## Press Release: IMF Approves Extension, for Fourth Year, of EFF Credit to Argentina

_IMF News, April 6, 1995_

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**Canonical URL:** [Press Release: IMF Approves Extension, for Fourth Year, of EFF Credit to Argentina](https://www.imf.org/en/news/articles/2015/09/14/01/49/pr9518)

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## Bibliographic details
- Published: April 6, 1995

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### IMF approval and financing details
- The IMF approved Argentina's request to extend to a fourth year the extended Fund facility (EFF) credit for Argentina.
- The amount of the EFF credit was increased by SDR 1,537.1 million (about $2,407 million), to a total of SDR 4,020.25 million (about $6,295 million).
- Together with the undrawn amount of SDR 278.05 million (about $435 million) under the third year of the EFF credit, a total of SDR 1,046.6 million (about $1,639 million) is immediately available to Argentina.
- The remaining SDR 768.55 million (about $1,203 million) will be disbursed in three equal, quarterly installments.
- The IMF had approved the three-year EFF of SDR 2,483.15 million (about $3,888 million) on March 31, 1992 in support of Argentina's medium-term economic and financial program.

### Background and recent macroeconomic developments
- Under the Convertibility Plan adopted in March 1991, Argentina:
  - pegged the peso to the U.S. dollar,
  - allowed the U.S. dollar to be used for most transactions,
  - eliminated indexation,
  - prohibited the Central Bank from providing domestic credit beyond certain limits.
- Fiscal accounts were kept in approximate balance and extensive structural reforms were implemented in fiscal, monetary and trade areas, including opening up the economy to competition, deregulation and privatization.
- Real economic growth averaged more than 7 percent a year between 1991 and 1994, boosted by large capital inflows.
- Inflation dropped from very high levels to less than 4 percent in 1994.
- There was an increase in the external current account deficit, mainly financed by private capital inflows.
- The 1994 program, supported by the EFF, aimed at reducing inflation further and lowering the external current account deficit via stronger fiscal policy; however:
  - economic growth was more robust than programmed,
  - fiscal policy was weaker than expected due to a faster-than-programmed reduction in employer social security contributions and expenditure overruns, mainly in pensions.
- In early 1995, following the Mexican crisis, Argentina experienced large capital outflows that led to:
  - a substantial decline in both the Central Bank's international reserves and its monetary liabilities between end-December 1994 and end-March 1995,
  - a tightening of bank liquidity,
  - a surge in interest rates,
  - a sharp fall in asset prices,
  - difficulties in parts of the banking system and declines in bank deposits.
- Authorities took measures in early March to reinforce public finances and to provide resources for restructuring the financial system by creating two Trust Funds to provide lender-of-last-resort facilities and sought large-scale international financial support, including the EFF extension.

### The 1995 program: objectives and macroeconomic projections
- Objectives:
  - restore liquidity in the financial sector,
  - raise domestic savings,
  - re-establish confidence in the Government's ability to defend the fixed exchange rate under the Convertibility Plan.
- Program assumptions and projections:
  - economic growth slowdown to 2-3 percent,
  - inflation of 3 1/2 percent,
  - current account deficit projected to narrow to 2 percent of GDP.
- Fiscal and revenue measures to generate an overall surplus in the nonfinancial public sector amount to some 2 3/4 percentage points of GDP on a full-year basis and include:
  - a temporary 3- percentage point increase in the value-added tax rate to 21 percent,
  - varying increases in import duties,
  - a broadening of the tax base,
  - a reform of the wealth tax,
  - a unification of employer social security contributions rates across sectors,
  - improvements in tax administration.
- Expenditure cuts, mainly on current outlays, have also been made.
- The monetary program for 1995 foresees a reversal of the decline in bank deposits during the remainder of the year.

### Structural policies and privatization
- Further steps are envisaged in privatization, labor market reform, and bankruptcy law to build on prior reforms.
- Privatization plans include outright sales or operating concessions for:
  - a number of hydroelectric dams,
  - nuclear power installations,
  - petrochemical plants,
  - these sales/concessions are estimated to raise $1 billion.
- Sales of shares in other enterprises are valued at some $1.4 billion.
- Legislation has recently been passed to enhance labor market flexibility to address unemployment and improve international competitiveness.

### Assessment and policy implications (Challenge Ahead)
- The decisive measures taken by the authorities, shortly ahead of national elections, are presented as demonstrating full commitment to maintaining the Convertibility Plan.
- These measures are expected to be adequate to re-establish financial stability, restore confidence, and ensure the program's success.
- Argentina joined the IMF on September 20, 1956, and its quota is SDR 1,537.1 million (about $2,407 million).
- Argentina's outstanding use of IMF credit currently totals SDR 2,821 million (about $4,417 million).

### Key statistics — Argentina: Selected Economic Indicators
- Real economic growth (percent change):
  - 1991: 8.9
  - 1992: 8.7
  - 1993: 6.0
  - 1994*: 7.1
  - 1995**: 2.0–3.0
- Consumer prices (end of period):
  - 1991: 84.0
  - 1992: 17.5
  - 1993: 7.4
  - 1994*: 3.9
  - 1995**: 3.6
- External current account balance (deficit –) (percent of GDP):
  - 1991: –0.2
  - 1992: –2.8
  - 1993: –2.9
  - 1994*: –3.7
  - 1995**: –2.0
- Overall balance of the nonfinancial public sector, including privatization (deficit –) (percent of GDP):
  - 1991: –0.8
  - 1992: 0.7
  - 1993: 2.1
  - 1994*: 0.1
  - 1995**: 1.5
- Gross official reserves (months of imports):
  - 1991: 8.6
  - 1992: 9.7
  - 1993: 9.3
  - 1994*: 9.1

*Preliminary.
**Program.

*Press Release No. 95/18 — IMF External Relations Department, April 6, 1995.*

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_Source: https://www.imf.org/en/news/articles/2015/09/14/01/49/pr9518_