Press Release: IMF Approves Three-Year Extended Fund Facility for Argentina

IMF News, February 4, 1998

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The International Monetary Fund (IMF) approved a three-year credit for Argentina equivalent to SDR 2.08 billion (about US$2.8 billion) under the Extended Fund Facility (EFF).
The EFF credit is intended to support the government’s medium-term economic reform program for 1998–2000.
The government intends to treat the EFF credit as precautionary and will only draw under it if adverse external circumstances make it necessary.

Argentina registered a strong macroeconomic performance in 1997:
- Real GDP growth: 8.1 percent (1997 projection).
- Unemployment rate: fell (no numeric value provided).
- Inflation: virtually zero; consumer prices (end of period) 0.3 percent (1997 projection).
Fiscal position improved as programmed, and there were no major difficulties in financing a widening external current account deficit in 1997.
The public sector’s prudent borrowing strategy and a strengthened banking system helped Argentina weather international capital market turbulence late in the year.

Program horizon: 1998–2000.
Key macroeconomic projections and targets:
- Expected deceleration of real GDP growth in 1998 due to slowdown in world trade, with recovery to potential output by 2000.
- Unemployment: expected to continue to decline gradually.
- Inflation: should remain in the neighborhood of 1 percent in 1998.
- Current account deficit: expected to decline to about 3.5 percent of GDP by 2000 due to an upturn in exports.
Fiscal adjustment path:
- Overall federal government deficit targeted to fall from the equivalent of 1.4 percent of GDP in 1997 to 1 percent of GDP in 1998 and further to 0.3 percent of GDP by 2000.
- The transitional costs of the switchover to privately administered pension funds are equivalent to about 1 percent of GDP annually.
Revenue and expenditure measures:
- Revenues in 1998–2000 should rise somewhat faster than GDP, reflecting introduction in 1998 of a tax simplification for small businesses and full effect of tax and customs administration reforms.
- Present system of monthly budget authorizations will continue to limit outlays of spending ministries.
- Further savings expected from the final stage of the restructuring of the social security administration.
Monetary framework:
- A rules-based monetary framework under the currency board arrangement aims to strengthen confidence, maintain a sound financial system, and provide an adequate cushion of liquidity given the limited role of the central bank as lender of last resort.

Labor market reforms:
- Program envisages putting in place a reform of the labor market by mid 1998.
Tax and budgetary reforms:
- A comprehensive tax reform to improve efficiency and equity and promote competitiveness.
- Budgetary procedures reforms to promote transparency and efficiency, including:
- Widening the coverage of the budget.
- Moving to a pluriannual process.
- Preparing annual assessments of the cost of fiscal benefits and incentives.
- Introducing the use of expenditure efficiency indicators.
Privatization and divestiture:
- Recent leasing of airports to the private sector.
- Planned leasing of telecommunication frequencies by mid 1998.
- Privatizations envisaged for 1998–2000 include several power plants and the National Mortgage Bank.
- Government announced intention to privatize the Banco de La Nación.
Health and judicial reforms:
- Health initiatives: revision of regulatory framework for private health care providers; final phases of restructuring of health insurance system for retirees and of health organizations run by unions.
- Judiciary reforms: modify judicial procedures to speed up resolution of tax cases and increase legal security in credit markets.

Continue restructuring social programs to better target budgetary resources toward vulnerable groups, building on progress in 1997.
Programs described include health care, food assistance, schooling, and specialized aid for needy mothers and infants, homeless children, needy elderly, and teenagers.
Low-cost housing and basic infrastructure targets:
- Low-cost housing to be provided for at least 50,000 families a year.
- Basic infrastructure to be made available for the 1,000 poorest municipalities.

Continued strong growth of productive investment should yield further gains in productivity and competitiveness.
To moderate the widening of the current account deficit and consolidate gains, the program emphasizes:
- Continued strengthening of financial policies.
- Further progress in structural reforms, especially in the labor market.
- Objective: simultaneous achievement of steady improvement in competitiveness and a further sustained decline in unemployment.

Argentina joined the IMF on September 20, 1956.
Argentina’s quota is SDR 1,537.1 million (about US$2,078 million).
Argentina’s outstanding use of IMF credit currently totals SDR 4,246 (about US$5,739) million.

The EFF supports medium-term programs to overcome balance of payments difficulties stemming from macroeconomic imbalances and structural problems.
EFF repayment terms: 10 years with a 4 ½-year grace period.
EFF interest rate: adjusted weekly; about 4.2 percent per annum.
A member's quota in the IMF determines its subscription, voting weight, access to IMF financing, and allocation of SDRs.

Press Release No. 98/1 — February 4, 1998