The government successfully effectuated a broad-scale debt exchange to stretch out the existing maturity profile of Argentine debt in order to ease interest payments in the short-term.  The benefits derived from the transaction have helped eliminate lingering fiscal concerns for now and have rekindled investor confidence, which provide a favourable backdrop for the government’s efforts to revive the ailing economy. 

Economy remains in recession.  Consumption data again disappointed, as high unemployment and tight credit conditions continue to bear down on consumers.  Supermarket sales once more dropped into negative territory in April, down 3.4% over the same month in 2000, after experiencing a 2.1% increase in March.  Similarly, the National Automobile Association (ADEFA) reports that domestic automobile sales remained depressed, declining 53.1% in May over the same month last year.  Furthermore, the University Torcuato di Tella's May consumer confidence index (ICC) indicates that consumption is also unlikely to show substantial improvement in the second quarter of this year.  According to the ICC, confidence in the economy and consumer confidence for this year dropped by 13.0% and 11.2% respectively over April.  Of the consumers surveyed, 27% (down 37.9% from April) expected the macroeconomic conditions to improve in 2002, while 41% (up 30.5% from April) anticipated a worsening.  The deteriorating sentiment was attributed principally to mounting concerns about the likely impact of the recent elimination of sales tax exemptions on personal spending but also to lingering uncertainty about the Argentine debt situation. 

Industrial production subdued.  According to the National Statistical Institute’s (INDEC) industrial production index, output rose 0.2% in April over the same month last year – the first increase since July 2000.  Strong output declines in textiles (-22.9% yoy), metals (-8.8% yoy) and automobiles (-7.8% yoy) were compensated by healthy growth rates in chemical products (+12.7% yoy) and oil refining (+5.3% yoy).  This month’s Consensus Forecast indicates, that industrial production will remain subdued through the next two quarters, but will accelerate in the fourth quarter.  The year-end industrial output recovery should help raise growth for this year.

Economic growth is expected to accelerate but at a moderate pace.  Panellists have again lowered their forecasts for Gross Domestic Product (GDP) this year by 0.8 percentage points, with the Consensus remaining well below the government’s 2.5% estimate.  Participants have also revised downward their economic growth forecasts for next year by 0.4 percentage points.

Government uses bond swap to ease fiscal pressures of debt.  The Economy Ministry reported in May that the fiscal deficit reached US$ 3.9 billion in the first four months of the year, which represents 59.9% of the total deficit target of US$ 6.5 billion agreed to under the terms of the International Monetary Fund (IMF) agreement.  Government officials remain confident that economic measures approved at the end of March under the terms of the Competitiveness Law will provide the necessary resources this year to comply with fiscal deficit targets but, nevertheless, executed a voluntary US$ 66.7 billion debt swap in early June.  The debt exchange stretched out the existing maturity profile of Argentine debt in order to ease interest payments in the short-term.

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