Good progress has been made in stabilizing the economic and social situation since the crisis. Fiscal adjustment over a prolonged period will bring the public finances to a sustainable path. To protect social expenditures and allow higher public investment, a comprehensive tax reform is required. Strengthening central bank autonomy is essential for the successful implementation of inflation targeting and restructuring of the financial system. Full cooperation with the multilateral development banks is important to secure necessary program financing, re-establishing sustained growth, and reducing widespread poverty.

Abstract

Good progress has been made in stabilizing the economic and social situation since the crisis. Fiscal adjustment over a prolonged period will bring the public finances to a sustainable path. To protect social expenditures and allow higher public investment, a comprehensive tax reform is required. Strengthening central bank autonomy is essential for the successful implementation of inflation targeting and restructuring of the financial system. Full cooperation with the multilateral development banks is important to secure necessary program financing, re-establishing sustained growth, and reducing widespread poverty.

The following information has become available following publication of the staff report. It does not affect the thrust of the staff appraisal.

1. Political Developments

Candidates supported by President Kirchner prevailed in key provinces in last Sunday’s gubernatorial and congressional elections. This augurs well for further expanding the President’s power base, though more elections are to be held before end-November, involving 9 governors, 53 deputies, and 18 senators.

2. Economic Developments

Economic indicators point to a continuing recovery. In August, industrial production increased for the third consecutive month led by automobile production and continued growth in the import substitution sectors.

In August, federal tax collections continued to be strong and the primary surplus was about Arg$ 200 million above projections. This bodes well for achievement of the 2003 consolidated primary surplus target of 2.5 percent of GDP.

A04ufig01

Industrial Production Index (EMI)

Citation: IMF Staff Country Reports 2003, 392; 10.5089/9781451801385.002.A004

3. The 2004 Budget

On September 17, the government submitted to Congress the 2004 federal budget. On the basis of preliminary data available to staff, the proposed budget appears to be in line with the program’s macroeconomic framework and consolidated primary surplus target of 3 percent of GDP. As in previous years, meeting fiscal targets will require under-execution of budget expenditures (by roughly 0.4 percent of GDP).

4. Sovereign Debt Restructuring

On September 12, a New York court ruled in favor of a large holder of defaulted Argentine bonds. However, the judge granted a 45-day stay of execution to allow the Argentine government time for appeal. On Monday, the authorities plan to announce details of their restructuring plan.