Abstract
The responsible conduct of macroeconomic policies has continued with the new government. These policies have been key to stabilizing the economic situation and improving growth prospects. Maintaining budgetary control to stimulate the economy and step up social and infrastructure spending is the immediate challenge. The achievement of broad price stability attests to the adept handling of monetary policy. Structural reform implementation remains the major concern. Sustaining the recovery will require the deepening and broadening of structural reforms and the normalization of Argentina's relations with external creditors.
July 28, 2003
1. The following information on recent developments and policy implementation has become available since the circulation of the staff paper on the third review under the Stand-By Arrangement (July 17, 2003). It does not alter the thrust of the appraisal.
I. Economic Developments
2. Recent data indicate the following:
Market indicators remain firm. In July, the peso has traded narrowly in the range of Arg$2.78 to 2.82 per U.S. dollar; the central bank has made net purchases of US$475 million so far in July; and gross international reserves stand at US$12.3 million after a repurchase from the Fund of about US$1 billion. Interest rates on central bank paper Qebacs) have fallen sharply, with 3-and 9-month rates down to 2 percent and 4Vipercent, respectively.
Economic activity has slowed but remains robust. Monthly real GDP increased by 0.4 percent in May, bringing the 12-month rate to about 7 percent; the slowdown in activity to date has been evident mainly in industrial production (which accounts for about 15 percent of GDP).
Monetary data. The end-June performance criteria on NIRand NDA were met with wide margins; base money exceeded the indicative target, fully reflecting unsterilized reserve accumulation. The stock of quasi-money has been reduced by a further Arg$330 million so far in July, to Arg$4.8 billion (from a peak of Arg$7.5 billion).
Lebac Yield Curve
Citation: IMF Staff Country Reports 2003, 278; 10.5089/9781451801378.002.A002
Lebac Yield Curve
Citation: IMF Staff Country Reports 2003, 278; 10.5089/9781451801378.002.A002
Lebac Yield Curve
Citation: IMF Staff Country Reports 2003, 278; 10.5089/9781451801378.002.A002
program Monetary Targets, end June 2003 1/
Computed on the basis of a centered 21-days moving average.
Adjusted for delays in programmed official financing.
Includes federal and provincial quasi-monies.
program Monetary Targets, end June 2003 1/
| Target | Adjusted target 2/ | Actual | |
| NIR(US$ mn) (floor) | -2,250 | -4,191 | -1,812 |
| NDA(Arg$ mn)(ceiling) | 49,063 | 56,534 | 49,765 |
| Base money (Arg$ mn)3/ | 40,400 | 40,400 | 42,790 |
Computed on the basis of a centered 21-days moving average.
Adjusted for delays in programmed official financing.
Includes federal and provincial quasi-monies.
program Monetary Targets, end June 2003 1/
| Target | Adjusted target 2/ | Actual | |
| NIR(US$ mn) (floor) | -2,250 | -4,191 | -1,812 |
| NDA(Arg$ mn)(ceiling) | 49,063 | 56,534 | 49,765 |
| Base money (Arg$ mn)3/ | 40,400 | 40,400 | 42,790 |
Computed on the basis of a centered 21-days moving average.
Adjusted for delays in programmed official financing.
Includes federal and provincial quasi-monies.
II. Policy Implementation
3. The following developments have taken place with respect to policy implementation:
The bidding process to conduct a due diligence and strategic review of Banco Provincia was launched on July 20, 2003 (structural benchmark). The review is to be carried out on the basis of both existing central bank regulations (with forbearance) and of future regulations when temporary forbearance is removed.
On July 24, the central bank specified transitional capital requirements for banks’ exposure to the public sector and interest rate risk (structural benchmark). The associated regulation is expected to be issued by end-July.
A memorandum of understanding between the central bank and ministry of economy on central bank profit transfers has been signed (structural benchmark). The memorandum, which is in line with agreements reached with Fund staff, limits transfers to realized central bank profits.
The authorities are presently undertaking a series of meetings with consultative groups of bond holders. The meetings are being held in Europe, the United States, and Japan.
