{
  "title": "Public Information Notice: IMF Executive Board Concludes 2006 Article IV Consultation with Argentina",
  "publication": "IMF News, August 9, 2006",
  "sourceUrl": "https://www.imf.org/en/news/articles/2015/09/28/04/53/pn0693",
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  "summary": "Each Public Information Notice contains a background section, a table of selected economic indicators, and an Executive Board assessment.",
  "publishDate": "2006-08-09",
  "sections": [
    {
      "heading": "Background",
      "content": "- PIN No. 06/93; Executive Board concluded the Article IV consultation with Argentina on July 28, 2006.\n- Post-2002 recovery: after three years of around 9 percent growth, real GDP surpassed its 1998 peak by some 6 percent, led by strong investment and consumption.\n- Contributing factors: favorable terms of trade, significant reduction in the debt burden following the 2005 debt restructuring, and a competitive currency.\n- Inflation trend: inflation rose steadily, ending 2005 at 12.3 percent."
    },
    {
      "heading": "Economic performance and external sector",
      "content": "- GDP and demand:\n  - Real GDP growth: three years of around 9 percent growth; GDP at constant prices: -4.4 (2001), -10.9 (2002), 8.8 (2003), 9.0 (2004), 9.2 (2005).\n  - Domestic demand (contribution to growth): -6.5 (2001), -16.9 (2002), 10.4 (2003), 11.1 (2004), 9.4 (2005).\n  - Net exports (contribution to growth): 2.1 (2001), 6.0 (2002), -1.5 (2003), -2.1 (2004), -0.2 (2005).\n- External sector transformation:\n  - Early repurchase of entire stock of Fund credit in January 2006.\n  - Net private capital flows turned positive in 2005 for the first time since 1999.\n  - Trade and reserves:\n    - Trade balance (U.S. dollars, billions): 6.2 (2001), 16.7 (2002), 16.1 (2003), 11.3 (2004), [2005 value appears in table as blank].\n    - Exports, f.o.b. (U.S. dollars, billions): 26.5 (2001), 25.7 (2002), 29.9 (2003), 34.6 (2004), 40.0 (2005).\n    - Imports, c.i.f. (U.S. dollars, billions): 20.3 (2001), 13.9 (2002), 22.4 (2003), 28.7 (2004), [2005 value blank].\n    - Gross international reserves (U.S. dollars, billions): 14.9 (2001), 10.5 (2002), 14.1 (2003), 19.6 (2004), 28.1 (2005).\n    - Reserves around US$1 billion accumulated per month so far this year; reserves now stand at US$26 billion (having recouped most of January's early repurchase of amounts outstanding to the Fund).\n- Price and wage dynamics:\n  - Measured inflation fell to 11 percent at end-June 2006; core inflation running at 12¼ percent; end-2007 inflation expectations around 12 percent.\n  - Short-term interest rates remain negative in real terms; interest rates have risen gradually as bank lending recovered.\n  - Formal private sector real wages rising rapidly; informal sector real wages remain depressed."
    },
    {
      "heading": "Fiscal position and public spending",
      "content": "- Post-crisis fiscal adjustment historically unprecedented.\n- 2005 consolidated government overall cash surplus: 2½ percent of GDP.\n- Primary surplus erosion: primary surplus fell to 4½ percent of GDP in 2005 from 5 percent in 2004.\n- Non-interest spending rose by 11 percent in real terms in 2005, providing further demand stimulus.\n- Provincial primary spending rose around 19 percent in real terms in 2005; provinces moved into primary deficit in the second half of 2005 despite recording a small overall surplus for the year.\n- Public sector capital spending: growing at a real rate of over 70 percent in the 12 months to May (2006).\n- Substantial increases in subsidies and discretionary transfers to provinces continue."
    },
    {
      "heading": "Banking, monetary policy, and regulatory environment",
      "content": "- Exchange rate: remained stable amid sustained central bank intervention.\n- Banking system health improved: gains in asset quality and profitability, aided by negative real interest rates and stable regulatory environment.\n- Central bank approach: maintaining a stable regulatory framework while gradually phasing out regulatory forbearance; Executive Board recommended continued adherence to this approach.\n- Authorities intend to participate in the Financial Sector Assessment Program in 2007."
    },
    {
      "heading": "Social indicators and programs",
      "content": "- Poverty and social outcomes:\n  - Poverty rate declined to 34 percent by end-2005 from a peak of 57 percent in 2002.\n  - Extreme poverty more than halved to 12 percent by end-2005.\n  - Improvements in secondary school enrollment and completion rates, formal health insurance coverage, and infant mortality rate.\n- Social policy: Heads of Household Program provided cash transfers to the unemployed.\n- Labor market: remains highly segmented with a widening gap between formal and informal sector wages."
    },
    {
      "heading": "Executive Board assessment — findings",
      "content": "- Welcomed strong performance: declines in unemployment and poverty, banking system recovery, strong external sector, recuperation of international reserves.\n- Cautioned that inflationary pressures have emerged.\n- Most Directors viewed current inflation as stemming from aggregate demand growth not met by supply response rather than a temporary post-crisis relative price adjustment.\n- Noted erosion of the fiscal position; monetary policy, while tightening, remained accommodative.\n- Administrative measures to dampen inflation provide only temporary benefits; most Directors advised dismantling such measures as soon as possible.\n- Structural reforms progress limited; the combined Ex Post Assessment and Ex Post Evaluation found:\n  - Macroeconomic performance under the two 2003 Stand-By Arrangements was strong.\n  - All procedural requirements of the Fund's policy on exceptional access were met.\n  - Progress on structural reforms to address long-term vulnerabilities was limited, due largely to a lack of ownership and implementation capacity.\n  - Access under the 2003 Stand-By Arrangements was insufficiently linked to balance of payments need and may have hampered the Fund's signaling regarding exceptional access.\n  - Lack of a medium-term fiscal and balance of payments framework complicated application of the Fund's Lending Into Arrears policy."
    },
    {
      "heading": "Executive Board assessment — policy recommendations",
      "content": "- Bring all available policy instruments to bear to achieve a soft landing with sustainable growth and low inflation.\n- Specific policy actions most Directors considered appropriate:\n  - Reign in the rapid growth in primary expenditure to strengthen fiscal policy.\n  - Bring the term structure of real interest rates into positive territory.\n  - Allow for greater upward flexibility in the exchange rate.\n- Avoid delay in policy response to prevent significantly higher economic costs of reducing inflation and vulnerability to shocks.\n- Avoid overreliance on a single instrument while avoiding adjustment in others to prevent unbalanced and infeasible tightening.\n- Dismantle price repression measures (regulated prices, selective price agreements, export restraints) as soon as possible to avoid exacerbating capacity constraints and undermining the business climate.\n- Implement structural measures to increase competitiveness and encourage investment, notably in regulated industries.\n- Consider alternatives to financial transactions and export taxes, review the fiscal responsibility regime, and allow relative prices in utilities and energy to adjust to unwind implicit cross-subsidies.\n- Seek a consensual solution to remaining government arrears to both official and private sector creditors.\n- Articulate a full medium-term macroeconomic framework to allow clearer application of the Fund's lending into arrears policy and to guide program design."
    },
    {
      "heading": "Key statistics from Table 1 (selected)",
      "content": "- GDP at constant prices (annual % changes): -4.4 (2001), -10.9 (2002), 8.8 (2003), 9.0 (2004), 9.2 (2005).\n- Consumer prices (average): -1.1 (2001), 25.9 (2002), 13.4 (2003), 4.4 (2004), 9.6 (2005).\n- Consumer prices (end-of-period): 41.0 (2001), 3.7 (2002), 6.1 (2003), 12.3 (2004), [2005 value blank].\n- Population below poverty line (percent): 35.4 (2001), 53.0 (2002), 47.8 (2003), 40.2 (2004), 33.8 (2005).\n- Population below extreme poverty line (percent): 12.2 (2001), 24.8 (2002), 20.5 (2003), 15.0 (2004), 12.0 (2005 reported in text).\n- Unemployment rate: 20.7 (2001), 14.5 (2002), 12.1 (2003), 10.1 (2004), [2005 value blank].\n- Exports, f.o.b. (U.S. dollars, billions): 26.5 (2001), 25.7 (2002), 29.9 (2003), 34.6 (2004), 40.0 (2005).\n- Gross international reserves (U.S. dollars, billions): 14.9 (2001), 10.5 (2002), 14.1 (2003), 19.6 (2004), 28.1 (2005).\n- Total debt (year-end, percent of GDP): 63.1 (2001), 181.2 (2002), 144.6 (2003), 132.0 (2004), 89.3 (2005).\n- Outstanding use of Fund resources (percent of quota at end-of-period): 525.3 (2001), 498.2 (2002), 493.4 (2003), 428.9 (2004), 314.4 (2005).\n- Nominal GDP (in billions of Arg $): 268.7 (2001), 312.6 (2002), 375.9 (2003), 447.6 (2004), 531.9 (2005).\n\nPublic Information Notice: IMF Executive Board Concludes 2006 Article IV Consultation with Argentina, August 9, 2006.\n\n---\n\n\n References\n\n- Argentina and the IMF\n- Public Information Notices\n- Article IV\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2015/09/28/04/53/pn0693"
    }
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    "Published: August 9, 2006",
    "PIN No. 06/93; Executive Board concluded the Article IV consultation with Argentina on July 28, 2006.",
    "Post-2002 recovery: after three years of around 9 percent growth, real GDP surpassed its 1998 peak by some 6 percent, led by strong investment and consumption.",
    "Contributing factors: favorable terms of trade, significant reduction in the debt burden following the 2005 debt restructuring, and a competitive currency.",
    "Inflation trend: inflation rose steadily, ending 2005 at 12.3 percent.",
    "GDP and demand:",
    "External sector transformation:",
    "Price and wage dynamics:",
    "Post-crisis fiscal adjustment historically unprecedented.",
    "2005 consolidated government overall cash surplus: 2½ percent of GDP.",
    "Primary surplus erosion: primary surplus fell to 4½ percent of GDP in 2005 from 5 percent in 2004.",
    "Non-interest spending rose by 11 percent in real terms in 2005, providing further demand stimulus.",
    "Provincial primary spending rose around 19 percent in real terms in 2005; provinces moved into primary deficit in the second half of 2005 despite recording a small overall surplus for the year.",
    "Public sector capital spending: growing at a real rate of over 70 percent in the 12 months to May (2006).",
    "Substantial increases in subsidies and discretionary transfers to provinces continue.",
    "Exchange rate: remained stable amid sustained central bank intervention.",
    "Banking system health improved: gains in asset quality and profitability, aided by negative real interest rates and stable regulatory environment.",
    "Central bank approach: maintaining a stable regulatory framework while gradually phasing out regulatory forbearance; Executive Board recommended continued adherence to this approach.",
    "Authorities intend to participate in the Financial Sector Assessment Program in 2007.",
    "Poverty and social outcomes:",
    "Social policy: Heads of Household Program provided cash transfers to the unemployed.",
    "Labor market: remains highly segmented with a widening gap between formal and informal sector wages.",
    "Welcomed strong performance: declines in unemployment and poverty, banking system recovery, strong external sector, recuperation of international reserves.",
    "Cautioned that inflationary pressures have emerged.",
    "Most Directors viewed current inflation as stemming from aggregate demand growth not met by supply response rather than a temporary post-crisis relative price adjustment.",
    "Noted erosion of the fiscal position; monetary policy, while tightening, remained accommodative.",
    "Administrative measures to dampen inflation provide only temporary benefits; most Directors advised dismantling such measures as soon as possible.",
    "Structural reforms progress limited; the combined Ex Post Assessment and Ex Post Evaluation found:",
    "Bring all available policy instruments to bear to achieve a soft landing with sustainable growth and low inflation.",
    "Specific policy actions most Directors considered appropriate:",
    "Avoid delay in policy response to prevent significantly higher economic costs of reducing inflation and vulnerability to shocks.",
    "Avoid overreliance on a single instrument while avoiding adjustment in others to prevent unbalanced and infeasible tightening.",
    "Dismantle price repression measures (regulated prices, selective price agreements, export restraints) as soon as possible to avoid exacerbating capacity constraints and undermining the business climate.",
    "Implement structural measures to increase competitiveness and encourage investment, notably in regulated industries.",
    "Consider alternatives to financial transactions and export taxes, review the fiscal responsibility regime, and allow relative prices in utilities and energy to adjust to unwind implicit cross-subsidies.",
    "Seek a consensual solution to remaining government arrears to both official and private sector creditors.",
    "Articulate a full medium-term macroeconomic framework to allow clearer application of the Fund's lending into arrears policy and to guide program design.",
    "GDP at constant prices (annual % changes): -4.4 (2001), -10.9 (2002), 8.8 (2003), 9.0 (2004), 9.2 (2005).",
    "Consumer prices (average): -1.1 (2001), 25.9 (2002), 13.4 (2003), 4.4 (2004), 9.6 (2005).",
    "Consumer prices (end-of-period): 41.0 (2001), 3.7 (2002), 6.1 (2003), 12.3 (2004), [2005 value blank].",
    "Population below poverty line (percent): 35.4 (2001), 53.0 (2002), 47.8 (2003), 40.2 (2004), 33.8 (2005).",
    "Population below extreme poverty line (percent): 12.2 (2001), 24.8 (2002), 20.5 (2003), 15.0 (2004), 12.0 (2005 reported in text).",
    "Unemployment rate: 20.7 (2001), 14.5 (2002), 12.1 (2003), 10.1 (2004), [2005 value blank].",
    "Exports, f.o.b. (U.S. dollars, billions): 26.5 (2001), 25.7 (2002), 29.9 (2003), 34.6 (2004), 40.0 (2005).",
    "Gross international reserves (U.S. dollars, billions): 14.9 (2001), 10.5 (2002), 14.1 (2003), 19.6 (2004), 28.1 (2005).",
    "Total debt (year-end, percent of GDP): 63.1 (2001), 181.2 (2002), 144.6 (2003), 132.0 (2004), 89.3 (2005).",
    "Outstanding use of Fund resources (percent of quota at end-of-period): 525.3 (2001), 498.2 (2002), 493.4 (2003), 428.9 (2004), 314.4 (2005).",
    "Nominal GDP (in billions of Arg $): 268.7 (2001), 312.6 (2002), 375.9 (2003), 447.6 (2004), 531.9 (2005).",
    "[Argentina and the IMF](http://www.imf.org/external/country/ARG/index.htm)",
    "[Public Information Notices](https://www.imf.org/en/news/searchnews)",
    "[Article IV](https://www.imf.org/external/pubs/ft/aa/aa04.htm)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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