News Brief No. 02/20

News Brief: Press Statement by the IMF Mission to Argentina

March 15, 2002

Anoop Singh, Director for Special Operations and head of the IMF mission to Argentina, issued the following statement in Buenos Aires today:

"Over the past 10 days, an IMF mission team has been in Buenos Aires to assess the economic situation and discuss with the government the elements of a comprehensive economic program to resolve the current difficulties faced by Argentina and pave the way for sustained growth.

"The discussions were conducted in a very cooperative atmosphere and the mission was privileged to meet with President Duhalde, senior political leaders, economic officials, and with a broad spectrum of civil society. The mission was encouraged by the government's determination to implement a comprehensive economic program, in close cooperation with the international financial institutions.

"Such a program aims at stabilizing Argentina's financial situation and establishing the foundations for resuming growth. The discussions centered on putting fully in place a realistic macroeconomic framework, consistent fiscal and monetary policies, fundamental structural and institutional reforms to restore confidence in the banking system, and steps to establish an orderly and fair business environment.

"On the macroeconomic framework, the program aims at containing inflation and restoring confidence as key conditions for minimizing further output decline and resuming growth. Monetary policy would play a key role through containing pressures on the peso within the framework of a freely floating exchange rate system. The central bank has already initiated auctions of central bank bills, and is working with commercial banks to develop savings instruments with positive real rates of interest.

"A primary concern of the mission was to address the issue of fiscal sustainability while protecting the poorest members of society. As a first step, the government intends to secure a significant improvement in the primary balance of the consolidated public sector in 2002, through the combined efforts of the central government and the provinces. Approval of the 2002 budget by Congress, as well as the recent agreement between the Government and Provincial Governors, are important steps in this direction. In the coming weeks, the government will develop the additional measures that will be needed to achieve the objectives in this area, including the finalization of a core social safety net to protect the poor.

"Anticipated structural and institutional reforms include measures to rebuild confidence in the bank and corporate sectors, thereby helping to create the conditions for the dismantling of the freeze on bank deposits. Steps have already been announced to inject public capital into banks and restore their adequate capitalization, and begin liberalizing exchange controls. The government and the central bank are working on additional measures to restore depositor and investor confidence. This includes creating an internationally recognized insolvency regime. The government also intends to move quickly to establish close contacts with its external creditors aimed at normalizing relations and restoring trade finance.

"Over the next few weeks, the mission team will continue its work at IMF Headquarters, preparing for the negotiations on a new Fund-supported program. During this period, IMF staff will remain in close contact with the Argentine authorities as they elaborate the details of their comprehensive strategy in the above areas."