Statement by the IMF Staff Representative
Author: International Monetary Fund
Publication Date:
09 Jul 2004
eISBN:
9781451801309
Language:
English
Keywords:
ISCR; CR; Argentina's creditor; debt exchange offer; fiscal policy; exchange offer; SDR; debt stock; regularization program; anti-tax evasion legislation; responsibility legislation; intergovernmental reform; Stocks
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Argentina’s First Review Under the Stand-By Arrangement and a Request for Waiver of Nonobservance and Applicability of Performance Criteria are reviewed. Favorable conditions allowed a further strengthening of the external position, though external arrears continued to increase. Congress has approved all the components of the government’s anti-tax evasion package, including the tightening of rules on invoicing by commodity exporters, providing tax tribunals in Buenos Aires with federal jurisdiction, and introducing new penalties to reduce tax evasion.

Abstract

Argentina’s First Review Under the Stand-By Arrangement and a Request for Waiver of Nonobservance and Applicability of Performance Criteria are reviewed. Favorable conditions allowed a further strengthening of the external position, though external arrears continued to increase. Congress has approved all the components of the government’s anti-tax evasion package, including the tightening of rules on invoicing by commodity exporters, providing tax tribunals in Buenos Aires with federal jurisdiction, and introducing new penalties to reduce tax evasion.

1. The following information on recent developments and policy implementation has become available since the circulation of the staff paper on the first review under the Stand-By Arrangement. The thrust of the staff appraisal remains unchanged.

I. Recent Developments and Indicators

2. Recent data point to continued rapid economic growth, rising confidence, and stable financial variables.

  • The monthly indicator of economic activity increased by 0.7 percent in November 2003, bringing the year-on-year increase to 8.7 percent. For 2003 as a whole, industrial production rose by 16.3 percent—even though production slightly fell in December—and is now about 7 percent below the pre-crisis level (Figure 1).

  • According to a Ministry of Labor study, roughly 120,000 (out of a total of 2.1 million) beneficiaries of the Heads of Household employment support program had found formal sector jobs during 2003.

  • Consumer and business confidence continue to strengthen, on the back of high approval ratings of President Kirchner (Figure 2).

  • On January 19, 2004, the consensus forecast for growth in 2004 was raised to 6.1 percent (from 5.3 percent a month earlier), while the 2004 inflation forecast was slightly reduced to 7.3 percent (from 7.6 percent).

  • During the month of January, the peso has traded narrowly in the range of Arg$2.86 to 2.93 per U.S. dollar; the central bank has made net purchases of about US$480 million; interest rates have continued to inch downward; and stock prices have risen (Figure 3).

Figure 1.
Figure 1.

Argentina: Indicators of Real Activity

Index Dec-2000 = 100, except where noted

Citation: IMF Staff Country Reports 2004, 194; 10.5089/9781451801309.002.A002

Sources: Ministry of Economy of Argentina; and INDEC.
Figure 2.
Figure 2.

Argentina: Confidence Indicators

Citation: IMF Staff Country Reports 2004, 194; 10.5089/9781451801309.002.A002

Sources: Ministry of Economy of Argentina; INDEC; IPSOS-MORA y ARAUJO; JP Morgan.
Figure 3.
Figure 3.

Argentina: Recent Financial Indicators

Citation: IMF Staff Country Reports 2004, 194; 10.5089/9781451801309.002.A002

Sources: Central Bank of Argentina; Ministry of Economy; INDEC; and Bloomberg.

II. Policy Implementation

3. The following developments have taken place with respect to policy implementation.

  • The end-December monetary performance criteria on net domestic assets and net international reserves of the BCRA were met with wide margins (Table 1). At end-December 2003, the augmented monetary base was slightly below the program indicative target. On January 21, the BCRA issued the second quarterly inflation report in an effort to guide inflation expectations and lay the foundations for an inflation targeting framework.

  • The end-December 2003 performance criterion on the cumulative primary balance of the federal government was met by a margin of about ¼ percent of GDP (taking the federal primary surplus to 2.4 percent of GDP). This outcome, together with lower-than-programmed interest payments, contributed to a 0.4 percent of GDP overperformance with respect to the end-December 2003 indicative target for the (cumulative) overall cash balance of the federal government. A waiver of applicability of the debt-related performance criterion is sought, as actual data are not yet available.

  • On preliminary data, the end-December 2003 cumulative provincial primary surplus was better than programmed by about 0.3 percent of GDP, bringing the 2003 provincial primary surplus to an estimated 0.7 percent of GDP. Half of the 0.6 percent of GDP revenue overperformance is estimated to have been used to finance higher-than-planned capital and current primary spending. The continuous structural benchmark on the timely provision of financing data for the provinces was met with respect to the end-November data.

  • The 2003 consolidated primary surplus is now estimated at about 3 percent of GDP, or ½ percent of GDP above the program target. The overperformance can be roughly attributed in equal measures to better-than-expected outturns for the federal and provincial accounts.

  • Additional progress has been made in finalizing the 2004 bilateral agreements. Thus far, 11 out of 24 provinces have signed bilateral agreements with the federal government, and four of these, which represent over 90 percent of the 2002 overall provincial deficit, have been ratified by the provincial legislatures.1

  • On January 23, the BCRA further eased remaining exchange controls. The amount of foreign currency that individuals and companies can purchase without previous authorization was doubled to US$1 million per month, and the time period for importers to provide evidence on purchases of foreign currency to finance the pre-payment of imports was extended from 180 to 360 days.

Table 1.

Argentina: Quantitative Performance Criteria and Indicative Targets, 2003–04 1/

(In millions of Argentine pesos, unless otherwise noted)

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As defined in the Technical Memorandum of Understanding attached to the September 10, 2003, Letter of In tent.

The targets have been adjusted in line with the Technical Memorandum of Understanding.

The following accounting exchange rates apply: Aug$/US$=2.9, US$/SDR=1.3875, Euro/US$=0.869, CAD$/US$=1.347, CHF/US$=1.351, JPY/US$=119.78, GBP/US$=0.604, Gold ($ per ounce)=371.0

End-October GIR data exclude Uruguay bond holdings.

Includes quasi-monies in circulation.

4. Certain provisions in the authorities’ anti-tax evasion legislation create, in the staff’s view, a new tax amnesty, thereby breaching a continuous structural performance criterion (Box 1). The authorities do not agree that the legislation contains a tax amnesty, but is rather an arrears regularization program. In the staff’s view there is an amnesty element, but this is of minor importance and, for this reason, the staff proposes that a waiver be granted. Specifically, law 25,865, which was recently introduced to strengthen the small taxpayer regime and reduce abuses, provides for a reduction of interest accrued on late payments and a waiver of penalties to encourage these taxpayers to pay their overdue tax arrears and register to pay taxes.2 Staff considers that this law, which was made effective on January 15, 2004, introduces many positive elements that would help reduce tax evasion and strengthen future compliance and revenues. Moreover, the scope of the tax amnesty is limited both in its duration (1 year) and coverage (the small taxpayers regime contributes only about 1 percent of federal tax revenues).

5. On January 26, 2004 the government issued implementing regulations on the compensation to banks for losses from the asymmetric indexation of balance sheets. As envisaged in the enabling law: (i) compensation will be in the form of a peso-denominated bond paying a variable rate comparable to that of banks’ funding costs; and (ii) compensation will be effected in the same measure as the increase in banks’ gross lending (including certain types of refinancing) since February 3, 2002. Staff is studying the implementing regulations and, particularly, the significance of the link of compensation to lending and refinancing, and its impact on different banks.

Structural Performance Criteria and Structural Benchmarks: September 2003–March 2004

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Refers to the MEFP dated September 10, 2003.

1

The ratification of bilateral agreements by provinces representing at least 100 percent of their 2002 deficit is an end-March 2004 structural performance criterion.

2

Overdue interest payments were reduced by 50 percent and were capped at 30 percent of the principal value of tax obligations. Principal obligations were made payable up to five years, at an annual interest rate of up to 6 percent. Further interest rate reductions are envisaged, in the event tax arrears are paid ahead of schedule or through automatic bank debit.

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Cover IMF Staff Country Reports
Argentina: First Review Under the Stand-By Arrangement and Request for Waiver of Nonobservance and Applicability of Performance Criteria
Author: International Monetary Fund
Volume/Issue:
Volume 2004: Issue 194
Publisher:
International Monetary Fund
ISBN:
9781451801309
ISSN:
1934-7685
Pages:
74
DOI:
https://doi.org/10.5089/9781451801309.002

Argentina: Indicators of Real Activity

Index Dec-2000 = 100, except where noted

Argentina: Confidence Indicators

Argentina: Recent Financial Indicators