Argentina and the IMF

Press Release: IMF Executive Board Completes Financing Assurances Review and Grants Waiver for Noncomplying Purchase by Argentina
August 28, 2003

Country's Policy Intentions Documents

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Argentina—Letter of Intent

Buenos Aires, Argentina
July 18, 2003

The following item is a Letter of Intent of the government of Argentina, which describes the policies that Argentina intends to implement in the context of its request for financial support from the IMF. The document, which is the property of Argentina, is being made available on the IMF website by agreement with the member as a service to users of the IMF website.

Mr. Horst Köhler
Managing Director
International Monetary Fund
Washington, D.C. 20431

Dear Mr. Köhler:

1. We have continued to pursue the implementation of our economic program and the economy continues to recover in conditions of broad price stability, with GDP growth for this year projected at 4½-5 percent. All end-June quantitative targets are expected to have been met. The monetary program remains firmly on track and the fiscal outturn-based on good performance in May-is expected to be well above the program target, with arrears on VAT refunds to exporters being reduced. In late June, we announced an important tax administration reform package to among other things combat tax evasion, increase penalties, and improve efficiency of tax collection. We are working with Congress to ensure the early approval of those measures requiring legislation. This package should help improve tax compliance and support our fiscal objectives for the second half of the year and beyond. In regard to 2003, we are committed to achieving the original program target of a consolidated primary surplus of 2.5 percent of GDP. The program for redemption of quasi-monies is also progressing well: a key step being the recent acceptance by Buenos Aires province for the redemption of patacones which comprise 60 percent of total quasi-monies remaining in circulation.

2. Progress is also being made with the structural agenda of the program. On public bank restructuring, we will launch in the coming days, in coordination with IDB, the bidding process for due diligence and strategic review of Banco Provincia based on agreed standards. As part of the review of the role of the public banks, we intend to resume discussions toward including Banco Ciudad in the process. In addition, amendments to the financial institutions law have now been approved by the Senate and are under consideration by the lower house (passage will be a structural benchmark for the last purchase under the arrangement). By end-July, we expect to announce a transitional capital requirement for banks' exposure to the public sector and interest rate risk. Finally, an agreement on a memorandum of understanding between the BCRA and the government regarding the transfer of realized central bank profits to the government is expected to be finalized before the Board meeting for the third review.

3. As we noted in the SMEP of June 13, 2003, we are committed to ending the stay on mortgage foreclosures at the end of its 90-day period. A mortgage registry has been established to identify debtors affected by the stay and we are developing alternative measures to assist poor debtors within existing budget constraints. In June, Congress approved legislation changing the foreign ownership rules and the application of the cramdown provision of the insolvency law for the media sector. No other provision of the insolvency law is affected and the government has no intention to expand to other sectors of the economy the treatment of the media sector under this law. A working group will be established by end-July to review by mid-October elements of the insolvency framework, including those actions taken in respect of the media sector, with a view to ensuring that international best practices are maintained in this important area. On this basis, we request a waiver for the relevant continuous performance criterion under the Stand-By Arrangement.

4. In June, we held a number of meetings to continue the dialogue with external creditors in major financial centers, and we initiated the formation of creditor consultative groups in relevant markets. We continue to be in close contact with Paris Club creditors to resolve remaining issues regarding the coverage of debt and hope to sign an agreement with the Paris Club in the near future.

5. In view of the progress made under the program, we request the completion of the third review under the Stand-By Arrangement. As noted above, we foresee that June fiscal targets will be met. As full data would not be available by the time of the Board meeting, we request a waiver of applicability of the end-June fiscal performance criteria. Its observance and that of the continuous structural performance criteria will be conditions for the last purchase under the current arrangement.

6. Building on our meetings with you during your recent visit to Argentina, we have initiated discussions with Fund staff on a medium-term program and we hope that this can be finalized in August. It is our intention to maintain a close policy dialogue with the Fund in the period ahead.

Yours sincerely,

Dr. Roberto Lavagna
Minister of Economy
Lic. Alfonso Prat-Gay
President of the Central Bank