Statement by Godfrey Gaoseb at the meeting of June 27, 2000

87543 International Bank for Reconstruction and Development International Development Association International Finance Corporation Multilateral Investment Guarantee Agency FOR OFFICIAL USE ONLY CONFIDENTIAL EDS2000-214 June 26, 2000 05:33:04 PM Statement by Godfrey Gaoseb Date of Meeting: June 27, 2000 Argentina: Country Assistance Strategy We find the proposed Country Assistance Strategy for Argentina candid and comprehensive. The staff deserve our commendation for a well-prepared document. We note that the CAS has been prepared in close consultation with the Government, NGOs and other stakeholders, is built on the previous CAS and draws on the recommendations of the recent OED’s Country Assistance Review. We would also like to congratulate the Argentine authorities for the remarkable progress they have made despite the external shocks. The role of the International Financial Institutions (IFIs) in helping the country to weather the crises is also commendable. The economy has expanded steadily, registering one of the world's lowest inflation rates, and GDP growth at an impressive average of 5 percent during 1991-199. The government’s effort in addressing fiscal deficit, both at the federal and provincial levels, is also noteworthy. However, we observe that the unemployment level is still high while poverty and income inequality persist. The economy is still fragile and vulnerable to external shocks. We support the Bank's focus on expanding the coverage of social safety nets, providing basic infrastructure to the poor in both urban and rural areas, especially to the indigenous population. We agree with the staff assessment that education is critical to poverty reduction over the long run and welcome the government’s increased investment in this sector. Such efforts would complement private efforts and give the poorer communities the opportunity to share in the benefits of economic growth. The proposal to introduce a new set of labor reforms that would encourage flexibility of labor markets is also a step in the right direction. On private sector development, IFC and MIGA have played impressive roles in promoting the private sector, especially by financing projects in new and difficult sectors and facilitating foreign direct investment. We are equally pleased to note that the IFC portfolio is of high quality with only 7.4 percent of the loan portfolio in non-accrual status as of Feb 2000. The collaboration between the Bank and IFC is a showcase for other countries/regions. However, the fact that the two institutions are about to reach their exposure limits should be a source of serious concern. In this regard, we find IFC management’s recent proposal for addressing the exposure constraints appropriate and realistic. One problem that also needs attention is the low level of domestic savings. Efforts should be geared towards reforming the fiscal system and developing the domestic capital market in order to address the public sector debt and avoid excessive exposure to short-term foreign financing. Developing domestic credit mechanisms is crucial for small and medium scale enterprises (SMEs). IFC’s role in this area cannot be over-emphasized, particularly since SMEs play an important role in reducing unemployment and poverty. With respect to the proposed Bank’s assistance scenarios and associated triggers in Table 5, we find them appropriate. We also welcome the selectivity criteria with focus on improving the fiscal performance of provincial governments, helping to eliminate the fiscal deficit and advance the social agenda through increased investment in the social sector. The Bank's portfolio performance in Argentina is one of the best Bank-wide. The OED’s Argentina Country Assistance Evaluation has rated the outcome of the Bank’s program as satisfactory with only one out of twenty projects initiated and completed since 1991 being rated as unsatisfactory, and the current portfolio remains good. This has been attributed both to government commitment and ownership of the program/projects as well as to staff dedication to their duties. It is important to stress that with its ESW and technical assistance, the Bank has been able to bring international experience to the country. The Bank should continue its economic and sector work on corruption and corporate governance issues. We welcome the Bank’s collaboration and division of labor with other development partners, especially with the IMF and IDB, as this will ensure effective international assistance to the country. The involvement of the Bank Group at the provincial level is also welcome. Building capacity at that level is important in order to ensure effective delivery of social services to the people. In a federal system, macroeconomic stability is the responsibility of all levels of government. Finally, we wish the Argentine authorities every success and commend staff for a well- prepared document.