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IMF
fiscal targets renegotiated.
In
the first half of this year, the public sector deficit remained at US$ 2.2
billion, which was below the US$ 2.6 billion fiscal target set under the
terms of the Stand-by Agreement with the International Monetary Fund (IMF).
Nevertheless, increased concern over the impact of lower economic activity
and declining consumer prices on tax collection prompted the Economy
Ministry to renegotiate the US$ 4.7 billion fiscal deficit target (1.6% of
GDP) with the IMF. Since the government was almost certain to
overshoot its fiscal target, the IMF consented to raise the fiscal deficit
limits to US$ 5.3 billion in early September. Simultaneously, the
government set new fiscal targets of US$ 4.1 billion (up from US$ 2.8
billion) and US$ 2.4 billion (up from US$ 600 million) for 2001 and 2002.
Despite the hefty increase for the coming two years, the government
believes that the goal of reaching fiscal equilibrium by 2003 is still
within reach. Panellists anticipate the fiscal deficit to reach US$
5.4 billion this year, which remains well within the US$ 5.6 billion limit
required to comply with the new Fiscal Responsibility Law adopted in
August of last year.
Government
financing on target. The
continued fragile state of the economy has not significantly affected
international investor’s appetite for Argentine debt. A more
favourable international environment and lower borrowing costs on the
benchmark sovereign FRBs throughout most of this year have enabled the
government to virtually conclude its Financial Programme for 2000.
The average spread on the benchmark FRBs through August of this year was
227 basis points below the average for the same period last year. By
31 August, the Finance Ministry had managed to finance over 83.2% of the
US$ 17.5 billion public sector borrowing requirements for this year.
A low likelihood that the US Federal Reserve will tightening once more,
bodes well for the government’s ability to complete its financing early
this year.
Note:
The above text is an abridged version of the LatinFocus Consensus Forecast
briefing on Argentina. For more details please click here.
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