Argentina : toward the year 2000

THE WORLD BANK Internal Discussion Paper LATIN AMERICA AND THE CARIBBEAN REGION SERIES Report No. IDPOO13 Argentina: Towards the Year 2000 F. Desmond McCarthy June 1987 Country Operations Country Department IV Discussion Papers are not formal publications of the World Bank. They present preliminary and unpolished results of country analysis or ressearch that is circulated to encourage discussion and comment; citation and the use of such a paper should take account of its provisional character. The findings, interpretations, and concltsions expressed in this paper are entirely those of the author(s) and should not be attributed in any manner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. LAC DISCUSSION PAPER SERIES Report No. Title* Author and Date IDP-3 "An Analysis of the Sources of Earnings Variatl*n Among Braslan Males* by Marcelo Dabos and George Psacharopoulos, December 1987 IDP-4 "The Efficiency and Effectiveness of Export Credit and Export Credit Insurance Program." by Bruce Fitagerald and Terry Monson (Consultant), December 1987 IDP-9 Wxport Processing Zonesa The Economics of Offshore Manufacturing* by Peter 0. Warr (Consultant), August 1987 IDP-10 "Dumping, Anti-dwnping and Efficiency" by Bruce Yandle and Elisabeth M. Young (Consultants), August 11987 IDP-11 'The Regulation of the Quality of Traded Commodities and Services" by Simon Rottenberg and Bruce Yandle (Consultants), June 1987 IDP-12 *Argentinas Problems for Achieving Macro Stability" by F. Desmond McCarthy and Alfredo Z. Thorne, January 1988 ABSTRACT This paper discusses the essential elements that govern the medium/long-term economic growth prospects for Argentina. It first reviews the broad process of development in comparable countries during the last few decades. It then reviews recent developments in Argentina and, in particular, the Plan Austral. Argentina could achieve a steady growth rate of about 4 percent per year if it could return to previous levels of real investment of around 20 percent of GDP. This needs to be accompanied by a marked improvement in efficiency where Argentina has had a very pooz record in recent years. In order to achieve this goal, it is essential to have a conducive policy environment together with the appropriate institutional/ political stability. This needs to be coupled with measures to address the factors that have resulted in severe shocks to the economy over the last few decades. The report provides a series of projections and offers some ideas on how to contain the impact of shocks. This paper was prepared for the conference "Economic Development and Democracy in Argentina: Precedents, Prospects, and Policies", the University of Massachusetts at Amherst, Amherst, Massachusetts (June 8-10, 1987). I would like to thank Ms. C. Franco and C. Seppala for their assistance in making the projections in this paper and Xq. Mila Divino who prepared the draft. ARGENTINA TOWARDS THE YEAR 2000 I. INTRODUCTION 1. The prediction of economic performance in any country is a rather presumptuous task. Among countries, Argentina seems particularly difficult for this kind of endeavor but nonetheless a rather intriguing one. In this paper economic performance is first discussed in general terms. Comparative statistics are given to indicate where Argentina seems to fit in terms of broad economic characteristics. Section 3 considers recent economic performance in Argentina and identifies a number of features that appear to have played significant roles in shaping the current situation. Projection estimates for the econow are given in Section 4. Finally Section 5 discusses some of the risks involved and flags a number of areas where potentially major changes could occur. 2. The question of what determines economic performance and in particular the relationship to economic development remains essentially unanswered today. The work of Clark (1940), Kusnets (1966), and more recently Chenery (1986) has certainly helped to elucidate the debate but also seems to confirm that studies limited to purely economic variables may be at best incomplete in many instances. Work done on predictions of growth performance potential up to a few decades ago typically included Pakistan and Egypt, among those with good prospects, while relegating Brazil, Korea,, and Taiwan to the poor prospects category. - 2 - II. ECONOMIC DEVELOPMENT: GENERAL OBSERVATIONS 3. An interesting review some years ago by Morawetz (1977) sought to review the experience of development for the 25-year period 1950-1975. Perhaps his main finding was that there is more than one feasible route to development as he identified successes of countries as diverse as Taiwan (market-oriented), Libya (resource-based) and China (socialist and invard-looking). The dispers:*7n of growth rates (one measure of performance) may be seen in Figure 1 for the period 1964-1982. Even with the benefit of hindsight it is difficult to characterize what accounts for the high and low performers. It appears that such features as the ownership.of capital, open or protected domestic market, availability of large domestic natural resources while important in many respects are not critical determinants of growth performance. 4. From a purely technical point of view it is evident that one needs sustained capital accumulation in order to grow. This process can be facilitated wherever a coalition that considers the rewards adequate for engaging in such a task exists. To the extent that a Government can provide conditions for this one can minimise disruption of the process of development. Indeed many argue that Government stability per se is also not necessary but rather adequate institutional stability so that people can make medium-term economic decisions with some degree of confidence. However, as soon as the Government (institutions) can no longer ensure stability the coalition weakens and the process begins to falter. This political or rather institutional stability may be noted for some of the high performers in Figure 1 such as Brazil (from early sixties to early eighties) and Korea. For other high performers such as Mexico, Ecuador, -3- Malaysia, and Trinidad and Tobago, the tenure of viable coalitions was faci%itated through positive terms of trade changes, substantial capital inflows and buoyant trade opportunities. Institutional stability alone has been a necessary but not sufficient condition for growth. The performance of France and Italy (at least up to the last few years) suggests that a viable institutional structure may cushion the econony against political perturbations. If one goes further back to medieval times one may quote examples of stable regimes with seemingly stable institutions but poor growth performance. This suggests that society or societal values should also be sympathetic to growth. 5. In order to account for mediocre performance in other countries, one must seek other causes. One interesting measure that seems to cast some insight is factor productivity growth. Some indication of the divergence between countries is given in Figure 2 from the recent work of Chenery (1986). Again, it is a nontrivial task to account for these divergencies and a fortiori relating them to policy initiatives. Recent work by Nishimizu and Paie (1987) support the view that the production environment can be a major determinant of productivity. They suggest that the wrong types of trade (e.g. quota restrictions) and industrial policies can retard potential productivity gains. This seems true within a given paradigm. However, there are many paradigms. The problem is twofold: to identify the appropriate "good" paradigm and then to che,,k for consistency within that paradigm. So the lesson seems to be that there is a need for an appropriate (consistent) set of policies within a given paradigm. Baumol (1986) seeks to relate economic performance to the role of entrepreneurial activity from a somewhat different perspective to that of the Hirachman (1958) view that also enjoyed its day in the sun. He identities three broad eategories of entrepreneur: rent seeking, imitative and initiating. In particular he ascribes the convergence of productivity levels among many industrial countries to imitative entrepreneurship. In the Argentine context there seems to be an above average quota of intellectuals as judged by, say, the number of Nobel laureates. This suggests that initiating entrepreneurship may be relatively strong there. However, the ability to convert this to produce practical domestic gains or to indulge in the somewhat duller role of imitative entrepreneurship seems rather weak. This seems to be a hypothesis that merits further consideration. In Argentina volatile policies have themselves also tilted the efforts and perspective of the entrepreneur towards short-term financial operations rather than longer-term real investments. 6. In making the transition from these general observations to the particular Argentine case it seems reasonable to observe that the indifferent economic performance of that country compared to others may be attributed at least in part to an unstable political milieu together with the absence of institutions robust enough to weather the changes. On the other hand the performance in terms of capital accumulation has been quite high compared to other Latin American countries, at least up to recent years, in terms of aggregate resource levels. However, the associated productivity gains have been similar to the lowest performers. One possible explanation is that the unstable environment mitigated against investment in new progressive technologies which could embody technical change and efficiency gains. Rather, investor energies seem to have gone into areas such as luxury housing while much of the public real investment vent to defense. ~.5- Essential Elements 7. It seems that key elements necessary to generate a steady strong economic growth performance should include the following: (a) Institutional/political stability to allow a coalition to function which ensures a smooth capital accumulation process, together with adequate institutional flexibility to restructure in a timely manner. (b) Adequate levels of factors of production/capital accumulation. (c) The policy environment to generate productivity gains. 8. These three are intertwined and are not at all exhaustive. The impact of shocks, both domestic and external, can also be critical and may submerge even the best attempts to contain them. Before considering these elements further it is of interest to characterize the present and possibly future economic profile of Argentina. Comparative Metries 9. In Table 1, selected economic indicators are given for Argentina and two comparator groups of countries: (a) upper middle income; (b) industrial, according to the World Bank classification. The former any be viewed as a peer group with average GNP per capita of 1950 (US$1984) while the latter is an approximation to where Argentina is headed with average - 6 - GNP per capita of 11,430 (UG$ 1984). One notes that Argentina tends to be below its peer group average in terms of growth rate of GDP (a measure of the domestic econoy) and GNP per capita (a measure of individdal purchasing power). The performance of Argentina has been particularly poor for the decade 1973-1984. Industry stagnated during this period. The broad aggregates of composition of demand show that Gross Domestic Savings and a fortiori Gross Domestic Investment were substantially below peer group levels by 1984. This was intertwined with the debt problem which was exerting an increasingly negative impact on the economy at that time and is likely to continue to do so for the foreseeable future. On the other hand the summary statistics for education show a relatively good performance for Argentina resulting from the strong emphasis on social expenditures during the Peron period. However the statistics may be a little misleading as they do not reflect the deterioration in quality which has occurred in recent years* The labor force data tend to indicate the typical structural transition during development especially between agriculture and service sectors. The data confirms that agriculture has been relatively productive while industry has been stagnant* By 1986 industrial employment had fallen to 70 percent of the 1970 level. III* RECENT ECONOMIC PERFORMANCE 10. The interaction of political and economic instability has plagued Argentina for many years. The average term for a Minister of Econoqr during the last 30 years has been less than 1 year. The range of policies tried is remarkable. More than a decade ago, Mallon and Sourrouille -7- (1975) indicated some of the problems involved in making policy in this type of milieu and highlighted the general lack of consensus behind many of the oolicy decisions. Until relatively recently attempts to achieve consensus have been frustrated. Selected indicators of the resulting swings in economic aggregates since 1978 are given in Table 2. 11. Policymakers are generally faced by skepticism from those only too quick to point out that each "initiative" has been tried before. A casual reading of recent policy initiatives seems to confirm this view. If one goes back to 1957/58, one finds a one-year wage freeze resulting in fiscal surplus and low inflation rates but failing to produce an increase in real investment. In the early 1960s, low real vages and attractive terms to foreigners produced a surge in investment. However, a poor harvest, reduction in cattle stocks and high beef prices led to an erosion of confidence in the econoMr. In the mid-1960s, one finds the other side of the policymaking pendulum with expansionary monetary, fiscal and wage policies. This led to a wage-price spiral, higher public deficit and again a loss of confidence. Following a military takeover, the new economic policy included price and income controls together with an exchange rate devaluation of 25 percent. While inflation was reduced to 10 percent and fiscal accounts improved, a fall in grain prices triggered another beef cycle and soon led to a collapse of the program. Following the turbulence of the early 1970s, there was again a period of high wages. This was combined with an inward-looking policy package, control on foreign investment and nationalization of bank deposits. Initially GDP and consumption increased but by 1975 high inflation, increasing fiscal deficits, price distortions and supply shortages were aggravated by a -8- European ban on Argentine meat imports and higher oil import costs. This undermined the economic policy, led to nhaos and eventually led to a military takeover. 12. The incoming regime in 1976 moved back to an outward-oriented strategy. The fiscal deficit was initially reduced due to higher real receipts as inflation rates dropped and the introduction of some temporary tax increases. However, as inflation resumed in 1979 a new course was adopted. The peso was devalued vis-a-vis the US dollar at a lower rate than the inflation rate. The overvaluation of the peso led to a surge in imports, deindustrialization, financial insolvency for many enterprises, deterioration in both the net external position and fiscal accounts so that finally the program was abandoned in March 1981. However, the large external debt accumulated in the period continues to be a major problem for policymakers. Following tb.e South Atlantic War in 1982 and accession of President Alfonsin in late 1983, the economy was faced by increasing inflation, deterioration in the balance of payments and an industrial recession. In late 1984, the Government entered into a 15-month standby agreement with the IMP and in 1985 rescheduled its external debt with commercial and official creditors covering its obligations up to end-1985. In the first half of 1985, economic conditions worsened, Government was unable to adhere to the program and the standby agreement was suspended. The stage was set for the Plan Austral.1/ 1/ For a more detailed description of the Plan Austral see Frenkel (1987) and Heymann (1987)* -9- Plan Austral 13. Plan Austral combined some heterodox measures with more traditional orthodox measures. In order to break inflationary expectations the Government moved from gradualism to shock treatment. The key elements were a wage price freeze, tight fiscal and monetary policy and monetary reform. A new currency, the Austral, was introduced with the exchange rate fixed to the US dollar. Non-indexed contracts were converted into the new currency according to scales designed to eliminate the capital gains and losses due to the drop in inflation. Results of the Plan To Date 14. The immediate results were: a fall in inflation from near byperinflation levels to around 2 percent per month for the second half of 1985, money demand increased with M1/GDP growing from less than 4 percent to over 8 percent, while the trade surplus for 1985 was US$4.6 billion. The public sector deficit vas 6 percent of GDP lower in the second half of 1985 than the first half. In late 1985, the economy began to recover and for 1986 rebounded with a 5.5 percent growth rate. 15* As indicated above, there have been many failed attempts at stabilization in Argentina. Many reasons can explain their failures but in the final analysis the main reason has been unsustainable pressures from competing groups on resources. The present government seems to have adopted a pragmatic approach and demonstrated a more flexible attitude while not sacrificing the fundamental objectives of reform. It recently - 10 - sought to broaden its political base by introducing a Minister of Labor with a strong base in the union movement. It remains to be seen whether this strategy can evolve into a viable social pact and lead to a coalition sufficiently stable to resuscitate investment activity. 16. The initial period after the Plan Austral saw relative success on the inflation front but gradually it became clearer that revitalizing the sluggish economr would be more difficult than expected. Indeed the success on the inflation front made more evident the many deep-rooted problems that had festered for the past 20 or 30 years. While the agriculture sector was quite competitive, much of the industrial sector had become accustomed to doing business in a heavily protected market. Selected indicators of incentives and external trade are given in Table 3. One notes the instability of the real exchange rate which is a contributing factor to the variability of exports. More recently, shifts in terms of trade exerted a further negative influence on exports. Large swings in real wages and interest rates are indicative of the unstable economic policy climate. Similarly the public sector had not emphasized efficiency during more affluent times and had also absorbed many inefficient enterprises. Since society had adjusted to this way of doing business, there were many socio-political groups who viewed major changes as a threat to their interests. This, in particular, applied to labor markets which were dominated by highly politicized unions, and to various entrepreneurs who enjoyed the rents from their oligopolistic position. Following the introduction of the Plan Av:tral, the inflationary smokescreen dissipated and it became much more difficult to accommodate such demands. This required that some net gains be available for distribution (a positive sum - 11 - game) which in turn meant that the econoqr should be moved without too much delay onto a positive growth track. 17. The initial conditions for the plan Austral differed from previous plans largely because of the external debt burden. This stood at US$46.9 billion as of end-1984. The transfer needed to service this imposed severe restrictions on policy options. The possibilities of financing investment over the medium-tem may be analyzed by considering three aggregate accounts: private, public, and external (see Table 4). As the reform of the public sector takes hold it is expected that expenditures on that account will be used more efficiently in time. However, in the short term, only limited additional resources can be anticipated from that source. The external account is in surplus to service the debt so that net transfers on that account are of the order of US$2 billion per year out of the country. Most of the external debt is now a public sector obligation so that net public sector savings will be close to zero at best in the medium term. This in turn means that the burden of financing investment falls on the private sector. The private sector in turn casts an anxious eye on the Government's ability to meet its obligations without either higher taxes or convincing the private sector to absorb domestic debt. They suggest that expenditures be reduced by more prudent management and perhaps some privatisation. They argue that this would reduce financing needs, lower interest rates, and then stimulate investment. IV. PROJECTING TO THE YEAR 2000 18. In making projections of the economy to the year 2000 for Argentina one inevitably has to make many assumptions. One possibility is - 12 - to make an assessment in terms of the three elements identified in Section II. (a) As best as can be judged from the information available the political/institutional/economic milieu seems relatively stable. The main groups. labor, entrepreneurs, Government and political parties seem to be working towards a viable modus vivendi while the military are relatively passive for the moment. Inevitably some groups will be disgruntled but a steady growth should help to provide options for diffusing some demands. (b) Will there be adequate levels of factors of production? In terms of natural resources Argentina is well endowed with a large rich land base, and substantial energy resources. The annual growth of the labor force is projected at 1.5 percent. While the quality could be improved by well-directed investments it is unlikely that the size of the labor force will be limiting in the near future. The limiting stock variable is likely to be fixed capital. (c) The third element, productivity, is expected to improve as the program of structural reforms takes hold. This will center around a freer trade regime, reform of the financial sector and a restructuring of the public sector. - 13 - Investment 19. As indicated earlier the recovery of investment has been sluggish in the last few years. Traditionally, investment by Argentine entrepreneurs has followed public investment. Consequently some pump priming by the public sector is needed in key areas of infrastructure such as telecommunications/postal system. The debt burden restrains aggregate investment. However, when the present debt restructuring exercise is complete it is estimated that the econonr will be able to increase investment steadily and by the 1990s return to historic levels of around 20 percent of GDP. The medium-term estimates for financing this my be considered in terms of the three accounts mentioned above. The public sector deficit would be close to zero. This means that the current account surplus for that sector would be essentially equal to capital expenditure, approximately 7 percent of GDP. The trade surplus (i.e. negative savings) would average around 2 to 3 percent. The remaining account, private sector, would then need to generate savings of around 15 percent. While requiring improvement above private sector savings performance in recent years, this seems comparable to what has been achieved historically. 20. A preliminary estimate of the effir.iency gains needed can be obtained from a Dennison style source of growth accounting exercise. Table 5 lists estimates of the contribution from two factors, labor and capital, while the residual may be attributed to technical change or productivity. The labor contribution has been relatively steady and in this table is projected to contribute about 0.7 percent to the GDP growth aggregate for - 14 - the medium-term.2/ As investment sagged in 1980s, the capital stock 3 is estimated to have decreased so that by 1985 its contribution became negative. As capital accumulation resumes and historic levels of Inv/GDP of around 0.2 are attained it is projected that the contribution of capital to growth of GDP will increase steadily towards around 1.8 percent per annum. The residual is estimated at a peak of 4.88 percent in 1986 and gradually tapering off to around 1.2 percent towards the end of the century. The high value in 1986 is based on actual data while the levels predicted towards the end of the period seem reasonable from comparative studies in other countries and even from Argentina's own experience. However, in order to achieve the efficiency gains predicted in the transiti3n period it is essential to maintain the thrust of structural reform. The principal areas envisaged are in public sector, financial sector, and trade. We now move from this broad aggregate approach to consider more detailed projections for the econony. Detailed Projections 21. A schematic diagram is shown in Figure 3 of the projection process. The process of obtaining a "good" projection is relatively complicated. While the basic analytical framework is simple there are a great many inputs and iterations before a final output is produced. Even 2/ Recent work by Orsatti and Beccaria (1986) suggest that labor share may be substantially less so that the labor contribution should be reduced but this does not affect the broad thrust of the argument here. 3/ The capital stock series used here is derived from a one sector perpetual inventory model with the base year level for 19T0 obtained from Goldberg (1986). Their work provides a much more detailed analysis of captal stock for the period. - 15 - then it is subject to change as new or updated information becomes available. The sequence is roughly as follows: (a) establish acceptable targets for growth, change in reserves, public sector deficit, and possibly per capita consumption and inflation; (b) compute exports. This requires price forecasts, estimates of growth in principal markets and any new domestic initiatives; (c) estimate imports by various categories, food, intermediates, and capital goods. Historic levels provide a first estimate. (d) complete current account and estimate new foreign flows required; (e) estimate gross investment needs for the growth envisaged; (f) check savings/investment/financing balance; (g) check public sector accounts, deficit, inflation. The process is then repeated until the three main balances (foreign exchange, supply and demand for investment) are consistent both with each other and with what best opinions think acceptable. A set of principal assumptions for a recent World Bank exercise are given in Table 6 while key variables for a base case scenario are given in Table 7._/ / Data available for the early part of 1987 suggests that the current account deficit for 1987 may be even greater but the medium-term trends still seem tenable. - 16 - 22. Projections of the deficit of the nonfinancial public sector together with its financing and an estimate of inflation are given in Table 7. What the projections show is a reasonable growth rate through the medium term of slightly less than 4 percent per annum. 23. This would be led by recovery in the industrial sector through imp:oved availability of intermediate and capital goods. In 1986, agriculture suffered from unfavorable weather conditions on the domestic side while in external markets it continues to suffer from poor access and depressed prices. Underlying these projections is the assumption that the public investment share will show a modest increase in line with fiscal constraints while private investment will begin a more robust recovery after two to three years. This is predicated on continued reduction in the fiscal deficit, improved efficiency in the public sector especially in parastatals, stronger private sector role, steady policy reform in the financial sector so that more funds at appropriate rates are available for investors, and on a systematic move to a more open trade regime. 24. The current account deficit in 1987 is projected at close to US$2 billion, or slightly better than the 1986 level of US$2.6 billion. The deterioration in 1986 to US$-2.6 billion from the 1985 level of under US$1 billion was largely because of a reduction of US$600 million in value for cereal exports. About 80% of this fall may be attributed to reduced prices while the remainder is due to decreased volume, due to weather conditions and increasingly tough competition due to European and U.S. subsidies. On the import side in 1987, intermediate goods, at US$3.7 billion are expected to be more than US$1 billion higher than the severely constrained levels of - 17 - 1985. Some of the deterioration on the trade account is offset by lover interest payments due to lover interest rates. 25. Total debt outstanding is also projected to show modest growth in current US dollars through the 1990s. However, various credit indicators such as debt/exports, debt/GDP are expected to show steady Improvement while the aggregate debt in real US$ is projected to fall steadily. The debt rescheduling assumptions should be viewed as indicative of one possible outcome. The situation could be much improved by further reductions in interest rates or significant private capital inflow of either new or repatriated funds. 26. The set of projections discussed above do not assume any shocks, historically an unusual situation. Even so, underlying these projections is a growth in consumption per capita of around 1 percent per year. Following the major setbacks in per capita income in recent years, the 1986 level is about 10 percent below the 1970 level. 27. The recovery of the economy from the low point of 1985 together with a continuation along the lines of the base case scenario suggest a medium-term annual growth rate around 3.7 percent of GDP. Even this will result in average per capita consumption levels recovering to their 1980 levels only by 1990. Some consideration should be given to the possibility of improving the prospects by a carefully targeted short-term increase in public investment levels in 1987 and 1988. This should be associated with a reallocation of public investment priorities. - 18 - 28. It is important to consider the possibility of inflationary excess demand pressures. As typically about 50 percent of public investment expenditure goes to construction, this would create a medium substantial increase in activity for that sector. However, the sector is one of the most depressed, accounting for only 3.8 percent of GDP compared with average levels of 6.5 percent in the 1970s so that inflationary pressures from this source should be minimal. Perhaps the principal risk is that such an increase might be seen by some groups as a slackening of various reform efforts on expenditure. This would need careful attention so as not to reignite inflationary expectations. Inflation 29. Real factors such as population and capital accumulation will be critical determinants of the evolution of the economy over the medium term. However, Argentine economic history suggests that inflation and, in particular, the associated instability effects on the real economy must be considered. In the short term the below the structural approach seems best for analyzing inflation.5/ Over the medium term analysis shows a strong relation between the budget deficit and inflation. If the public sector deficit could be reduced close to zero, there is general agreement that this would have a highly favorable impact on inflation, inflationary expectations and overall confidence in the policy regime. The problem is how to do this and over what time frame. The non-interest public sector deficit together with interest obligations on domestic and foreign debt can ff Analysis of inflation from a structural viewpoint is given in work by Frenkel (1984) and Heymann (1986) while Gerchunoff and Bozzalla (1987) provide an interesting analysis from a socio-political perspective. - 19 - be financed by a combination of four principal avenues. These are increases in foreign debt, increases in domestic debt, seignorage gain and finally the inflation tax. Increases in foreign debt are subject to agreement with foreign lenders while domestic debt cannot be prudently increased much above its present level of about 25 percent of GDP. Seignorage gain comes from increased growth rate for a given level of monetization of the econoMy. The remaining "source" of financing is the inflation tax. The amount of this tax results from the interaction of two effects. Higher inflation tends to increase the tax but at the same time increase in inflation also reduces the monetary base. Thus there is no unique answer to what each source of financing should contribute to various deficit levels. A range of possible choices consistent with public sector deficit levels are presented in Table 8.6/ In this table the role of domestic debt is essentially neutral. This means that new domestic debt can be issued to cover the costs of existing debt. If there were any significant increase in domestic debt above present levels this would exert further inflationary pressure. Other combinations can be developed as needed for alternate variable choices but the key feature is that for given availability of net external flows the level of the deficit is determined by the equilibrating inflation level. 30. In a simplified structural approach one may consider three types of prices: public services, mark-up policy and market pricing. As the reform of the public sector proceeds it should be able to aim for cost recovery and pass on efficiency gains to the public to contain inflationary pressures. Relatively competitive sectors with some degree of external 6/ The deficit for 1986 was 3.6% of GDP. - 20 - competition should have the discipline of market pricing. For the remaining sectors especially where producers enjoy some degree of monopoly or oligopoly power in a protected market some form of "workable" wage policy or social pact is needed. As stability ensues and a positive sum game results this difficult problem should become more tractable. In the medium term, with stability helped by a social pact and the public sector deficit close to zero, much lower levels of inflation would be consistent with both the structural and monetary approach. Risks 31. Finally, we mention a number of risk factors that could have a major impact on the scenario outlined. (a) Domestic Concerns. Perhaps the major consideration is that the momentum of the Plan Austral be sustained and that the Government bring inflation down without renewed recession. This, in turn, requires a judicious balance between a healthy growth and a responsible fiscal and monetary policy and a smooth transition to freer prices and wages. The thrust of present policy together with adequate external financing could ensure this. Smaller real external flows would pose a difficult dilemma for policymakers as they would then be obliged to trade off growth and low inflation rates, especially in the short-run. (b) Higher Growth Scenario. If it is decided to opt for a higher growth then additional external financing would be needed for the - 21 - first few years. This could be used to support higher public investment level (through increased imports) to improve production and, in particular, export capacity of the nation over the medium term. It is essential that, if such financing becomes available, it should not be used for nonproductive purposes but rather to speed up the pace of structural reforms. (c) Interest Rates. As noted, the external debt level is around US$50 billion so that each 1 percent/year reduction (increase) in interest rates (and margins) would reduce (increase) the total interest burden by US$500 million per year. Thus, full use should be made of financial engineering to try to moderate the impact on the broad thrust of economic development. (d) Export Prospects. Any slowdown in OECD growth would have a negative impact on export prospects. A crude estimate of Argentine export elasticity is 2.2 with respect to OECD growth so that a slowdown in GDP in those economies of about 1 percent per year could be reflected in a loss of exports of US$200 million per year. However, at a less aggregate level, manufacturers are more likely than agriculture to be effected by such changes. (e) Terms of Trade. There is a need to diversify exports including agricultural exports. Surpluses in major grain suppliers such as the U.S. and Europe together with increasing self-sufficiency ratios in major markets such as the Soviet Union, China and India - 22 - does not augur well for near-term prospects to traditional Argentine exports. Serious consideration is needed for a major restructuring of agriculture to meet changing demand patterns in world markets. The newly available markets in Brazil may provide some time to cushion the transition but inevitably this market will also fluctuate as that country's economic fortunes change. Conclusion 32. Given the evidence to date from the experience of other countries and its own indifferent economic record in order for Argentina to achieve an improved growth performance for the remainder of this century it should pay particular attention to three broad areas: (a) stability-political/ institutional; (b) generating adequate investment levels; (c) providing a policy milieu to encourage productivity and efficiency. 33. In order to achieve a stable economic/institutional climate it is essential to have a broad consensus for economic policymaking. This in turn would help policymakers focus more of their attention on the real economy and theu medium-term rather than financial issues and the day-to-day problems. When policies do not seem to be working satisfactorily it is essential that decision makers allow them to bend or be replaced and not stubbornly wait for the inevitable break. The drive towards a social pact is a welcome step in this direction. - 23 - 34. At a somewhat higher level some consideration should be given to bolder medium-term approaches to stability. Some European countries such as Italy, Spain and Portugal have sought to achieve both political and economic stability through the European Common Market. Others such as Austria have given favorable conditions to attract international organizations. Argentina should seek to extend its economic/political horizons to moderate some of the more severe shocks that have been quite damaging to its progress over the last few decades. 35. In a modern context such politico-economic liaisons do not necessarily have to be with geographically adjacent countries. One should explore possibilities with Europe and the Pacific Basin. 36. Improvement in the deployment and composition of productive factors and capital accumulation, in particular, should be improved by structural reform. These reforms would include redefining the role of Government and public sector restructuring, a more open trade regime, together with the reform of the financial sector. This would improve overall efficiency and productivity of the econony. The trade reform should also help the country to extend its horizons in a broad sense. This would position the country in the years ahead to facilitate the introduction of new management approaches together with technical change especially in areas such as informaties, bio-engineering, and energy. It would also help expand Argentine markets not only in areas with immediate promise such as Brazil but also in the rapidly expanding regions outside Latin America. References Baumol, W.J., 1987. "Entrepreneurship and the Long Run Productivity Record", Economic Research Report #86-04, Department of Economics, New York University, New York. Chenery, Hollis B. 1986. "Growth and Transformation". In H. Chenery, S. Robinson, and M. Syrquien eds. Industrialization and Growth: A. Comparative Study. London: Oxford University Press. Clark, C. 1940. The Conditions of Economic Progress. London: Macmillan. Trenkel, R. 1984. "Salarios industriales e inflacion. El periodo 1976-1982", Desarollo Economico, October-December 1984. Frenrcel, R., Fanelli, J.M., 1987. El Plan Austral: Un Ano y Medio Despues, CEDES, Buenos Aires. Gerchunoffs P., Boszalla, C. 1987. Potencialidades y Limites de un Programa de Estabilizacion. Reterodoxo: El Caso. Argentino (miseo). Goldberg, 8., lanchilovici, B., 1986, El Stock de Capital en la Argentina, Secretaria do Planificacion (mimso). Heymann, D. 1986. Tres Ensayos sobre inflacion y politicas de estabilizacion, Buenod Aires: CEPAL, 1986. Reymann, D., 1987. The Austral Plan, The American Economic Review, Vol. 77, No. 2. Hirschman, A., 1958. The Strategy of Economic Development, New Haven, Conn.: Yale University Press. Kuznets, S. 1966. Modern Economic Growth, New Haven, Conn.: Yale University Press. Mallon, R.D., and Sourrouille, J.V., (1975). Economic Policymaking in a Conflict Society, Harvard University Press. Cambridge, Ma. Morawets, David. 1977. Twenty-Five Years of Development 1950-1975, Published for the World Bank, The Johns Hopkins University Press. Baltimore and London. Nishimizu, M. and Page, J.M. 1987. Economic Policies and Productivity Change in Industry. An International Comparison. The World Bank (mimeo). Orsatti, A. and Beccaria, L. 1986. La Distribucion Personal del Ingreso en El Gran Buenos Aires en El Periodo 1974-1983, CEPAL, Buenos Aires. World Bank. 1986. World Development Report 1986, Oxford University Press. FIGURE 1 GDP GROWTH RATE V. GNP PER CAPITA (1964-1982) * Jordan G 9 P 8 & orea G : *adomeals' 0 Eador R O 7- o rwnsa Malysia o o brail w aTunisia 0 Mexico T 0eaoe"Doato. Rep. 0 OAlgeria H 6 ig*eris 0 * oOD c.8 Pht1t t8sa Tomb Tuxoslav't1 R amita comeree 0 Coot*ml 0 Gee A S-**** Moroc"*o oPorta.. 0 cy p,1" T 0 Venezuela OTriidaed & Tobago E ~~ Tasents 08rt laks a U'oua Spaia -4- mal0Togo 0 Seebta 0ioSt Salladod ftiopla 0 Barkina asePe P3 P 3 0saftldesb0 Argentina E : o***I*tua* Oseegal*Uuga R 081*ORcarogwas 2- o0nt. Ar. Rep. a Chle A 0 lomser N ONadageacar a Jamslca N 1 ame.. U 1M. 1 t0 OOf 000 . I0000 GNP PER CAPITA-1982 US$ Source: McCarthy, F.Dt, Taylor, L., Talati, C. *Trade Patterns in Developing Countries, 1964-82. Journal of Development Economics, to appear. FIGURE 2 Relationship between Total Factor Productivity Growth and Total Factor Input Growth Gv 8 Gy 10 Gv= 12 7 6 - Gv=6 Spain Is Honga pn 4 Gy =4 Germany . Italy p~orway a 16. a rance 3 - Sweden A) PhiliPPines 2 BlprA Turkey 2 8 Desnuaks cdc -Hon A~ 'Brazdl 1 . United Sta C Argentina A Venezuela\ 2 3 4 5 6 7 8 Total factor input growth (percent) Source: Chenery (1986). FISURE 3 Schematic of Projection Program year n-1, debt module, historic data Growth AY Change in Reserves AR Inflation Rate Public Sector Deficit d X Exogenous A . . M ...Y M-X+ R =>'d Investment, I, kAy Capital, AK+*K S +S +8 =I Public Sector Accounts, Deficit, Inflation Output for year n I year n+1 1984 19 20M 30.~r"a. T. 7~. 1973-e4 19-2000 Aqgmtm 1.6 1.3 Iepur M i = t 2.3 1.9 Iném Ga m~ Cotri 0.7 0.5 GQP Dar Capita cmP Br CApmt krae ml G~ot Rute (% 1984 1%55-m Agmm 2230 0.3 Uppr ~ Md Inw~ m~ 1950 3.3 Taötrial cmta 11430 2.4 MP - ra amml Gruth Rate - ff - - Agriculture- - azy - - Servic - 1_5-73 19 1965-73 1 - 1965-73 1 1965-73 1973-4 Argmm 4.3 . 0.4 -0.1 1.6 5.1 -0.7 5.5 0.9 UI0w M~ddle 7.7 ·4.5. 3.5 3.0 8.6 • 4.6 8.2 .5.1 imam~ra dnee 4.7 2.4 1.8 1.1 5.1 1.8 4.8 2.1 . Distrit*~m of D nd Com (1n=l. Gmje. GDI 0s 1965 1984 195 I9 1965 1984 Agandn 77 81 19 14 22 19 uepr MlIncom 76 80 23 22 24 26 inåm~erMa1CM~a s 76 79 23 21 23 21 No. ~2roled in Prift y No. kzolled in 88~miy No. Enrolled in a~ila er Sco as Purcentag of School an ercent of REan as Pere g Argna 101 107 28 60 14 25 1Mper aiddleIncam 96 99 25 55 5 14 IndmtrialCuntries 106 102 63 85 21 37 Iabor Force % of blp. of - of abor Force i-- rag Amael Gr~eth Wg Idsr Service Rate of labor Force 1965 1 195 190 1%5 1960 1965 1960 9 w190-2000 Argen a 63 61 18 13 34 34 48 53 1.1 1.5 UIperfMfddleaTr 54 58 45 29 23 29 32 42 2.6 2.2 Inustrial Omftri 63 67 14 7 38 35 48 58 1.2 0.7 Sorce: World D lm~ne port, 1986. 1a World ank, 1Vhiagon, D.C. 1984. T&le 2 SR mn i AGEGM', 197"-æ 1978 '1979 190 1981 1962 1963 1984 1985 1986 prlia. Gm Growth Rata -3.4 6.7 0.7 -6.2 -5.2 3.3 2.5 -4.8 5.5 Debt/~xport Ratio _a 1.6 2.2 2.5 3.1 4.6 4.7 4.7 4.7 5.6 Iateret/Epot Ratio (%) A 15.2 16.5 20.2 33.3 51.7 57.0 55.2 50.1 48.9 Total Debt/CW (Z) /c 28 35 43 56 70 70 69 75 70 Intest Pa~ s/ (%) Id 2.6 2.6 3.5 6.0 7.9 8.4 8.1 7.9 6.1 Dabt Service Ratio (Z) /e 59 33 43 63 89 140 99 79 76 Ters of Trade /f 78 83 94 107 92 88 95 83 74 Iupart Grauth Rate / -4.9 45.4 45.4 0.4 -41.2 -2.4 3.5 -12.4 6.8 FVort Growth Rate / 12.2 -3 -4.9 5.9 -2.4 11.5 4.4 8.0 -12.5 orrnt a~en Ra1anæ (US$m) 1833 -537 -4767 -4714 -2357 -2461 -2391 -953 -2645 Totul Debt (Uw) 12496 19034 27162 35671 43634 45087 46903 48312 49073 /a Total dot æ lag short-ter/ezports go and MS; absout- ratio. ~ ' Total interst pqmits to ~orts af g~ds an 10S. 7- Total d . nu stort-term/®P. 7 Totat interæt pw ampts/GP. Total interæt anå æmtizatin M LT divded 1øe mports of go and nrfacltor srvices. Base 1970 - 100. 7 Ral growth rates i 1970 prics. Sour e: ffltal a. Table 3 INDICATORS OF INCENTIVES AND EXTERNAL TRADE. 1978-86 1978 1979 1980 1991 1982 1983 1984 1985 1996 6; Real Effective Exchange Rate Index (1970-100) 97.7 133.2 155.9 120.2 94.3 97.1 107.5 90.6 79.9 Annual change 11.1 36.3 17.0 -22.9 -21.5 -3.0 10.7 -15.1 -11.8 Real Interest Rates 11 Deposit Rate -1.5 1.2 1.1 -1.0 -5.6 -3.0 -4.0 -2.5 -1.5 Leading Rate -0.1 0.2 2.0 0.7 -4.6 -2.1 -2.6 -0.9 1.5 Index of Real Vages (1980:100) 31 80.3 93.6 100.0 114.3 109.9 159.0 167.6 124.5 117.9 Ratios of Domestic Energy Prices to International Prices 4/ Gasoline 2.4 2.0 2.6 1.9 0.9 1.4 2.3 2.2 n.a. Kerosene .. .. .. .. 0.3 0.6 0.6 0.7 n.a. Bas oil 1.8 1.1 1.6 1.2 0.5 0.9 0.8 0.9 n.a.- Fuel Oil .. .. .. 0.6 0.3 0.7 0.6 0.8 n.. Volume Index of Exports (goods) Index (1980-100) 118.0 114.4 100.0 113.2 110.4 126.0 123.4 143.3 126.8 Growth rite 9.4 -3.1 -12.6 13.2 -2.5 14.1 -2.1 16.1 -11.5 Trade .Value 4? of world total) Exports 0.53 0.51 0.43 0.49 0.44 0.47 0.46 0.47 0.36. Imports 0.31 0.43 0.55 0.49. 0.30 0.26 0.25 - 0.20 0.23 Manufactured Exports 5/ Real growth rate -1.1 9.7 -6.6 4.5 -6.4 -10.0 9.9 17.4 -12.3 Value as share of total exports 59.9 59.5 59.1 54.4 60.2. 51.4 56.7 56.0 55.5 Commodity Terms of Trade Index (1980=100) 93.5 9.4 100.0 113.8 99.5 94.1 101.7 98.8 79.4 Annual change -10.0 5.9 13.1 13.8 -13.4 -4.4 8.0 -12.7 -11.7 11 Monthly average of regulated interest rates, 30 days. 2/ Corresponding values are -5.72 for the first half of 1985, and 4.151 for the second half. 3/ INDEC, Real Industrial Vages, average of official blue collar. 41 Domestic prices obtained using the official exchange rate. 51 Includes manufactures of agriculture and industrial origin. 6/ Preliminary. Source: Central Bank. uable 4 BALANCE OF 8AVINGS, INVESTMENTS & INTEREST PAYMENTS (2 of GDP) 1972 1977 1982 1983 1984 1985 1986 eat. Private Sector Saving (Sp) (Non-Interest Current A/C) 19.0 19.1 18.4 23.1 20.9 14.3 9.7 Transfer-foreign (Tfp) b 0.6 0.3 0.9 2.3 3.1 2.1 0.9 Transfer-domestic (Tdp)c -0.6 -1.4 -6.5 -1.0 -0.8 -0.8 -0.9 Investment (Ip) /a 13.7 13.2 9.9 7.8 8.5 6.8 7.4 Net 5.3 7.0 14.1 14.0 10.1 6.2 2.3 Public/Govt. Sector Saving (Sg) (Non-Interest Current A/C) 4.0 8.0 1.3 -4.4 -3.9 3.8 6.7 Transfer-foreign (Tfi) /b 0.5 0.6 5.2 5.0 4.2 4.7 4.7 .Transfer-domestic (Tg) /c 0.6 1.4 6.5 1.0 0.8 0.8 0.9 Investment (Ig) 8.5 11.1 .6.7 6.4 3.9 3.8 4.5 Net -5.6' -5.1 -17.1 -16.8 -12.8 -5.5 -3.4 External/Foreign Sector Saving (Sf) (Trade Deficit) -0.8 -2.8 -3.1 -4.5 -4.6 -7.5 -4.5 Transfer (Net PSY) /b -1.1 -0.9 -6.1 -7.3 -7.3 -6.8 -5.6 Net 0.3 -1.9 3.0 2.8 2.7 -0.7 1.1 Total Balance 0 0. 0 0 0 0 0 Memo Items: Gross Investment/GDP 22.3 24.3 16.6 14.3 12.4 10.6 11.9 GDP (US$ billion) /d 23.2 43.6 62.0 64.8 68.0 64.8 70.0 /a Including changes in inventories. Investment uses BCRA, National Accounts, definition. This differs from that used by Ministerio de Economia in its public sector accounts. /b Interest and net direct investment income. 7c Interest payment on debt by public sector to private sector. Td 1983 GDP converted at official rate and then adjusted by GDP real growth rate and U.S. wholisale price index for the other years. Sources: Tables 2.6, 2.8, 3.3 and 5.2 of the Statistical Appendix. Фй��У•.pууΡ¢Nf "в�'StiуΡ�oв��и"'й^Q .�:$.°л пw°� `�O й°v рΡ� О уΡ� Р Р� О tA д g .рΡ ,УΡ���. � Чв�1 W О в �в � V S� W� О ОNЙ Р V V V� Ф^r О?��W ���W Ч��1 М� � Р Af•еЛr вФ �.О ОЧ 4Й W дОФ О 440 ^.+Ф 00 0004000 � Ч Ч Ч и Ч W Ч W Ч Ч Ч Ч Ч в U� f V V V v М V V V V V Ф Ф~ в� V и1 � V Ч Р у И�уΡ �� Ф д Р рΡi дрΡv ьЧW�. ЧрΡ�r,/� О Ч♦ ЧV АΡ•�$�' +V V ' .~О� v 0 д ЙМ в•~• �� wN �О G.O Ф�ФЧЧФ Ч� �Ч��� К ФЧФ^ �аwр� О:О О.Фw� ФО ОО ОООО ОО ОФ ФО О.� О • t • в J в М Т Ф Ф Ф О О О Ф� О Ф Ф • V' О v С Ч И +О t П � Ч W Р?. tl М{ А � . Г М ЧЧЧЧЧЧв�� -s^ Чв�уЧ� д О bФ ФФ+в+1 vv Р Р Р Р Ч V Ч � в.v ww►зwr..r .н �^ п i.. т вw �- а. :w :. т iw й iл iw м а а� w:� Ф.w г.. �о о. w... Ф а у. о т�л w ... ... ... .. ь. .. .. ... ► .+ ь. ь. .. .. � . � %вswiл%wswiл iлswйтл й�лёwыйiл '$ .. а оеюо1е�fге.iдNоеееетдаооееоеоо.веЧо1е.fЧдев.�ооwfwове � в�Ч• � О О О О д Ф V Р sw М в W Ч r Ч в Р 4 1 Ч 1.N. �в 1N О О в~. Ч Ч в•�. � н�$����� �� ���� ����i4� �g� �С ��q LS����������й����S��Y :��#��v�����lS � Ч М в в Ч Ч Ч Ч sw М О Р ы� Ч i� Ч О iв Ч Р Ф«в р W Й Ч�О Р Ф О . �: Ч Ч Ч Ч ЧрΡ W Ч Ч Ч Чm Чд Ч в в в 1уΡ� уΡ1 в.qв �в Ч Ч.рΡ 1 Ч Ч Ч Ч Ч Ч Ч ЧрΡ '�СΡ � о 1Р+ Ч Ч{!� V� Ч v W О•о +О wЧв М�О �О i Ф Ч Ч Ф Ч•У V ьв S� О в► Ч s � �wiрΡ��рΡëи°ФV•�иZ.q°уΡ{�.�рΡ+���3vрΡ��'.~wЧуΡрΡ�" Ч `рΡ.b' v♦ С . ьд..�ОО Ч•У Ф О МЧ в vО ЧО��д�Ч�������Р М �� i+ W Ф� в11'Р Ф д.О < Р�i О О i.. Р �в .О �О ��О /V'�в О i.в Ч�в в Ф�4 Ч Ф вЛ�'в . . • • � � • п й еаоеоееое®еееееееееееоооеееоеоо $ .вi..вi�vwvvчv.вiw.вivv.вi�v���'sw�3vvv�ad��:oS � � . О О Ф О О D О О 0 О Ф О Ф Ф Ф О О О Ф Ф Ф О О О О д О О q О О � sл �. й%n и ап aw й й и 'л Sл й й й �л вw •.л ь uL�iEi .Y�ai�'iиЧи%вw�'.rЧwwЧЧ`L�iыЧнww•.."iL"Ч•i.`ZY'S.i�i•'.-.. Ч Ч Ч Ч Ч W Ч W Ч Ч Ч Ч Ч в Ч � i в Ч N L Р N Р W Р� Ф М Ч в Ч ` • v v v v V v v v v v Ф Ф V:� V Р Р W 4 Ф в V в в t, в в V в д v � Ув nв 1вв вв Ув Мв вв М У 1в �в 1в� V/� Н 1� �вв �в �+ r 1+ !в 1� Fв вв вв �в вв 1в Ув \ � ew Ч й гл й aw й �w й й iл Ч й ëw й N V Р V Р а� Р iв Ф Ч Ф:о Ч.О М � йО п й Ч W Ч Ч Ч Ч Ч N Ч в w+ О О О b О Ф М N Ч Ч Ч в Ч Ч Ч Ч W� � �� Ч Ч Ч О V�в в� Ф Ч Ч b Ч Й Ч Ч V� в� V N�О ь+ Ч� Ч Ч•.1 О � О О О Ф О О О О О О О О О О 0 О О О 0 О О О О О О О О 0 О О ``� V+1 .,1 у V� V V V уΡ V Ч V V `+1 Р V е. iЛ .p Р Ф V .-ФOrr rв..в.•000ra�в�r►iPP�iVйOrMв gr � ь� вв►в� �..+ы�00дрΡО0рΡ0С�lФд д�в1в�ы�в�в�NыуΡ�ь.в�..ЧИ уΡ� ~ � i V� б� М Ф W�� Ч s,вw Ф N� V V О в� V О � Ф Ч Ч в.РО д Ч О � . � МOЯ• в+ � ы�. w.~ r в� r r N► д Ч Ч Ч 1 в Ч w в� Ч Ф� 1 Ч Ч Ч Ч Ч в. i. О � в� ' д в~+ Ч N ` Ч ь' �. Ф а уΡ� Ч О • О• д Р Н уΡ� Ч д Ф рΡ ►� О д м � L О iЛ Р Ч 9� Ч V� iП Ч� ив N Ч� Ф Vв Р V�О 4 � У О . � • �3�3а����������������333�����з� Ф О О О О О О О 0 О О Ф О О О О О О О О О О Ф О О О Ф О О О О �в.вв+ 5 �T4$s MY AMMONS USED IN BASE CASE PRWECTIONS9 1983-2000 11 1983 .1986 1967 198B 1999 It" I"l IM IM 2000 Average isport Price 2/. 100 89.1 ".0 100.3 10.2 112.6 11&5 120.5. 133.6 152.2 Average Import Price 21 100 106.8 ..108.0 116.6 12t.2 HM 122.8 I?A.4 137.1 143.9 Torn of Trade Index 100 83.4 03.3 86.0 69.3 ".3 ".9 95.3 97.4 105.8 Import Elasticity to .1.2, 2.3 1.7 1.6 1.5 1.3 1.3 1.2 1.0 Population 29.6 3M 31.6 32.1 32.6 33.1 33.6 34.2 35.8 39.3 LIBE famulizeS fi- momtksl 9.0 648 7.0 8.0 8.5 .9.0 L5 8.0 7.0 7.0 Exports (real I groutb rates) -11.5 9.6 2.8 3.7 3.1 3.1 3.1 3.1 3.1 Cereals -25.0 0.2 2.5 2.5 2.5 2.5 2.5 2.5 2.5 Wier Agricultural. Products 0.3 6.0 3.3 3.2 3.2 3.1 3.2 3.2 3.2 Fats and Oils 2?.b -7.7 -4.5 L2 2.9 3.0 3.0 3.0 3.0 Nanufacturn -15.3 23.9 4.5 3.6 3.4 M 3.4 3.5 3.5 11 Assumptions: a- Interest rates: M 115 for 19"7l 9.51 and 0.91 respectively; Bilaterals 9.1% from 19U onwards; private sources NILT HIM ever LIM9 sliort-ters and reserves 1.21 over LIBM. k- Rescheduling torn: 7 par saturity, 3 yiar grace. All existing private source NILT debt is reschedolei contlaouslyi 1& 1986 S 741 sillion dollars in arrears are paid and short-ters is converted lite NILT debt Aick is also resckedded contiamly. c- S 013 mill. dollars of total debt and to bilaterals is re"Kheduled, 10 year maturity, 5 year grace, of wbich 102 of the asortizations due plus capitalized inte- rests are paid during the grace years and tio rest is paid during the repayment law period. V US dollar index. Table 7 ARSENTIM - PROJECTI= OF KEY VARIABLES. 19 2000, 8ASE CASE SCENARIO prcentages and 1983 U.S. Dollars) 1995 1986 1987 1989 1999 1990 1991 1992 1993 1994 1995 2000 *- - -- ------------- -------- ............... ----- -- -- ------ ---------- --- - - - SIP groth rate -4.3 5.5 4.1 3.7 3.8 3.8 3.8 3.7 :.7 . 3.7 .7 WDPicapita 2069 2149 2201 2246 2294 2345 2395 2443 2494 2545 2598 Vf23 SNP growth rate -4.5 8.8 4.4 4.4 4.0 3.6 4.1 4.0 4.0 4.0 3.9 3.9 aNPicapita 1894 2029 2083 2141 2190 2234 2289 2342 2397 2454 2509 2945 US SP deflater (198500) 100.0 102.6 104.7 108.3 112.1 116.0 120.1 124.3 128.6 133.1 137.8 163.7 Private Investeent/public anvestuent 11 1.3 1.1 1.2 1.3 1.3 1.3 1.4 1.4 1.4 1.4 1.4 1.4 Public Investeenti/P (t) 21 6.1 5.3 5.6 5.9 6.2 6.5 6.8 7.1 7.4 7.7 8.0 8.0 Private InvestientJSOP-) 2/ 4.5 6.6 6.6 .4 8.1 9.7 9.2 9.9 10.3 10.9 11.4 11.4 gross Doastic Savings/DP (1) 3/ 17.3 14.4 15.2 16.5 17.5 18.8 19.4 20.1 20.8 21.6 22.3 *22.9 Exports growth Rate 31 8.0 -12.5 11.4 2.9 3.6 3.1 3.1 3.1 3.1 3.1 3.1 3.2 Exports/P () 2/ 15.8 12.6 13.3 14.0 14.5 14.3 14.1 14.0 13.9 13.8 13.7 15.1 Imports wouth Rate 3/ -12.4 6.9 9.3 6.2 6.2 5.6 5.8 4.2 4.6 4.7 4.6 3.7 laports/81P (1) 2/ 9.1 10.0 10.3 11.0 11.3 10.9 10.9 11.0 11.0 11.0 11.0 !2.1 Exports of Goods & NFS (aill) 21 -10242 9797 9939 11294 12502 13234 14080 14993 15947 16976 19075 24961 Imports of Goods & NFS (aill)2/ 5891 7025 7750 895 9752 10100 10896 11729 12594 13525 1410 19907 Current Account Balance-21 -953 --2645 -2227 -1869 -!707 -1570 -1494 -1195 -1229 -1053 -1036 270 Total debt outstanding & disbursed faill) 21 49312 49073 51636 53304 54971 56512 57995 59320 60145 60909 61409 60250 Total debt real (sill. 1935) 49312 47929 49319 49219 49037 48717 49281 47723 46795 45697 44564 !305 Average interest charge 10.a .8 9.1 7.9 9.3 9.7 9.3 9.0 7.8 7.5 7.6 7.9 DebtlSlP (W 21 74.6 70.1 68.9 6.2 43.6 60.9 58.1 5.4 52.4 49.3 46.4 34.2 Interest Payments/SDP (2) 2! 7.9 6.1 5.6 5.3 5.3 5.3 4.9 4.5 4.1 !.7 3.5 2.7 Interest Covegage Ratio 4 0.95 0.41 0.53 0.59 0.60 0.64 0.46 0.: - .72 0.76 0.7 1.46 Debt Service Ratio (1) 5/ 79.5 75.9 4.1 50.9 55.5 59.5 S0.6 58.9 56.9 54.5 !3.7 42.2 Debtlesports 4.7 5.6 5.2 4.7 4.4 4.3 4.1 4.) 3.8 3.S 3.4 2.4 11 Ninistry of Econoey definitions are used here. 21 At current prices. 31 At constant prices. 4/ Resource surplus,interest pavemts. 5/ Excluding short ter principal repayents. nay 29, 1997 Notes: Deat ir.clLdes public and publicly guaranteed, IF, prate aoa-guaranteed and short ters debt. Exports and imports include goods and non-factor servzes. NON-FIANCIAL PUBLIC SECTOR ACOUTS - A COIPARISD OF THE BASE AND HIGH SCE RIOS as percentage of 61P and US dollars) Base Scenario . Nigh Scenario 1985 1986 1987 1988 1999 19 1995 2000 1985 1986 1987 198 9 19 1990 1995 Revenues 27.3 26.8 21.1 27.5 27.8 27.8 27.9 27.9 27.3 26.3 27.1 27.6 27.9 27.9 21.9 Expenditures 25.4 23.6 23.3 23.0 22.8 22.6 20.9 19.7 25.4 23.6 23.2 22.6 22.4 22.2 20.3 Soverusent Cur AIC 1.9 3.2 3.8 4.5 5.0 5.2 7.0 8.2 1.9 3.2 3.9 5.0 5.5 5.7 7.6 Capital Expenditures 6.1 5.3 5.6 5.9 6.2 6.5 9.0. 8.0 6.1 5.3 6.6 6.9 6.6 6.5 8.0 Public Sector Deficit -4.2 -2.1 -1.8 -1.4 -1.2 -1.3. -1.0 0.2 -4.2 -2.1 -2.7 -1.9 -1.1 -0.8 -0.4 Possible Financing: Doeestic 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 Seignorage 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 Inflation tax 3.08 2.51 1.99 1.45 0.91 0 0 3.08 2.51 1.99 1.45 0.91 0 External debt -1.68' -1.41 -1.29 -0.95 -0.31 0.3 -0.9 -1.69 -0.51 -0.79 -1.05 -0.81 -0.3 iemo items: UDP Growth rate -4.0 5.5 4.1 3.7 3.8 3.8 3.7 3.7 -4.8 5.5 5.4 5.5 4.7 4.5 4.2 Current Account Balance -M95 -2645 -2227 -1869 -1707 -1570 -1036 270 -953 -2645 -2227 -2429 -2042 -1731 -934 08160P 74.6 70.1 68.9 66.3 63.6 60.9 46.4 34.2 74.6 70.1 68.2 65.4 62.6 59.6 44.5 Consumptionicapita growth rate -7.4 9.1 0.8 1.3 1.4 1.4 1.3 2.2 -7.4 9.1 0.6 3.8 2.4 2.1 1.7 Inflation rate (annual) 80 60 43 27 13 0 0 90 60 43 27 13 0 Note: This table follows definitions used by the Ministry of Economy. iay 29, 1987