The IMF Executive Board on January 28 completed the first review of Argentina’s performance under a three-year $13.3 billion loan in support of the authorities’ economic program, paving the way for Argentina to draw an additional $358 million. IMF Managing Director Horst Kohler stated that Argentina’s ongoing economic recovery has been strong, with growth of real GDP expected to be at least 7½ percent in 2003. Inflation has remained low, and the unemployment and the poverty situation have gradually improved. This performance reflects disciplined fiscal and monetary policies, and the strengthening of consumer confidence, as well as favorable external conditions and continued official international support, said Köhler.
Extending federal and provincial fiscal performance and building fiscal sustainability—the authorities’ key objectives under the program—have been evolving more strongly than programmed, noted Köhler, and in the near term, a key task is to develop further the reforms of the tax structure and of intergovernmental financial relations outlined under the program.
The financial performance of banks has also improved in recent months. To sustain this performance, the authorities’ program encompasses steps to strengthen bank capital, ensure tight prudential supervision, reduce impediments to financial intermediation, and diagnostic reviews of the two largest public banks.
Köhler cautioned, however, that restructuring Argentina’s sovereign defaulted debt remains the most critical task for the coming period. He said that the authorities’ intention is to launch a debt exchange offer that aims at attracting broad creditor support and, toward this end, they are expected to deepen their dialogue with private creditors in order to reach a collaborative, comprehensive, and sustainable sovereign debt restructuring.
The much improved economic outlook gives Argentina an important opportunity to put in place policies that will strengthen domestic and international confidence, thereby sustaining growth and allowing the authorities’ employment and poverty reduction goals to be achieved. The key commitments under the program include steps to restore fiscal sustainability, strengthen the banking system further, address the issues confronting the utilities, and build a business environment that encourages investment. It is hoped that the authorities will use the completion of the first review as an opportunity to move forcefully forward in these areas, as well as in deepening their relations with private creditors, ahead of the second program review.
The IMF, concluded Köhler, continues to stand ready to help Argentina achieve these goals, adding that the success of the program will depend on good understanding and cooperation between Argentina, the IMF, and Argentina’s creditors in a spirit of mutual trust and improved communications.
Argentina’s next review under the current loan is scheduled for mid-March 2004.