News Brief No. 01/44

News Brief: IMF Completes Third Argentina Review

May 21, 2001

The Executive Board of the International Monetary Fund (IMF) completed today the third review under the stand-by credit for Argentina. The completion of this review opens the way for the release of a further SDR 976 million (about US$1.2 billion) from the credit, of which SDR 211.7 million (about US$267 million) is available under the Supplemental Reserve Facility (SRF).

Argentina's stand-by credit was first approved in March 10, 2000 for an amount equivalent to SDR 5.4 billion (about US$6.8 billion-see Press Release 00/17). In January 2001 the Executive Board approved an augmentation of the credit to SDR 10.6 billion (about US$13.4 billion) with SDR 2.1 billion (about US$2.6 billion) of the augmented total provided under the SRF (see Press Release 01/3). So far, Argentina has drawn a total of SDR 3.83 billion (about US$4.8 billion) from the IMF under this stand-by credit.

In commenting on the Executive Board discussion, Horst Köhler, Managing Director of the IMF, said:

"The IMF welcomes the reformulation of the program proposed by the government of Argentina. Continued strong implementation of the program should restore macroeconomic stability and address important structural impediments to a recovery of investment and output.

"Argentina's program aims at strengthening confidence through fiscal consolidation to achieve the program's targets for 2001 and fiscal balance by 2005, while promoting the recovery of investment and output through fiscal incentives and regulatory changes. Firm implementation of the program is needed to initiate a virtuous circle of stronger public finances, lower interest rates, and a recovery of economic activity. In this regard, it is essential that tax compliance be improved and that expenditures be contained, in accordance with the commitments under the federal pact of December 2000.

"The IMF recognizes that some policy measures, while essential in the circumstances, would be distortionary if maintained for a long period. Therefore, the IMF welcomes the commitment that the financial transaction tax and the trade tariff increases will be temporary. It also commends the authorities' initiatives to enact reforms that will put the public finances on a sustainable basis. These initiatives include the recent steps to reverse the deterioration in tax compliance, rationalize and reform public administration, address the solvency of the social security system, as well as further liberalize the trade regime. Rapid and sustained progress in these areas will be key to a lasting success of the program.

"Argentina's convertibility regime, the independence of the central bank, and the high capital and liquidity defenses of the banking system are important pillars of the country's economic strategy and have been vital in helping withstand turbulent international financial conditions in recent years. The IMF therefore welcomes the authorities' reaffirmation of their commitment to these policies.

"The IMF welcomes the authorities' efforts to engage creditors in a voluntary debt swap operation aimed at reducing gross financing requirements in the period ahead, and looks forward to an outcome that will support medium-term financing sustainability.

"In adopting the new measures, the Argentine authorities have responded promptly and effectively in difficult circumstances. The strengthened program deserves the strong support of the international community", Köhler said.