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IMF approves $7.2 billion three–year Stand–By credit for Argentina

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
January 2000
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On March 10, the IMF announced that it had approved a three-year Stand-By credit for Argentina. The new Stand-By credit replaces the Extended Fund Facility approved on February 4, 1998 (see Press Release 98/01, IMF Survey, February 9, 1998, page 43). The credit, in an amount equivalent to SDR 5.4 billion (about $7.2 billion), will be used to support the government’s 2000-02 economic program. The Argentine authorities have indicated that they intend to treat the credit as precautionary.

Commenting on the Executive Board discussion on Argentina, Acting IMF Managing Director Stanley Fischer commended the Argentine government, saying that it has “embarked on a strong economic program aimed at promoting the recovery and sustained growth of the economy, with continued price stability, and an external current account maintained within financeable limits.” Excerpts from his statement follow.

“The program contains a significant fiscal consolidation, which will permit a gradual increase in national savings to finance the recovery of investment and reduce the external debt burden over time. The macroeconomic adjustment is underpinned by comprehensive structural reforms.

“The strengthening of the public finances involves expenditure restraint, a significant additional tax effort, and measures to strengthen tax administration. The authorities have moved decisively in these areas, and most of the envisaged measures under the program are already in place.

“The structural reform agenda is comprehensive and far-reaching. The reforms in the fiscal area, including the proposals to strengthen the social security system and to modify the revenue-sharing regime with the provinces, will be essential to secure a lasting improvement in the public finances, as well as to improve the equity and efficiency of both taxation and public spending. The proposed labor market reform and deregulation should help create the conditions for improvements in productivity and increases in employment. Implementation of these structural measures is critical, both to contribute to the sustainability of the fiscal adjustment and to strengthen competitiveness and economic growth,” Fischer said.

Program summary

The adjustment and reform program that the IMF credit will support is based on a rate of GDP growth of 3½ percent in 2000, which would accelerate to 4 percent in subsequent years as firm implementation of the appropriate policies strengthens confidence and improved competitiveness facilitates further growth of exports.

To these ends, the program targets a 3½ percent of GDP reduction in the consolidated public deficit over the period 2000-02, about half of which is to take place in 2000. The primary balance of the public sector will shift to a surplus of 3¾ percent of GDP in 2002 from a small deficit in 1999. The authorities expect to achieve these results by eliminating distortions in the tax system; further broadening the tax base; strengthening tax enforcement and compliance; increasing transparency and cost effectiveness in the use of public resources; and reforming fiscal relations between the national and subnational levels of government with a view to increasing fiscal responsibility, transparency, and equity.

Besides initiatives aimed at promoting a lasting improvement in the public sector finances, the wide-ranging program of structural reforms includes that of labor market legislation. Additional reforms are also planned in the social security system to ensure its long-term solvency and to make it more equitable, and in the promotion of competition in sectors that enjoy quasi-monopoly positions or are in need of modernization, such as those in the telecommunications and energy sectors.

The authorities plan to improve and expand social assistance programs within the limits of the budget by identifying and eliminating problems of duplication, deficient targeting, and high administrative costs.

Argentina joined the IMF on September 20, 1956. Its quota is SDR 2.1 billion (about $2.9 billion). Its outstanding use of IMF credit currently totals SDR 3.1 billion (about $4.2 billion).

The full text of Press Release No. 00/17 is available on the IMF’s website (http://www.imf.org).

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