Реферат: Argentina


 Argentina has experienced slow economic growthsince the 1940s.

By the mid-1970slong-term growth declined noticeably, and in

the last half ofthe 1980s the country suffered its longest

period ofstagnation in the century. Savings and investment

rates fellprecipitously from the mid-1970s until 1989.

Argentines,responding to the unstable macroeconomic

environment,increasingly saved and invested abroad. Labor

productivity fellang poverty worsened. This economic

performance wastranceable to chronic public sector deficits and

endemicinflation. Public sector deficits in the late 1970s

ranged from 10 to14 percent of GDP, and in the early 1980s

surpassed ISpercent of GDP. After the return to constitutional

democracy in1983, public demands to control inflation were

translated intofour successive stabilization programs. All

failed toeradicate inflation, and each ended in a more virulent

inflation thanthe one preceding it. The main reason for these

failures was theinability of the stabilization programs to

redress rapidlyand permanently the public sector structural

deficit.  Structural deficits emerged from the post-war

organization ofthe economy. Economic policy from the 1940s was

used to propagaterules and transfers favoring the interests of

private groupswith access to power. By the early 1980s public

expendituresapproached 40 percent of GDP. Unionized labor

benefitted fromhigh wages, guaranteed employment, and rigid

rules governinghiring and dismissals. Industry benefitted from

highly protectedmarkets, tax exemptions through special

promotionregimes, subsidized credit-or effective grants, as

many loans werenot collected-subsidized inputs from public

enterprises, andhigh prices on sales to public enterprises.

Housingcontractors and middleclass home buyers benefitted from

enormous publictransfers through earmarked taxes and effective

grants throughthe Housing Bank. Tobacco growers, sugar growers,

the merchantmarine, and other small interest groups enjoyed

special taxbreaks. Consumers enjoyed below-cost tariffs from

public enterpriseand lax collectioll practices. Provincial

governments couldavail themselves of costless credit from the

provincial banks,which the central bank reimbursed. The

military enjoyedexpanding budgets, especially over 1976-82, as

well asmanagement perquisites in state companies they

controlled. By1989 subsidies through the budget, tax

exemptions,agriculcural regulations, public enterprise tariffs,

and central bankrediscounts were estimated to amount to roughly

8 percent ofGDP--the equivalent of some $8 billion. The growth

of the state andconcomitant rents and subsidies, along with the

capital flightprovoked by an inconsistent exchange rate policy,

were financedduring the late 1970s largely by external

borrowing throughthe expanding Eurodollar market at low or even

negative realinternational interest rates. This permitted the

government to runlarge deficits and sustain a revalued exchange

rate withrelatively low levels of inflation in the second half

of the 1970s. Anabrupt end to voluntary foreign commercial

credit in theearly 1980s and the sudden rise in real

internationalinterest rates provoked a financial collapse and

placed additionalpressure on public finances. The situation was

complicated bythe South Atlantic War. The loss of external

finance and lackof adjustment meant the treasury had to resort

to increasedinflationary finance through monetary creation. The

private sector,in an effort to avoid the resulting inflation

tax, graduallywithdrew its resources from the financial system

and reduced itsreal holdings of currency; this, together with

the negativeeffects of inflation on real tax collections, made

Argentina'seconomy progressively more unstable in the 1980s.

Even though thedeficit fell from near 20 percent of GDP in the

early 1980s to anaverage of about 10 percent over 1987-89, the

base for theinflation tax shrank even faster--efforts to reduce

the deficit werenot fast or permanent enough to convince the

private sectorthat savings in domestic currency would not be

eroded byinflation. Inflation became high and unpredictable,

and the mainimpediment to the recovery of private savings and

investment. Thedecade ended with two episodes of hyperinflation

in 1989.

Post-1989Structural Reforms

Tbe presentadministration took office in July 1989 during a

traumatichyperinflation--July inflation alone was 200 percent.

This culminated adecade-long crisis in public finance. The new

team inheritedweak public institutions accustomed to deficit

spending and withan institutionalized reliance on the inflation

tax. In addition,claims on state revenues were far greater than

its capacity tomobilize resources-in short, the Argentine state

was insolvent.The government undertook stabilization programs

in 1989 and 1990.Neither succeeded, principally because of the

intractability ofthe fiscal deficit. The first terminated in a

new hyperinflationat the end of 1989 and in early 1990. The

second lastedfrom March 1990 to December 1990 and ended in a

new inflationaryoutburst but, unlike the previous breakdowns,

the economy didnot spin into hyperinflation. Instead, a new

fiscal package inFebruary 1991 was sufficient to close the

remaining fiscalgap. This was followed by the April 1, 1991 Law

of Convertibilityfixing the local currency to the dollar and

effectivelyproscribing money creation other than to buy net

foreign reserves.The convertibility program disciplines

monetary policyand limits the power of the government to

finance itsdeficit through inflation. The law markedly reduced

the foreignexchange rate risk to investors and the inflation

risk to businessand labor--as long as the fiscal fundamentals

are in place tosupport it. The February 1991 program was able

to close the gapin large measure because the government's

sustainedstructural reform efforts had progressively improved

the foundationsof public finance. The government had undertaken

difficult toreverse reforms in the legal framework,

institutions, andpolicies. These included institutional reforms

of the federalgovernment, public enterprises, and

federal-provincialfiscal relations, and restructuring

liabilities withdomestic and foreign creditors to adjust them

to serviceablelevels. Other reforms have helped elicit

efficient privateinvestment, notably trade, deregulation, and

financial sectorreform.

 Federal Government

 The government undertook a major effort toimprove revenues

through theimplementation of a much-broad- ened and uniform

value added taxfirst to goods in February 1990, and later

extended toservices in Novem- ber 1990. The government also

improved theefficiency of the tax administration in 1989,

establishing acontrol system for the largest taxpayers that

took effect inFebruary 1991. The tax penalty law, adopted by

Con- gress in1990, provided much needed sanctions for tax

non-compliance.The tax package of February 1991 improved the

quality ofrevenue mobilization substan- tially because it

eliminated exporttaxes, reduced pro- gressively during 1990 and

early 1991,deducted higher taxes on financial transactions from

the income/assettax, and removed several minor taxes. In

December 1992subsidies to industrial promotion were

substantially cutby replacing self-monitored tax deductions

with a tax bondprogram. These efforts cumulatively produced

dramatic rises intax collections from the third quarter of 1991

on. The increasein value added tax collection allowed the

government toeliminate inefficient taxes, such as the fuel tax

and the stamptax, in November 1992, and several specific sales

taxes in May1993. Federal employment decreased from 671,000 to

284,000,including 103,000 layoffs and 284,000 teachers and

health workerstransferred to provincial payrolls. This effort

was based on aministerial reorganization that focused federal

activities oncore objectives, and improvements in the civil

service systemthrough an improved salary structure and

efficiencymeasures. The government was able to increase average

salaries andpartially restore salary differentials. The

government tookseveral measures to strengthen budgeting

procedures andexpenditure controls. By 1993 it had eliminated

105 of the 151earmarked accounts extant in 1990, and reduced

the coverage ofearmarked taxes. The September 1992 Law of

Public FinancialManagement will permit comprehensive budgeting,

effective internalexpenditure control, and provide for new

externalauditing  The government has embarked onseveral

reforms toseparate the central bank from the nonfinancial

public sector andestablish it as an effective independent

monetaryauthority. The elimination of the central bank's

domesticshort-term interest-bearing obligations by means of

their conversioninto external treasury bonds in January 1990 in

effect was afirst step toward recapitalizing the central bank.

The Law ofConvertibility established a money-creation rule that

effectivelylimits monetary policy and central bank inflationary

financing ofpublic sector deficits. Since early 1991 the

central bank haspublished financial statements that reveal its

balance sheet;since April 1991 it has published its reserve

position weeklyso the public can monitor implementation of the

Law ofConvertibility.                      InSeptember 1992 a

new lawstrengthened the central bank's autonomy, and further

restricted itsability to extend credit to the government and

the bankingsystem. This measure reinforces the convert- ibility

law, and pavesthe way for an independent, disciplined, monetary

authority. Inaddition, the cen- trai bank intends to complete

the process ofremoving functions ancillary to the functions of

a monetaryauthority by transferring legal authority for failed

institutions tothe courts.

  Public Enterprises

  The government has carried out one of themost impressive

privatizationprograms in the Western Hemisphere. The objective

was to reduce thebudgetary burden of the enterprises, make the

firms morecompetitive, and increase the volume and efficiency

of newinvestment. The privatization program began in earnest in

1990 and gainedcredibility with the sale of national

telecommunicationscompany in November 1990. The program removed

politics fromprice setting in the formerly vast segment of the

economy coveredby the state. The change in the institutional

organization ofthese sectors cut off public subsidies to

consumers andlabor groups benefitting from high wages and

excess staffing,and transfers for investment. The program also

improved publicfinances: about $9 billion in capital receipts

helped closefiscal accounts in 1991 and 1992 and external debt

was reduced by$12 billion. Major privatizations included

televisionstations, the telephone company, Aerolineas

Argentinas, gasdistribution and transmission, and the majority

of the nationaloil company. It granted road and railroad

concessions tothe private sector, privatized long distance

cargo lines, andsharply reduced the railway's work force. The

governmentprivatized other public enterprises, including

defenseindustries, the nation's largest distributor of

electricity, portsand maritime transport, reinsurance, and the

entire powersector. Future privatization plans include the

national airportsystem.

FiscalRelationships with the Provinces

The governmentalso sought to restructure fiscal relation ships

with the provinces.The Coparticipation Law of 1988, fixed the

share of federalrevenues automatically transferred to the

provinces at 58percent. In August 1992 a portion of tax

revenues wasassigned to the social security system before

computing revenuesharing. At the same time, the resources

provincialgovernments could access were limited by

progressivelyterminating central bank lending to provincial

banks. Thegovernment also reduced extra-coparticipation

transfers throughthe budget. To offset aggregate increases in

resources asnational tax collection improved, the government

also transferredexpenditures to provincial administrations,

notably secondaryeducation and hospitals, and to the social

security systemin August 1992.


The final step indealing with the government's insolvency

involvedrestructuring its debt obligations. The government had

financed itsdeficit through borrowing from the financial

system,suspending payment to external creditors, and

accumulating arrearswith pensioners and suppliers.

Restructuringeach of these required major initiatives. Although

the governmentended new rediscounts to the housing and

industrial banks,and liberal rediscounts to provincial banks in

1988, the centralbank continued money emission to finance the

treasury and itsown deficit. In late December 1989, faced with

rising centralbank deficits and the renewed threat of

hyperinflation,the government took the drastic step of

convertingdomestic, short-term (mainly seven-day),

interest-bearingobligations of the central bank into $3.5

billion 10-yeardollar-denominated treasury bonds. This

virtuallyeliminated the central bank's quasifiscal deficit and

the monetaryemission necessary to finance it-at the cost of

penalizing saversand reducing already low confidence in the

financial system.In April 1988 the government suspended payment

on its externaldebt to commercial creditors. By 1992 it had

accumulated $8billion in arrears as part of a $32 billion

medium-termcommercial bank debt. Public external debt was $61

billion. Thegovernment re-initiated partial payments in June

1990, andestablished a consistent record of paying about 25

percent ofinterest due. At the same time, it allowed external

debt to be usedin exchange for the sale of assets, which

reduced the debtstock by $7 billion. The progressive

improvement infiscal fundamentals in 1990/91 allowed the

government tobegin negotiations with commercial banks on a debt

reduction deal.An external debt agreement signed on April 7,

1993, reduced $28billion in commercial bank debt by

approximately 37percent, and eliminated interest arrears. This

debt deal isexpected to improve Argentina's creditworthiness.

The agreementformalized arrears in a 12-year uncollateralized

bond at LIBORplus 13/16 with a 3-year grace period, after a

$700 milliondownpayment. Existing debt was exchanged for

collateralizedpar bonds with a fixed interest rate, or

collateralizeddiscount bonds at 65 percent of face value paying

LIBOR. The newcollateralized bonds will have a 12-month rolling

interestguarantee. For most of the last decade, the government

has paid onlyabout half the legally mandated pensions owed

social securityrecipients. Arrearages were not recorded in the

fiscal accounts,but are estimated to be as high as $7 to 10

billion. To stopthe accumulation of arrears, the government

modifiedcoparticipation in tax revenues in favor of the social

securiry systemin August 1992. Since then, the social security

system has run asmall operating surplus. The government also

accumulatedarrears in 1990 with suppliers through formal

suspension ofpayment on goods and services already provided,

and the healthfunds have arrears with their service providers

that will alsoresult in new debt. Finally, the government, as

part of itsincome tax reform, suspended poorly designed loss

carry forwarddeductions for the corporate income tax, and

agreed to issuecompensatory bonds. To settle these claims,

Congressauthorized the government to issue consolidation bonds.

The service ofthis debt will be capitalized until 1997, but

payments on theorder of $3 billion will be required in the last

years of thedecade. The federal government's share of the

proceeds of theprivatization of the state oil company is

earmarked forrepurchasing some of the consolidation bonds.

Social SecurityReform

The governmenthas moved towards replacing a failed public

pension system.In mid-1992 it submitted a law introducing a

combinedstate/private system: the state would supply a uniform

basic pensionfinanced on a pay as you go basis while the

private sectorwould supply pension funds. Membership in both

schemes would bemandatory. The lower house of the Argentine

Congress passedthe law-with significant modifications--in May

1993. Thegovernment expects the legislative process to be

completed beforethe end of the year, allowing a new system to

be established inmid-1994.

Trade,Deregulation and Financial Reforms

In 1991 thegovernment accelerated and largely completed a trade

liberalizationprogram that began in laIe 1986, but had suffered

temporaryreversals in 1989. Virtually all export taxes and

quantitativerestrictionsexcept for automobiles--were

eliminated. Themaximum ad valorem tariff was reduced from 115

to 35percent.  The deterioration in the tradebalance in 1992,

a consequence ofmassive capital inflows motivated government to

use commercialpolicy to achieve effective devaluation within

the fixedexchange rate regime. Exporter rebates were raised

from 8 to 13percent. On the import side, the tariff band was

narrowed to O to20 percent. The government also increased a

flat tariffsurcharge, called a statistical tax, from 3 percent

to 10 percent ona temporary basis. This led to an effective

depreciation ofabout 5 percent. In May 1993 the government

eliminated bothtariffs and the statistical tax on capital goods

imports, but inJuly it provided protection to some paper and

textile productsthrough temporary import quotas and tariff

surcharges. Amajor domestic deregulation decree in October 1991

ended a series ofmarket-impeding rules, dissolved several

regulatorybodies, and unified pension and health insurance

payments toreduce evasion. Subsequent decrees have deregulated

pharmaceuticalimpons and ports. The industrial promotion

program andsubsidies to Tierra del Fuego were markedly reduced

in November 1992.The publicly-owned housing and development

banks, long subjectto political influence and dependent on

governmentfinancial support, are undergoing major

restructuring.Branches of the National Development Bank and the

National HousingBank have been closed since March 1990 and

their staffs havebeen reduced by almost 75 percent. The

government isliquidating the development bank and closing the

housing bank'sretail functions. It has established a second

tier bank to bemanaged, and ultimately owned, by the private

sector tomobilize financing for its investment needs. In

response to ashort-lived run on the peso in mid-November 1992

the authoritiesstrengthened their commitments to the fixed

exchange rateregime by permitting reserve requirements to be

met either inforeign or domestic currency, and equalizing

reserverequirements on foreign and domestic

currency-denominatedchecking accounts in domestic transactions.

In February 1993these measures were complemented by lowering

reserverequirements and further deregulating commercial bank

lending to theprivate sector. Term deposits under 30 days were

eliminated toincrease the average maturity of deposits in the

domesticfinancial system and reduce the risks of a run on the

banks. Finally,since April 1993, bank compliance with reserve

requirements isbased on a four-week moving average, which

should reduce thevolatility of short-term interest rates.

Over the last sixmonths Argentina has taken meas- ures to

reduce interestrates and stimulate investment. In October 1992

it imposed a 2percent per month ceiling on loans made by public

banks, a measurealso aimed at stimulating restructuring of

these banks. InMarch 1993 it began auctioning subsidy credits

to banks, withthe winner of the subsidy being the bank that

offers to charge thelowest rates to final medium- and

small-scaleindustrial borrowers. In May 1993 the authorities

an- nounced theextension of the Banco de Nacion's credit

lines-the largestofficial bank--and a reduction in its lending

rates from 1.8percent to 1.6 percent per month. They also

declared that thebank's credit policy will be oriented toward

export-orientedactivities as well as agriculture, industry,

mining, andtourism.

 Recent Macroeconomic Developments

 In 1992 the authorities continued to adjustthe economy,

extending therecent good economic performance. GDP grew by 8.7

percent, andindustrial production grew in the 12 percent range

for the secondyear in a row. Employment rose by about 10

percent andinvestment expanded briskly in 1992, rising from

12.5 percent to14.5 percent of GDP. The increased investment

was financed byexternal savings, with gross national sav- ings

decliningmoderately to 9.3 percent of GDP. Public savings rose

by about 2percentage points of GDP, while  privatesavings

fell.   Fiscal performance has improved notably inthe last  two

years. Theoverall balance moved into surplus in 1992 for the

first time indecades with an operational primary surplus of 2.0

percent of GDP.Tax revenues increased from 13.5 percent of GDP

in 1989 to nearly24 percent between in 1992. In the same

period, publicexpenditures fell as a percent of GDP. Capital

spending andnon-privatization receipts both declined slightly.

The fiscalsurplus also was improved by the drop in dollar

interest rate,which cut accrued interest obligations by 1.3

percent of GDP.However, interest obligations still exceeded the

operationalprimary surplus slightly in 1992. Inflation

continues todecelerate. The annualized inflation rate in the

last quarter of1992 was about 9 percent, compared to over 20

percent a yearearlier. Nonetheless, inflation still exceeds

internationalrates, which is necessary to sustain the fixed

exchange rateregime. During 1992 capital inflows, jointly with

the economicexpansion, contributed to an 84 percent increase in

imports; exportsrose by 1 percent. As a result, the current

account deficitfor 1992 reached 5.2 percent of GDP, up from 2

percent a yearago. Capital inflows of $12.0 billion, mostly

private, morethan offset the current account deficit, allowing

a $3.4 billionaccumulation of reserves. After signs of slowdown

in economicactivity during January and February 1993,

industrialproduction recovered in March and April, with the

first quarter of1993 marking the eleventh consecutive month of

economicexpansion. Capital inflows recovered in the first

quarter of 1993,further strengthening the level of

internationalreserves. The monthly inflation rate between

January and March1993 averaged 0.7 percent, about the same as

the last quarterof 1992.


The governmentprojects real growth averaging 6.5 percent over

1992-95. Overthis period its fiscal program for aims at

generating aprimary surplus sufficient to finance interest

obligations, thuseliminating the need for the inflation tax.

This involvesefforts to raise the primary balance from about

$3.3 billion in1991 to about $4. 1 billion in 1995. The success

of this programwill largely depend on medium-term reforms to

improve thestructural underpinnings of public finance, such as

social securitylegislation, labor reforms, and the evolution of

the fiscalrelationships with the provinces, given the

increasingdecentralization of power and responsibilities from

the center toprovincial governments. This scenario is

attainable if thegovernment continues to improve its fiscal

position, and ifprivate markets generate a smooth transition to

a sustainablebalance of payments and growth path. There are

significant risksto this program. The probability of adverse

events affectingthe convertible peso declines, however, as the

governmentprogresses on reforms that improve the fundamentals

of publicfinance. Past reforms in the public sector anchor

stabilization andare unlikely to be reversed during any

financialturbulence. Also, reserves are the highest in a decade

and cover themonetary base (although not the deposit base),

which would detera speculative attack on the peso. Even if

problems giverise to pressure to alter the policy framework, in

all likelihoodany emerging policy regime would of necessity

focus onmaintaining fiscal balance and policies conducive to

privateinvestment. Over the last few years Argentina has

enacted serious anddifficult structural reforms with

considerablepublic support. The lack of alternatives to fiscal

discipline andprice stability, and memories of the

hyperinflation of1989/90, have made stability politically

popular. Thesefacts are powerful ballast that is likely to keep

the ship ofstructural adjustment headed in the same direction,

even in afinancial storm.

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