Journal Issue

New IMF loan: Argentina promises financial discipline and greater legal certainty

International Monetary Fund. External Relations Dept.
Published Date:
February 2003
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Debt rollover approved for Argentina

After a year of negotiations, the IMF approved a $6.6 billion debt rollover for Argentina on January 24, giving the country breathing room to maintain stability ahead of presidential elections scheduled for April. The agreement also clears the way for the multilateral development banks to resume their support of social programs, following Argentina’s recent clearance of arrears to them.

The pact includes an eight-month loan of about $2.9 billion, enough to cover all of Argentina’s payment obligations to the IMF through August 2003. A first disbursement of $1 billion was made on January 28. The IMF also agreed to extend for one year another $3.7 billion of payments to the IMF expected through August. IMF Managing Director Horst Kohler said the “transitional program is viewed as a step to a comprehensive medium-term program, which is needed to reestablish investor confidence and capital inflows, achieve fiscal and external viability, and establish sustainable growth in Argentina.”

The transitional program focuses on maintaining monetary and fiscal discipline, avoiding policy reversals, and rebuilding legal certainty, the IMF said. The monetary program aims to limit the growth of the monetary base to anchor inflation expectations, while the fiscal program calls for firm control over primary expenditures at the federal and provincial levels. Argentina has promised to raise the primary budget surplus target—an indicator of the government’s capacity to pay debt obligations—to 2.5 percent of GDP for 2003, up from 0.7 percent in 2002. The primary surplus for provincial governments should be about 0.4 percent of GDP in 2003 compared with a deficit of 0.5 percent in 2002.

The IMF said the Argentine authorities intended to work closely with the congress to secure approval of the revenue measures needed to meet the fiscal targets. The program provides for a doubling of outlays on a social safety net—from 0.6 percent of GDP in 2001 to 1.2 percent of GDP in 2003. To prepare the ground for the successor government expected in May, the authorities will formulate the needed fiscal structural reforms to broaden the tax base, improve tax administration, and reform intergovernmental relations.

The transitional program assumes real GDP growth of about 2-3 percent for 2003, compared with an estimated decline of 11 percent in 2002; inflation being held within 35 percent; a current account surplus of about $6.5 billion; and broadly unchanged gross international reserves.

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