Ministry of Economy
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Ministry of EconomyMinistry of Economy
January, 2000January, 2000
AArgentinargentina
Y2000 Financial ProgramY2000 Financial Program
AgendaAgenda
Economic AgendaEconomic Agenda- - Policy Objectives Policy Objectives - Public Finances- Public Finances- Competitiveness- Competitiveness
Economic AgendaEconomic Agenda
44
Reduce Country RiskReduce Country Risk
-15%
-10%
-5%
0%
5%
10%
15%
1983 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 1999
0
500
1000
1500
2000
2500
3000
3500
% GDP Country Risk
Policy ObjectivesPolicy Objectives
GDP Growth (%)GDP Growth (%) Spread o/TB (bp)Spread o/TB (bp)
55
ProjectedProjected
0
1
2
3
1994 96 98 2000 2002
25
30
35
40
45
Deficit Debt
Guarantee Fiscal SolvencyGuarantee Fiscal Solvency
Policy ObjectivesPolicy Objectives
% of GDP% of GDP % of GDP% of GDPFederal GovernmentFederal Government
66
GDP- billion pesos of 1993, s.aGDP- billion pesos of 1993, s.a.
Regain MomentumRegain Momentum
* Projected
100
105
110
115
120
125
Nov-98 Jan-98 Mar-99 May-99 Jul-99 Sep-99 Nov-99
Policy ObjectivesPolicy Objectives
170
190
210
230
250
270
290
310
81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99
19801980 2000*
2000*
Industrial Production Index (EMI), s.a.Industrial Production Index (EMI), s.a.
77
Robust Institutions Robust Institutions
TransparencyTransparency
Stable Macroeconomic ContextStable Macroeconomic Context- - Currency Board /Convertibility RegimeCurrency Board /Convertibility Regime
Private Investment as Driver of Growth Private Investment as Driver of Growth
Competitive Conditions with AdequateCompetitive Conditions with AdequateRegulatory FrameworkRegulatory Framework
External Factors: External Factors: Improved International Environment Improved International Environment
Strengthen Conditions for Sustainable GrowthStrengthen Conditions for Sustainable Growth
Policy ObjectivesPolicy Objectives
88
Fiscal ReformFiscal Reform
Minimize Impact on CompetitivenessMinimize Impact on Competitiveness Improve Tax ComplianceImprove Tax Compliance
• Strengthen Enforcement and Simplify Judiciary Strengthen Enforcement and Simplify Judiciary Processes Processes
• Close LoopholesClose Loopholes• Lookthrough ProvisionsLookthrough Provisions
Eliminate Distortive Industrial & Agricultural PromotionEliminate Distortive Industrial & Agricultural Promotion Tax “Privileged Pensions”Tax “Privileged Pensions” Followed by:Followed by:
• Increase Women Retirement AgeIncrease Women Retirement Age• Phase Out of Special Pension RegimesPhase Out of Special Pension Regimes
Public FinancesPublic Finances
GoalsGoals
99
Federal PactFederal Pact
Y2000: Fixed Transfer to Provinces of $1.35 bn. per monthY2000: Fixed Transfer to Provinces of $1.35 bn. per month
After Y2000: 3 -Year Moving Average After Y2000: 3 -Year Moving Average
Expenditure ReductionExpenditure Reduction
Provincial “Fiscal Responsibility Bills” Provincial “Fiscal Responsibility Bills”
Limit BorrowingsLimit Borrowings
Public FinancesPublic Finances
1010
Expenditure CutsExpenditure Cuts -1.4 -1.4
Tax Reform -2.2Tax Reform -2.2
Federal PactFederal Pact - -1.11.1
Projected Federal DeficitProjected Federal Deficit 4.5 4.5
$ billion$ billion
Public FinancesPublic Finances
2000 Budget2000 Budget
(1.5 % of GDP)(1.5 % of GDP)
1999 Fiscal Deficit1999 Fiscal Deficit before Privatizations & PAMI overrun 9.2before Privatizations & PAMI overrun 9.2
1111
The Name of the Game is a More Flexible EconomyThe Name of the Game is a More Flexible Economy
90
95
100
105
110
115
120
1993 94 95 96 97 98 1999
CPI (Argentina) CPI (USA)
Introduce Labor ReformIntroduce Labor Reform
Reduce Production CostsReduce Production Costs
Develop Capital MarketsDevelop Capital Markets
CompetitivenessCompetitiveness
Index 1993=100Index 1993=100
1212
Introduce Labor ReformIntroduce Labor Reform
50
70
90
110
1993 94 95 96 97 98 1999
Adjusted by Productivity Non Adjusted
Industrial Labor Cost Industrial Labor Cost (1993=100) (1993=100)
CompetitivenessCompetitiveness
Extend Probation Period Extend Probation Period
Enforce Wage Enforce Wage
Bargaining at Firm LevelBargaining at Firm Level
Reduce Labor Taxes Reduce Labor Taxes
from 18% to 12% over from 18% to 12% over
4 Years4 Years
Diminish Labor Taxes to Diminish Labor Taxes to
12% for New Workers12% for New Workers
1313
Reduce Production CostsReduce Production Costs
Broaden Access to Broaden Access to Wholesale Electricity Wholesale Electricity Market and Gas NetworkMarket and Gas Network
Open Competition in Fuel Open Competition in Fuel MarketMarket
Promote Access, Promote Access, Technological Change in Technological Change in Communications SectorCommunications Sector
Improve Efficiency of Public Improve Efficiency of Public AdministrationAdministration
0
0.05
0.1
Germany Mexico USA
$/Kw$/Kw Wholesale Electricity CostWholesale Electricity Cost
CompetitivenessCompetitiveness
ArgentinaArgentina
1414
Develop Capital MarketsDevelop Capital Markets
0
10
20
30
40
50
60
70
80
90
1993 94 95 96 97 98 1999
Deposits
Liquidity
Banking SectorBanking Sector
Strengthen Insurance Strengthen Insurance IndustryIndustry
Review Local Capital Review Local Capital Market Regulations to Market Regulations to Reduce Intermediation Reduce Intermediation CostCost
Adhere to International Adhere to International Standards of Quality & Standards of Quality & CostCost
Lower Cost of CapitalLower Cost of Capital
CompetitivenessCompetitiveness
$ billion$ billion
31%31%
1515
Export GrowthExport Growth
* Projected* Projected
CompetitivenessCompetitiveness
$ billion$ billion
-5
-4
-3
-2
-1
0
1
2
3
4
5
1993 94 95 96 97 98 99 2000*
0
25
50
75
100
125
150
175
200
Trade Balance (FOB Basis) Export Volume
Y 2000: +13% value, Y 2000: +13% value, +7.4 volume+7.4 volume
VAT Reimbursement VAT Reimbursement for Exports for Exports
Recovery in Brazil´s Recovery in Brazil´s Demand for Argentine Demand for Argentine Products (1999 Products (1999 Surplus: $0.2bn)Surplus: $0.2bn)
1616
0
2
3
5
6
8
9
11
12
1992 93 94 95 96 97 98 1999
0
20
40
60
80
100
120Privatizations
Argentina: A Country for Doing BusinessArgentina: A Country for Doing Business
FDI FDI/CA
%
Regional HubRegional Hub
New Opportunities, New New Opportunities, New PlayersPlayers
Diversified Investor BaseDiversified Investor Base
CompetitivenessCompetitiveness
$ billion$ billion
FDI
FDI/CA
Mutations:Mutations:
• From Privatizations to From Privatizations to Expansion InvestmentsExpansion Investments
• From Stock Acquisition to From Stock Acquisition to Greenfield ProjectsGreenfield Projects
Y2000 Financial ProgramY2000 Financial Program
1818
0%
10%
20%
30%Long-Term Public Debt
Short-Term Public Debt
Amortization as % of GDPAmortization as % of GDP
The Argentine Case: Public DebtThe Argentine Case: Public Debt
Public Debt as % of GDPPublic Debt as % of GDP
0
10
20
30
40
50
60
70
80
90
Argen
tina
Argen
tina
Argen
tina
Argen
tina
Y2000 Financial ProgramY2000 Financial Program
Average maturity 7 yearsAverage maturity 7 years
1919
18
62
22
36
0
10
20
30
40
50
60
70F I Assets F I Liabilities
The Argentine Case: International PositionThe Argentine Case: International Position
Y2000 Financial ProgramY2000 Financial Program
$ billion$ billion
Individuals & CorporationsIndividuals & Corporations BanksBanks
Bonds 17Bonds 17
Bank Loans 14Bank Loans 14
Other 5Other 5
2020
673
485
241214
181 172
105 88 5563
0
100
200
300
400
500
600
700
800
Argen
tina
Argen
tina
11
16 1620 21
25
38
0
15
30
45
International Reserves to International Reserves to
External Short -Term debtExternal Short -Term debt
International Reserves International Reserves
to Money + Quasimoneyto Money + Quasimoney
Argen
tina
Argen
tina
Nov
-94
Nov
-94
Jul-9
7Ju
l-97
Jul-9
7Ju
l-97
Oct
-98
Oct
-98
Jul-9
7Ju
l-97 Mar
-97
Mar
-97
Nov-98Nov-98
The Argentine Case: Financial PositionThe Argentine Case: Financial Position
Y2000 Financial ProgramY2000 Financial Program
%%
2121
Stabilize Federal Public Debt/GDP RatioStabilize Federal Public Debt/GDP Ratio
Execute a Predictable, Transparent Financing Strategy Execute a Predictable, Transparent Financing Strategy
Encourage Domestic Participation, both Institutional & Encourage Domestic Participation, both Institutional & Retail Retail
Cap Short -Term BorrowingsCap Short -Term Borrowings
Avoid Concentration of MaturitiesAvoid Concentration of Maturities
Targets:Targets:
Y2000 Financial ProgramY2000 Financial Program
2222
Financing StrategyFinancing Strategy
Multilateral OrganizationsMultilateral Organizations
PrivatizationsPrivatizations
Liability ManagementLiability Management
Y2000 Financial ProgramY2000 Financial Program
Market TransactionsMarket Transactions
2323
IMF:IMF:
– Negotiate a Formal Precautionary Arrangement Negotiate a Formal Precautionary Arrangement
IDB - World Bank:IDB - World Bank:
– Complete Disbursements under Current SSALComplete Disbursements under Current SSAL
– Negotiate New Medium -Term Loans Negotiate New Medium -Term Loans (Project and Policy-Based Financing) (Project and Policy-Based Financing)
Multilateral OrganizationsMultilateral Organizations
Impact: Cash $ 1.5 bn + Precautionary ArrangementImpact: Cash $ 1.5 bn + Precautionary ArrangementImpact: Cash $ 1.5 bn + Precautionary ArrangementImpact: Cash $ 1.5 bn + Precautionary Arrangement
Y2000 Financial ProgramY2000 Financial Program
2424
PrivatizationsPrivatizations
BHN (National Mortgage Bank)BHN (National Mortgage Bank)
Caja de Ahorro y Seguros Caja de Ahorro y Seguros
Energy and Gas CompaniesEnergy and Gas Companies
RailwaysRailways
Loan Portfolio of Former BNDLoan Portfolio of Former BND
Real Estate Owned by Residual National Railway CompanyReal Estate Owned by Residual National Railway Company
Impact: $ 0.7 bnImpact: $ 0.7 bnImpact: $ 0.7 bnImpact: $ 0.7 bn
Y2000 Financial ProgramY2000 Financial Program
2525
Liability ManagementLiability Management
Debt Exchange Transactions Aiming at:Debt Exchange Transactions Aiming at:
• Improving Debt ProfileImproving Debt Profile
• Tightening Yield Curve DifferentialsTightening Yield Curve Differentials
• Redeeming Brady Bond’s CollateralRedeeming Brady Bond’s Collateral
• Decreasing Marginal Cost of BorrowingDecreasing Marginal Cost of Borrowing
Impact: $1.0 bnImpact: $1.0 bnImpact: $1.0 bnImpact: $1.0 bn
Y2000 Financial ProgramY2000 Financial Program
2626
Fiscal Deficit Fiscal Deficit
PrivatizationsPrivatizations
Liability Management Liability Management
Multilateral & BilateralMultilateral & Bilateral
Other Other
Net Demand for FundsNet Demand for Funds
Y2000 Financial ProgramY2000 Financial Program
4.54.5
-0.7-0.7
-1.0-1.0
1.91.9
1.01.0
5.75.7
$ billion$ billion
2727
Pensions Funds 4.7Pensions Funds 4.7 4.74.7
Mutual Funds, Mutual Funds, InsuranceInsuranceCo. & Retail 3.0 3.0Co. & Retail 3.0 3.0
Banks 9.8 6.4Banks 9.8 6.4
17.5 17.5 14.114.1
Pension Funds: AUMPension Funds: AUM
Net Supply of Funds in the Domestic MarketNet Supply of Funds in the Domestic Market
0
5
10
15
20
25
30
35
40
45
50
1998 99 2000 1 2 3 2004
ProjectProjecteded
Y2000 Financial ProgramY2000 Financial Program
$ billion$ billion$ billion$ billion
GrossGross NetNet
2828
Encourage Participation of Institutional and Encourage Participation of Institutional and Non-Institutional InvestorsNon-Institutional Investors
Market TransactionsMarket Transactions
Instruments:Instruments: $ billion$ billion
Letes: Bi-Weekly AuctionsLetes: Bi-Weekly Auctions 1.01.0 (Net Increase) (Net Increase)
PB: Monthly Auctions PB: Monthly Auctions 1.51.5
3-5 Year Bontes 3-5 Year Bontes 2.0 2.0
Y2000 Financial ProgramY2000 Financial Program
2929
Global BondsGlobal Bonds 5.05.0
• Maturity over 5 yearsMaturity over 5 years
• Distribution in Domestic & International MarketsDistribution in Domestic & International Markets
• Active Trading in Domestic & Int’l MarketsActive Trading in Domestic & Int’l Markets
Euros & YensEuros & Yens 4.8 4.8
Budgetary Limit onBudgetary Limit on Consolidation BondsConsolidation Bonds 1.4 1.4
Limit ReopeningsLimit Reopenings
Market TransactionsMarket Transactions
Y2000 Financial ProgramY2000 Financial Program
$ billion$ billion
3030
MultilateralsMultilaterals
Liability ManagementLiability Management
PrivatizationsPrivatizations
BondsBonds - Letes - Letes (Net Increase)(Net Increase)
- Promissory Note-Bond- Promissory Note-Bond
- Bontes- Bontes
- USD Globals- USD Globals
- Euros & Yens - Euros & Yens
1.51.5
1.01.0
0.70.7
14.314.3
1.01.0
1.51.5
2.02.0
5.05.0
4.84.8
1.41.4
0.50.5
2.32.3
15.515.5
1.01.0
1.41.4
1.61.6
4.64.6
6.96.9
Financing SourcesFinancing Sources
Y2000 Financial ProgramY2000 Financial Program
$ billion$ billion
TotalTotal 19.719.7
Y1999Y1999
17.517.5
Y2000Y2000
3131
$ billion$ billion
19.719.7
11.411.4
8.38.3
17.517.5
12.012.0
5.55.5
19991999Total Total
Gross Gross
Less: AmortizationsLess: Amortizations
NetNet
20002000
Market TransactionsMarket Transactions
Gross Gross
Less: Amortizations Less: Amortizations
NetNet
15.515.5
8.68.6
6.96.9
14.314.3
8.68.6
5.75.7
Financing SourcesFinancing Sources
Y2000 Financial ProgramY2000 Financial Program
3232
TransparencyTransparency
PredictabilityPredictability
Performance ControlPerformance Control
Regular and Updated Distribution of Information:Regular and Updated Distribution of Information:
• Quarterly Investor ConferencesQuarterly Investor Conferences
• Web-Sites:Web-Sites:
• www.mecon.ar/financingwww.mecon.ar/financing
• www.infoarg.orgwww.infoarg.org
Concluding RemarksConcluding Remarks
Y2000 Financial ProgramY2000 Financial Program
http://www.mecon.ar
http://www.infoarg.org
Information by E-Mail:
oncp@mecon.ar
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