News Brief No. 00/89

CORRECTED News Brief: IMF Completes First Argentina Review

September 18, 2000

The Executive Board of the International Monetary Fund (IMF) completed the first review under the stand-by credit for Argentina on Friday, September 15. The completion of this review opens the way for the release of a further SDR 211.71 million (about US$ 272 million) from the arrangement, bringing the total available for disbursement under the program to SDR 1,376 million (about US$ 1.7 billion). The Argentine authorities have indicated that they intend to continue treating the credit as precautionary.

In commenting on the Executive Board discussion, Stanley Fischer, First Deputy Managing Director of the IMF, said:

“The Executive Board welcomed the Argentine authorities’ strong ownership of the economic program supported by the Stand-by Arrangement with the Fund, and in particular their determination in implementing the measures needed to achieve fiscal consolidation in line with the fiscal responsibility law, and the structural reforms needed to further improve productivity and competitiveness in the economy, within the framework of the convertibility regime. This regime, together with a strong financial system, has served Argentina well in promoting economic growth with financial stability during the last decade, and in allowing it to weather substantial external shocks in recent years.

“Directors also noted the recent improvement in the external accounts and that, even in a volatile environment, Argentina was maintaining good access to international capital markets. Directors also welcomed the fact that the authorities had made successful efforts to comply with the targets under the program for the first half of 2000, notwithstanding the slower than envisaged pace of the economic recovery from the 1998-99 recession, and the associated weakness in tax revenues. With a view to supporting the incipient recovery, the Board agreed to the authorities’ request for a relatively small modification of the fiscal performance criteria for the second half of this year.

“Adhering to the fiscal responsibility law is key to ensuring that the public debt is put on a sustainable path, which in turn would allow an easing of financing conditions, thereby laying the basis for a recovery of economic activity with declining unemployment and continued price stability. In the coming years, fiscal consolidation will require strengthened efforts to improve tax administration and enforcement, the management of public expenditure, and the efficiency in the delivery of public services, and in addition, would greatly benefit from progress in reforming the social security system and the revenue-sharing system with the provinces.

“The fiscal consolidation efforts require also a sustained improvement in the provinces’ finances. In this regard, the advances made in the context of the fiscal programs agreed with nine indebted provinces are of great importance, as are the initiatives underway to ensure the provinces’ commitment to a path of fiscal adjustment that would achieve overall fiscal balance over the next few years. The agreement towards this end recently reached with the Province of Buenos Aires is particularly encouraging in this regard.

“The maintenance of a strong prudential framework in the financial system, as well as the continued implementation of structural reforms to promote competition and increase efficiency in the economy, should remain key elements of the authorities’ economic program.

The authorities have indicated their continuing intention to keep the arrangement precautionary,” Fischer said.