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In
order to regain investor confidence and to provide the conditions for
support from the IMF, President De la Rúa announced a series of emergency
measures on 10 November intended to reinforce his administration’s
commitment to strengthening the current economic policy framework and to
rekindle economic growth. Measures included:
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Raising
the fiscal deficit target.
The government revised its goal for next year from US$ 4.1 billion (1.4%
of GDP) to US$ 6.4 billion (2.1% of GDP), which will require reforming the
Fiscal Responsibility Law that set a US$ 5.6 billion limit. The
fiscal expansion is expected to provide a kick-start for the economy.
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The
renegotiation of the current revenue sharing regime with the provinces.
In mid-November, the government reached an agreement, whereby the
provinces have consented to freeze primary spending until 2005 in return
for the establishment of a government funded social fund targeted at the
unemployed, social welfare programs and poverty alleviation.
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Reforms
to the pension and social security system.
The government announced its intention to replace the basic benefits
allotted to all pensioners with a minimum pension guarantee of US$ 300 for
new pensioners; raise the retirement age for women gradually from 60 to
65; incorporate the armed forces into the privately capitalized pension
system; and permit the Superintendence for the Administration of Pension
Funds (AFPs) to lower or raise by 20% the investment allocations of funds.
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Deregulation
of the health system. The
President has signed a decree to deregulate the national health system to
facilitate a more competitive market in the provision of health services,
which were previously provided principally by the government and trade
unions.
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Tax
incentives and reform. Gradual
reduction of capital gains taxes from 10% at the beginning of next year to
8% by July; expedited sales tax reimbursement for capital goods-related
expenditures; and raising the amount of interest income deductible on new
house purchases.
International
investors and the International Monetary Fund (IMF) have reacted
favourably to the government’s progress on adopting new measures, most
importantly the agreement with the provinces.
As a result, Argentina is expected to receive an IMF-led financial
assistance package that could help fund all of country’s US$ 21.2
billion financing requirements for next year.
An international aid package would not only serve to boost investor
confidence but also is likely to strengthen the prospects for economic
recovery next 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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