and Completes Fourth Review
IMF News, September 7, 2001
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- Published: September 7, 2001
Executive decision and financing package
- The Executive Board approved an augmentation to SDR 16.94 billion (about US$21.57 billion) of Argentina's stand-by credit initially approved on March 10, 2000 and augmented on January 2001.
- Immediate availability: SDR 4.94 billion (about US$6.3 billion), of which SDR 3.97 (about US$5.05 billion) are under the new augmentation.
- Additional contingent drawdown: SDR 976.2 million (about US$1.24 billion) to be made available later in 2001 following completion of the fifth review.
- Further scheduled tranches:
- 2002: SDR 5.44 billion (about US$6.93 billion).
- 2003: SDR 764 million (about US$ 973 million).
- Flexibility for debt-profile operation: Up to the equivalent of US$3 billion of the drawings scheduled for 2002 may be brought forward to support a voluntary and market-based operation to improve Argentina's debt profile.
Rationale and Executive Board statement (Anne Krueger, First Deputy Managing Director and acting Chair)
- Purpose: Restore macroeconomic stability and address structural impediments to a recovery of investment and output through a strengthened fiscal effort in the reformulated program.
- Fiscal credibility and convertibility:
- Program aims to restore credibility of the fiscal position and the convertibility regime.
- Fiscal policy geared to the immediate elimination of the federal government deficit as mandated by the "zero-deficit law" approved by congress in late July 2001.
- Provincial governments expected to undertake a substantial fiscal adjustment.
- Expected macroeconomic effects if implemented firmly:
- Ensure sustainability of public debt.
- Produce a lasting decline in the risk premium on Argentine debt and of domestic interest rates.
- Create conditions for recovery of economic activity.
- Structural reform priorities welcomed by the Fund:
- Improve tax administration and strengthen tax compliance.
- Reform revenue sharing arrangements between the federal government and the provinces.
- Streamline public administration and overhaul social security administration.
- Strengthen public banks, make labor markets more flexible, and improve effectiveness of the social safety net.
- Financial stability pillars: Reaffirmation of commitment to the convertibility regime and liquidity defenses of the banking system.
- Private sector involvement: Program provides for increased voluntary private sector involvement through bond placements and drawdown of the contingent repo facility with international banks; Fund welcomes voluntary market-based debt operation efforts.
Program summary and recent developments
- Background:
- Despite the January 2001 augmentation, doubts about sustainability of public debt resurfaced after authorities failed to sustain program fiscal policies.
- March ministerial crisis and economic weakness eroded confidence; domestic financial sector virtually refused to continue financing the government.
- Market developments:
- Spreads on Argentine bonds: narrowed to about 880 basis points after third review approval in May, widened to over 1700 basis points in July, and narrowed to around 1,400 basis points in August.
- Authorities' response: Announced major strengthening of fiscal effort to restore credibility and requested further IMF augmentation to dispel default doubts and calm depositors.
Key policy measures in the revised program
- Fiscal consolidation:
- Immediate elimination of the federal government deficit in line with the "zero deficit" law.
- New revenue measures:
- Increase in the financial transactions tax by 0.2 percent (to 0.6 percent) with elimination of all exemptions.
- Reversal of the reduction in gasoline taxes.
- Suspension of the increase in income tax deductions.
- Postponement indefinitely of the planned move of the VAT from an accrual to a cash basis.
- Primary spending cuts:
- Across-the-board cut of 13 percent in unprotected primary spending, including wages and pensions.
- Social protection and program administration:
- Protections: Floor on salary and pension cuts; maintenance of targeted subsidies.
- Emphasis on efficient resource use: Better targeting and concentration of administration of social programs under a single facility.
Expected macroeconomic outcomes and projection
- If announced policies are firmly implemented:
- Expected lasting decline in the risk premium on Argentine debt and domestic interest rates.
- Conditions created for a modest recovery of real GDP growth in the final quarter of 2001.
- Projected growth: about 2.5 percent in 2002.
Argentina's IMF position and outstanding use of resources
- Argentina joined the IMF on September 20, 1956.
- Quota: SDR 2.117 billion (about US$2.695 billion).
- Outstanding use of IMF credit currently totals SDR 6.494 billion (about US$8.267 billion).
Selected economic indicators (annual percentage changes; unless otherwise indicated)
- Real per capita GDP: 1997: 6.7; 1998: 2.6; 1999: -4.6; 2000: -1.7; Q1 2001 Prog: -2.6.
- GDP at current prices: 1997: 7.6; 1998: 2.1; 1999: -5.2; 2000: 0.6.
- GDP at constant prices: 1997: 8.1; 1998: 3.8; 1999: -3.4; 2000: -0.5; Q1 2001 Prog: -1.4.
- Consumption: 1997: 7.9; 1998: 3.1; 1999: 1.0; 2000: -0.8; Q1 2001 Prog: -1.0.
- Investment: 1997: 17.7; 1998: 6.5; 1999: -12.8; 2000: -8.6; Q1 2001 Prog: -9.2.
- Net exports (contribution to growth): 1997: -1.8; 1998: 0.0; 1999: 1.4; 2000: 0.3; Q1 2001 Prog: 0.1.
- Exports: 1997: 12.0; 1998: 9.9; 1999: 2.2; 2000: 5.9.
- Imports: 1997: 26.6; 1998: -11.7.
- GDP deflator: 1997: -1.9; 1998: 1.1; 1999: -0.3.
- Industrial production (average): 1997: 8.7; 1998: 1.6; 1999: -6.4.
- Consumer prices (average): 1997: 0.9; 1998: -1.2; 1999: -0.9; 2000: -0.6.
- Consumer prices (end-of-period): 1997: 0.7; 1998: -0.7.
- Exports, f.o.b.: 1997: 11.0; 1998: -11.8; 1999: 13.2; 2000: 3.7.
- Imports, c.i.f.: 1997: 28.1; 1998: -18.7; 1999: -2.9; 2000: -3.9.
- Export volume: 1997: 15.0; 1998: 11.6; 1999: 2.0; 2000: 4.8.
- Import volume: 1997: 31.1; 1998: -13.8; 1999: -3.8.
- Terms of trade (deterioration -): 1997: -5.5; 1998: -5.9; 1999: 10.4; 2000: 5.5.
- Real effective exchange rate (Average (depreciation -)): 1997: 3.0; 1998: 3.5; 1999: 12.4.
- Real effective exchange rate (Year-end (depreciation -)): 1997: 5.0; 1998: 12.6; 1999: 1.7; 2000: 4.4.
- Banking system net domestic assets: 1997: 16.1; 1998: 14.6; 1999: 4.7; 2000: 3.3; Q1 2001 Prog: 3.2.
- Credit to private sector: 1997: 18.6; 1998: 10.8; 1999: -4.8; 2000: -6.0.
- Money and quasi-money (M2): 1997: 20.3; 1998: 24.7; 1999: -2.4; 2000: -2.5; Q1 2001 Prog: -7.0; -9.0.
- Velocity (GDP relative to M2): 1997: 8.5; 1998: 8.0; 1999: 7.8; 2000: 7.5.
- Interest rate (30-day deposit rate, in percent) 1/: 1997: 7.0; 1998: 8.3.
- Public sector savings (in percent of GDP): 1997: -0.4; 1998: -2.3.
- Federal government primary balance (in percent of GDP): 1997: 0.4; 1998: -0.2; 1999: 1.5.
- Federal government overall balance (in percent of GDP): 1997: -1.6; 1998: -1.3; 1999: -1.1; 2000: -2.7.
- Consolidated public sector primary balance (in percent of GDP): 1997: 0.5.
- Consolidated public sector overall balance (in percent of GDP): 1997: -4.2; 1998: -3.6; 1999: -3.7.
- Gross domestic investment (in percent of GDP): 1997: 19.5; 1998: 19.9; 1999: 17.9; 2000: 16.0; Q1 2001 Prog: 14.9.
- Gross national savings (in percent of GDP): 1997: 14.7; 1998: 15.1; 1999: 13.7; 2000: 12.8; Q1 2001 Prog: 11.9.
- Current account deficit (in percent of GDP): 1997: -3.2; 1998: -4.4.
- Public sector external debt (end-of-year, in percent of GDP): 1997: 25.6; 1998: 27.8; 1999: 30.1; 2000: 29.9; Q1 2001 Prog: 30.6; 32.1.
- Public sector interest payments (in percent of exports of goods and nonfactor services) 2/: 1997: 24.3; 1998: 25.4; 1999: 31.0; 2000: 41.3; Q1 2001 Prog: 42.0.
- Outstanding use of Fund resources (in percent of quota at end-of-period): 1997: 283.0; 1998: 251.5; 1999: 154.1; 2000: 183.3; Q1 2001 Prog: 276.0; 587.3.
- Gross foreign exchange reserves 3/ (in months of imports of goods and nonfactor services): 1997: 9.6; 1998: 12.2; 1999: 12.5.
Press Release No. 01/37 — September 7, 2001 — International Monetary Fund