Ministry of Economy January, 2000 Argentina Y2000 Financial Program Agenda Economic Agenda -...

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


% 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


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


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


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


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)


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


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


$ billion$ billion

31%31%

1515

Export GrowthExport Growth

* Projected* Projected


$ 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


$ 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

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


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


$ 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


%%

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:


2222

Financing StrategyFinancing Strategy

Multilateral OrganizationsMultilateral Organizations

PrivatizationsPrivatizations

Liability ManagementLiability Management


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


2424


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


2525


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


2626

Fiscal Deficit Fiscal Deficit


Liability Management Liability Management

Multilateral & BilateralMultilateral & Bilateral

Other Other

Net Demand for FundsNet Demand for Funds


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


$ billion$ billion$ billion$ billion

GrossGross NetNet

2828

Encourage Participation of Institutional and Encourage Participation of Institutional and Non-Institutional InvestorsNon-Institutional Investors


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


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



$ billion$ billion

3030

MultilateralsMultilaterals



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


$ 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


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


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


http://www.mecon.ar

http://www.infoarg.org

Information by E-Mail:

[email protected]

Ministry of Economy January, 2000 Argentina Y2000 Financial Program Agenda Economic Agenda -...

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