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Ministry of Economy

A rgentina. Ministry of Economy. January, 2000. Agenda. Economic Agenda - Policy Objectives - Public Finances - Competitiveness. Y2000 Financial Program. Economic Agenda. Policy Objectives. Reduce Country Risk. GDP Growth (%). Spread o/TB (bp). Policy Objectives.

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Ministry of Economy

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  1. Argentina Ministry of Economy January, 2000

  2. Agenda • Economic Agenda- Policy Objectives - Public Finances- Competitiveness • Y2000 Financial Program

  3. Economic Agenda

  4. Policy Objectives Reduce Country Risk GDP Growth (%) Spread o/TB (bp)

  5. Policy Objectives Guarantee Fiscal Solvency Federal Government % of GDP % of GDP Projected

  6. Policy Objectives Regain Momentum GDP- billion pesos of 1993, s.a. Industrial Production Index (EMI), s.a. 2000* 1980 * Projected

  7. Policy Objectives Strengthen Conditions for Sustainable Growth • Robust Institutions • Transparency • Stable Macroeconomic Context - Currency Board /Convertibility Regime • Private Investment as Driver of Growth • Competitive Conditions with AdequateRegulatory Framework • External Factors: Improved International Environment

  8. Public Finances Fiscal Reform Goals • Minimize Impact on Competitiveness • Improve Tax Compliance • Strengthen Enforcement and Simplify Judiciary Processes • Close Loopholes • Lookthrough Provisions • Eliminate Distortive Industrial & Agricultural Promotion • Tax “Privileged Pensions” • Followed by: • Increase Women Retirement Age • Phase Out of Special Pension Regimes

  9. Public Finances Federal Pact • Y2000: Fixed Transfer to Provinces of $1.35 bn. per month • After Y2000: 3 -Year Moving Average • Expenditure Reduction • Provincial “Fiscal Responsibility Bills” • Limit Borrowings

  10. Public Finances 2000 Budget $ billion 1999 Fiscal Deficitbefore Privatizations & PAMI overrun 9.2 • Expenditure Cuts -1.4 • Tax Reform -2.2 • Federal Pact -1.1 Projected Federal Deficit 4.5 (1.5 % of GDP)

  11. Competitiveness The Name of the Game is a More Flexible Economy Index 1993=100 • Introduce Labor Reform • Reduce Production Costs • Develop Capital Markets

  12. Competitiveness Introduce Labor Reform Industrial Labor Cost (1993=100) • Extend Probation Period • Enforce Wage Bargaining at Firm Level • Reduce Labor Taxes from 18% to 12% over 4 Years • Diminish Labor Taxes to 12% for New Workers

  13. Competitiveness Reduce Production Costs $/Kw Wholesale Electricity Cost • Broaden Access to Wholesale Electricity Market and Gas Network • Open Competition in Fuel Market • Promote Access, Technological Change in Communications Sector • Improve Efficiency of Public Administration Argentina

  14. Competitiveness Develop Capital Markets Banking Sector $ billion • Strengthen Insurance Industry • Review Local Capital Market Regulations to Reduce Intermediation Cost • Adhere to International Standards of Quality & Cost • Lower Cost of Capital 31%

  15. Competitiveness Export Growth $ billion • Y 2000: +13% value, +7.4 volume • VAT Reimbursement for Exports • Recovery in Brazil´s Demand for Argentine Products (1999 Surplus: $0.2bn) * Projected

  16. FDI FDI/CA • Competitiveness Argentina: A Country for Doing Business $ billion % FDI FDI/CA • Mutations: • From Privatizations to Expansion Investments • From Stock Acquisition to Greenfield Projects • Regional Hub • New Opportunities, New Players • Diversified Investor Base

  17. Y2000 Financial Program

  18. Y2000 Financial Program The Argentine Case: Public Debt Amortization as % of GDP Public Debt as % of GDP Average maturity 7 years Argentina Argentina

  19. Bonds 17 Bank Loans 14 Other 5 • Y2000 Financial Program The Argentine Case: International Position $ billion Individuals & Corporations Banks

  20. Nov-98 Mar-97 Oct-98 Jul-97 Jul-97 Jul-97 Nov-94 • Y2000 Financial Program The Argentine Case: Financial Position International Reserves to External Short -Term debt International Reserves to Money + Quasimoney % Argentina Argentina

  21. Y2000 Financial Program Targets: • Stabilize Federal Public Debt/GDP Ratio • Execute a Predictable, Transparent Financing Strategy • Encourage Domestic Participation, both Institutional & Retail • Cap Short -Term Borrowings • Avoid Concentration of Maturities

  22. Y2000 Financial Program Financing Strategy • Multilateral Organizations • Privatizations • Liability Management • Market Transactions

  23. Y2000 Financial Program Multilateral Organizations • IMF: • Negotiate a Formal Precautionary Arrangement • IDB - World Bank: • Complete Disbursements under Current SSAL • Negotiate New Medium -Term Loans (Project and Policy-Based Financing) Impact: Cash $ 1.5 bn + Precautionary Arrangement

  24. Y2000 Financial Program Privatizations • BHN (National Mortgage Bank) • Caja de Ahorro y Seguros • Energy and Gas Companies • Railways • Loan Portfolio of Former BND • Real Estate Owned by Residual National Railway Company Impact: $ 0.7 bn

  25. Y2000 Financial Program Liability Management • Debt Exchange Transactions Aiming at: • Improving Debt Profile • Tightening Yield Curve Differentials • Redeeming Brady Bond’s Collateral • Decreasing Marginal Cost of Borrowing Impact: $1.0 bn

  26. Y2000 Financial Program Net Demand for Funds $ billion • Fiscal Deficit • Privatizations • Liability Management • Multilateral & Bilateral • Other 4.5 -0.7 -1.0 1.9 1.0 5.7

  27. Projected • Y2000 Financial Program Net Supply of Funds in the Domestic Market Pension Funds: AUM $ billion $ billion Gross Net Pensions Funds 4.7 4.7 Mutual Funds, InsuranceCo. & Retail 3.0 3.0 Banks 9.8 6.4 17.5 14.1

  28. Y2000 Financial Program Market Transactions • Encourage Participation of Institutional and Non-Institutional Investors Instruments: $ billion • Letes: Bi-Weekly Auctions 1.0 (Net Increase) • PB: Monthly Auctions 1.5 • 3-5 Year Bontes 2.0

  29. Y2000 Financial Program Market Transactions $ billion • Global Bonds 5.0 • Maturity over 5 years • Distribution in Domestic & International Markets • Active Trading in Domestic & Int’l Markets • Euros & Yens 4.8 • Budgetary Limit onConsolidation Bonds 1.4 • Limit Reopenings

  30. Y1999 Y2000 19.7 17.5 Multilaterals Liability Management Privatizations Bonds - Letes (Net Increase) - Promissory Note-Bond - Bontes - USD Globals - Euros & Yens 1.4 0.5 2.3 15.5 1.0 1.4 1.6 4.6 6.9 1.5 1.0 0.7 14.3 1.0 1.5 2.0 5.0 4.8 • Y2000 Financial Program Financing Sources $ billion Total

  31. 1999 2000 Total Gross Less: Amortizations Net 19.7 11.4 8.3 17.5 12.0 5.5 Market Transactions Gross Less: Amortizations Net 15.5 8.6 6.9 14.3 8.6 5.7 Financing Sources • Y2000 Financial Program $ billion

  32. Y2000 Financial Program Concluding Remarks • Transparency • Predictability • Performance Control • Regular and Updated Distribution of Information: • Quarterly Investor Conferences • Web-Sites: • www.mecon.ar/financing • www.infoarg.org

  33. Information by E-Mail: oncp@mecon.ar http://www.mecon.ar http://www.infoarg.org

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