Press Release: IMF Approves US$12.55 Billion Three-Year Stand-By Credit for Argentina

IMF News, September 20, 2003

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Canonical URL: Press Release: IMF Approves US$12.55 Billion Three-Year Stand-By Credit for Argentina

The Executive Board of the International Monetary Fund approved a three-year, SDR 8.98 billion (about US$12.55 billion) Stand-By Credit Arrangement for Argentina to succeed the arrangement that expired on August 31, 2003 (Press Release No. 03/09).
The Executive Board also approved the authorities' request for an extension of repayment expectations to an obligations schedule in an aggregate amount equivalent to SDR 1.74 billion (about US$2.43 billion).
The Board discussion took place in Dubai, United Arab Emirates, ahead of the 2003 joint World Bank-IMF Annual Meetings.
The IMF emphasized that decisive policy actions and strong policy ownership by Argentine authorities are crucial to minimize program risks.

Principal objectives:
- Restore sustained growth.
- Improve poverty and equity indicators.
- Ensure debt sustainability and normalize relations with creditors.
Three fundamental elements of the medium-term program:
- A medium-term fiscal framework to meet growth, employment, and social equity objectives, while providing a sound basis for normalizing relations with all creditors and ensuring debt sustainability.
- A strategy to assure the strength of the banking system and facilitate the increase in bank lending essential to support the recovery.
- Institutional reforms to facilitate corporate debt restructuring, address issues of the utility companies, and improve the investment climate.

GDP growth targets:
- 5.5 percent in 2003.
- Around 4 percent in 2004-06.
Inflation:
- Core inflation is expected to be maintained in single digits.
- Monetary program aims to anchor inflation expectations in the single digit range.

Primary surplus targets and commitments:
- Raise the consolidated primary surplus from 2½ percent of GDP in 2003 to 3 percent in 2004.
- Authorities committed to primary surpluses in subsequent years sufficient to ensure a sustainable fiscal position and to cover net payments on performing debt and obligations that may result under a debt restructuring agreement.
Structural fiscal reforms:
- Undertake further tax reform and secure early consensus on reforming intergovernmental relations.
- Commitments to submit tax reform and intergovernmental reform legislation to Congress during 2004, with a view to their being introduced in the context of the 2005 budget.
Sequencing:
- Reforms are sequenced to build consensus and to be carried to a decisive stage in 2004.

Monetary policy:
- Continue to entrench low inflation expectations, with base money growth driven mainly by the accumulation of international reserves.
- Authorities consider moving to an inflation targeting regime by end-2004.
- Supportive reforms aimed at increasing the autonomy of the central bank, including studying proposals for enhancing the central bank's independence and moving to an inflation-targeting framework by end-2004.
Banking strategy and commitments:
- Implement a comprehensive banking restructuring strategy to entrench broad price stability and facilitate lending.
- Commit to bring the regulatory and supervisory framework to international standards.
- Foster restructuring and recapitalization of public and private banks.
- Implement compensating measures to offset the impact of official sector actions on banks' balance sheets.
- By end-2003, eliminate temporary forbearance on the classification and provisioning of private loans and compensate banks for asymmetric pesoization and asymmetric indexation.
- Assess the impact of losses experienced by banks because of legal injunctions (amparos) and identify measures to strengthen the system by end of 2003.

Debt restructuring:
- Authorities committed to advance negotiations with external creditors consistent with medium-term sustainability.
- Aim to conclude negotiations by mid-2004.
Utility sector:
- Aim to obtain congressional approval by end-2003 of new legislation delegating powers to the executive branch to renegotiate public concessions and effect interim tariff increases.
Predictable legal framework:
- Commit to review the effectiveness of the insolvency system to put in place a legal and regulatory framework conducive to progress in private corporate debt restructuring.
Fund view:
- Early conclusion of a sustainable restructuring agreement, paving the way for Argentina to return to capital markets, is fundamental to the success of the program.

Recognized risks:
- Key elements of fiscal and banking reforms crucial to sustainability will only be formulated at a later stage.
Conditionalities for minimizing risks:
- Decisive policy actions by Argentine authorities.
- Strong policy ownership.
- Progress on normalizing relations with creditors.

Stand-By Credit Arrangement:
- SDR 8.98 billion (about US$12.55 billion) for three years.
Extension of repayment expectations:
- SDR 1.74 billion (about US$2.43 billion).
Argentina IMF membership and quota:
- Argentina joined the IMF on September 20,1956.
- Quota is SDR 2.117 billion (about US$2.959 billion).
- Outstanding use of IMF credit currently totals SDR 8.85 billion (about US$12.37 billion).

Press Release No. 03/160 — September 20, 2003 — International Monetary Fund