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The new cuts come on top of some US$ 1.4 billion spending adjustments
adopted in January and are considered necessary to meet budget deficit
targets and thus to maintain investor confidence.
Last year's fiscal deficit exceeded the revised International
Monetary Fund (IMF) target by 37%. In
the first quarter, the government managed to comply with the US$ 2.0
billion deficit target agreed to under the IMF accord.
Nevertheless, the slow pace of economic recovery and lagging tax
collection -- total tax collection in March was down over the same period
last year -- have raised concerns over the government's ability to reach
this year's fiscal deficit goal of US$ 4.5 billion (1.6% of GDP). However, Consensus data indicates that panellists foresee an
overshooting of the target, with the deficit reaching 1.8% of GDP this
year.
External Sector Strong.
According to preliminary data released by INDEC, the trade balance
continued to improve in April with a surplus of US$ 426 million, up from
US$ 11 million in March. Underlying
the improvement in the trade balance was a 15.0% expansion in exports over
April 1999. Improved commodity prices, in addition to heightened global
and regional demand continued to drive exports.
Consensus Forecast panellists anticipate export growth to reach
11.4% this year. Import
expansion, on the other hand, will remain constrained by lagging
consumption and investment, with this month's Consensus Forecast data
showing a more moderate 7.9% expansion this year.
As a result, the trade balance deficit should shrink to US$ 1.5
billion, approximately one third of its pre-1999 recession levels.
Labour Reform Approved.
After
four months of deliberations and debates within both legislative chambers
the new labour law was finally approved on 11 May.
The major features of the labour reform law include: endorsing
decentralized collective bargaining, increasing probationary period hires,
limiting indemnification, abolishing the ultra-activity clause for labour
agreements, creating tax incentives for employers and reinstating
temporary contracts (see May 2000 Consensus Forecast).
Labour reform has been considered the last pending element of the
comprehensive structural reforms enacted in the 1990s on the economic
front. The approval of important elements in the new labour
legislation promises to establish increased flexibility to the labour
market and should help increase productivity and employment in the
medium-term.
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