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

_IMF News, February 4, 1998_

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**Canonical URL:** [Press Release: IMF Approves Three-Year Extended Fund Facility for Argentina](https://www.imf.org/en/news/articles/2015/09/14/01/49/pr9801)

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## Bibliographic details
- Published: February 4, 1998

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### Approval and Purpose
- 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.

### Background and Recent Performance
- 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.

### Medium–Term Strategy and the 1998 Program
- 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.

### Structural Reforms (1998–2000)
- 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.

### Addressing Social Needs
- 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.

### The Challenge Ahead
- 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.

### IMF Membership, Quota, and Outstanding Use of Credit
- 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.

### Selected Economic Indicators
- 1996 and 1997 (Percent change or percent of GDP as shown)
  - Real GDP growth:
    - 1996: 4.2
    - 1997*: 8.1
  - Consumer prices (end of period):
    - 1996: 0.0
    - 1997*: 0.3
  - Overall federal government balance (deficit-):
    - 1996: -2.2
    - 1997*: -1.4
  - External current account balance (deficit-):
    - 1996: -1.9
    - 1997*: -3.8
- Sources: Argentine authorities; and IMF staff estimates.
- * Projection.

### Notes on the Extended Fund Facility (EFF) and Quota
- 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*

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_Source: https://www.imf.org/en/news/articles/2015/09/14/01/49/pr9801_