IMF Executive Board Completes Financing Assurances Review and Grants Waiver for Noncomplying Purchase by Argentina
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The Executive Board of the International Monetary Fund (IMF) has completed the financing assurances review related to the fifth and final disbursement under Argentina's seven-month, SDR 2.17 billion (about US$3 billion) Stand-By Arrangement, which was approved on January 24, 2003. The completion of this review enables the release of the final disbursement under this Arrangement, for an additional SDR 226.2 million (about US$310 million).
The Executive Board also reviewed matters related to a noncomplying purchase by Argentina in an amount equivalent to SDR 226.2 million (about US$310 million) on June 20, 2003, following the completion of the second review of the Stand-By Arrangement and breach of obligation under Article VIII, Section 5. (A noncomplying purchase is a drawing made by a member country under an IMF arrangement that is later found to have been made on the basis of incorrect information. For its part, Article VIII, Section 5 requires members to provide accurate information to the IMF, including in the context of an IMF arrangement, for specific information). The IMF has guidelines that apply to both such cases.
The noncomplying purchase and breach of obligation in this case resulted from the non-promulgation of a decree to eliminate several competitiveness plans, which provided tax relief for certain economic activities. (Under the transitional program supported by the Stand-By Arrangement, the authorities eliminated the majority of the competitiveness plans, resulting in fiscal savings of Arg$3 billion (1 percent of GDP) and a significant easing of the burden on tax administration). They also revoked the legislation that would have extended competitiveness plans to all sectors of the economy, at an additional fiscal cost of Arg$6.7 billion (2 percent of GDP). At the time of the second review of the Arrangement, on June 20, 2003, however, eight competitiveness plans remained in place but the authorities reported to Fund that only three such plans remained. The five plans that were reported inaccurately to have been eliminated provided tax relief equivalent to about 0.03 percent of GDP.
Following the Executive Board's decision on Argentina on August 27, 2003, Horst Köhler, Managing Director and Chairman, stated:
"Argentina has continued to make welcome progress under the Stand-By Arrangement. The end-June fiscal performance criteria were met with significant margins, and efforts continue toward normalizing relations with creditors. In particular, the Executive Board welcomed the recent meetings held with creditor groups. On the basis of this progress, the Fund has completed the fourth financing assurances review.
"The Executive Board also took note of information, provided by the Argentine authorities, explaining the background to a noncomplying purchase at the time of the second review, which the Board considered highly regrettable. However, Directors observed that the authorities had renewed their commitment to eliminating all competitiveness plans and that draft legislation has now been submitted to Congress to eliminate those plans that should have been abolished by an earlier decree. The Board accepted the authorities' explanation of the reasons underlying the misreporting, and granted waivers for the noncomplying purchase as well as for the breach of obligations under Article VIII, Section 5 of the Fund's Articles of Agreement.
"The Fund continues to work closely with the authorities to construct a strong medium-term program that will entrench strong growth and poverty reduction, while allowing Argentina to restore fiscal sustainability," stated Mr. Köhler.
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