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Fiscal
deficit on target last year.
Last year’s downturn in economic activity served to undermine the
government’s efforts to meet fiscal deficit targets agreed to with the
IMF, since anticipated tax revenue inflow remained well below the
estimates. The negotiations with the IMF in late November last year
enabled the government to revise upward the fiscal targets for 2000 and
2001 to US$ 6.7 and US$ 6.5 billion respectively. In exchange for
more spending flexibility this year the government agreed to adopt pension
reform and deregulate the existing social security systems. In addition,
the government negotiated a federal-provincial agreement to freeze primary
spending and co-participation revenues flows. Preliminary data
indicate that the government overshot last year’s fiscal deficit by US$
91 million, with the total imbalance reaching US$ 6.79 billion, or
approximately 2.4% of GDP. Assuming that economic activity rebounds
this year and that the propitious interest environment persists - spreads
on the Argentine sovereign FRBs have narrowed 151 basis points since the
end of December - the government is likely to be on target in fiscal
accounts.
Improvement
in external accounts likely.
The prospects for lower global growth, an easing of inflationary risks in
industrialized countries as a result of lower oil prices and further
easing by the US Fed are likely to favour capital flows to emerging
markets and in the case of Argentina will help alleviate any lingering
financing concerns, but also should help firms shift financing cost
savings to investment. Furthermore, lower interest rates in the
United States are expected to put downside pressure on the dollar, which
is likely to give Argentine exports a boost. While no clear trend in
commodity prices is yet visible to make a clear argument for stronger
export growth in international markets, the regional demand pickup –
particularly from Brazil – is expected to boost exports. The
annual trade balance registered a US$ 1.1 billion surplus at the end of
last year. According to the data, exports expanded 12.5% over 1999,
while imports contracted 1.4%, reflecting the slump in the economy.
The Consensus Forecast this month shows that external balances will remain
healthy this year. As a result, the trade balance surplus is
anticipated to expand further in 2001.
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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