Argentina - Economic recovery and growth

Report No. 6467-AR Argentina Economic Recovery and Growth May 19, 1987 Latin America and the Caribbean Region FOR OFFICIAL USE ONLY Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQU IVALENTS Currency Unit - Austral (A) Excharnge Rate Effective March 30, 1987 US$1.00 - 1.541 Austral 1O00 Austral - US$0.649 A 1,000,000 - US$649,000  F01 OFFIC USE ONLY 8CONOMIC MEMORANDUM ON ARGENTINA ECONOMIC RECOVERY AND GROWTH Table of Contents Page No. COUNTRY DATA EXECUTIVE SUMMARY. . . . . . . . . . . . . . . . . . . . . . . I -iv PART I. BACKGROUND.. *.....aou ND. . . *.... 1 CHAPTER 1. INTRODUCTION . . . .I. ..e.... 1 cUiAPTER 2. PIAN AUSTRAL ** .* ..* ..a* .a. 2 - Results of the Plan During the First Year . . 3 PART II. POLICIES FOR GROWTH . . . . . . . . . . . . . . . 5 CHAPTER 3. INSTITUTIONA. REFORM. . . . . . . . . 5 - Uncertainty/Rules of the Game . . . . . . . . 5 - Financial Sector Reform. . ........ . 6 - Procedures/Bureaucracy . . . . . . . . . . . 7 - Brazil/Argentina Trade Pact . . . . . . . . . 8 CHAPTER 4. MACROECONOMIC POLICY. ... . ... . . . . . . 8 - Resource Availability . . .... . .. . . . 8 - Fiscal Balance . . . . ... . ... . .. . 10 - Relative Price of Tradables . . . . . . . . 11 - Prices/Wages .........................a....a 12 - InterestmRates ...........a................. 14 - Public Investment . . . . . . . . . . . . . . 16 - Private Investment. *... ......... 18 - Industrial Sector. ........ .. ... 20 - Barriers to Growth.. ............ 21 CHAPTER 5. EXTERNAL BALANCE... ............. 22 - External Debt .... ......... . . 22 - Trade . . . . . . . . . . . . . . . . . . . . 23 CHAPTER 6. MEDIUM-TERN POLICIES AND PROSPECTS . . . . . . . 27 - Base Case . . ...... e 27 - Risks e* * * ** v ** * 31 This document hs a retrctod distributin and may be wWd by rcipionts only in te perfomnuc of thdr offcia dutiu Its contents my not othrwis be discsd wihout World Bankauthoriaton.  TABLES 1. Summary of Key Macroeconomic Aggregates, 1978-86 2. Indicators of Incentives and External Trade, 1978-86 3. Recent Indicators, 1985-87 4. Structure of the Financial System's Assets and Liabilities 5. Taxation for Corporation 6. Balance of Savings, Investments and Interest Payments 7. Non-Financial Public Sector Finances, 1983-86 8. Financing the Public Sector Deficit 9. Real Effective Exchange Rate, 1970-86 10. Product Concentration Ratios 11. Balance of Payments 12. Key Assumptions Used in Base Case Projections, 1983-92 13. Projections of Key Variables, 1985-1995, Base Case Scenario 14. Actual and Projected External Requirements and Financing, Base Case, 1981-94 15. Projections of Key Variables, High Case Scenario, 1985-1995 16. Non-Financial Public Sector Accounts - A Comparison of the Base and High Case Scenarios MAP (IBRD 12432R2)  PREFACE This report is based on the findings of a mission that visited Argentina in April 1986. The mission was comprised of: F. Desmond McCarthy (Mission Chief) Constantino Lluch (Labor/Eaplo7ment) Claudio Prischtak (Industry) William Tyler (Trade) Alberto Verme (Consultant - Private Investment) Thomas Boyatt (Consultant - Export Marketing) Javier Gonzalex-Fraga (Consultant - Monetary) Maria Claudia Franco (Research Assistant) Harutaka Hamaguchi (Young Professional) This document provides a brief overview of the mission's findinss. The mission's main focus was on the macro environment and did not del with many important sectors such so agriculture, mining and construction. Since the mission the Government has carried out a number of significaut policy reforms especially in trade policy and the public sector. These are in line with some of the report's recommendations and in such instances this report should be viewed as supportive of Government Initiatives.  GLOSSARY OF ACRONYMS AACRE Asociacion Argentina de Con- Argentine Association of sorcios Nacionales de Expe- Regional Experimental Con- rimentacion Agricola sortia ADMIRA Asociacion Metalurgica Argentina Argentine Metallurgic Association ANA Administracion Nacional de National Customs Administra- Aduanas tion BANADE Banco Nacional de Desarrollo National Development Bank BCRA Banco Central de la Republica Central Bank of Argentina Argentina BONAVI Bonos Nacionales de Intereses Variable Interest Rate Bonds Variables BONEX Bonos Externos Foreign Bonds (US dollars denominated Government Bonds) CEM Country Eeonomic Memorandum CEN Corporacion de Empresas Corporation of National Nacionales Enterprises CEPAL Comision Economica para Economic Commission for Latinoamerica Latin America (ECLA) CD Certificado de Deposito Certificate of Deposit CGIAR/CGR Consultative Group on Inter- national Agricultural Research CGT Confederacion General de Trabajo General Confederation of Workers CKD Completely Knocked Down CONADE Consejo Nacional de National Development Desarrollo Council CPI Consumer Price Index CRN Cuenta de Regulacion Monetaria Monetary Regulation Account (Interest Equalization Fund) DGI Direccion General Impositiva General Tax Directorate DIF Deposit Insurance Fund DJAT Declaracion Jurada de Temporary Admission Import Admision Temporaria Request DJNI Declaracion Jurada de Import Permit Necesidades de Importacion DNPC Direccion Nacional de National Directorate of Promocion Comercial Commercial Promotion FIEL Fundacion de Investigaciones Latin American Foundation Economicas Latinoamericanas for Economic Research FUNDECO Fundacion Economica Economic Foundation GATT General Agreement on Trade and Tariff GDP Gross Domestic Product GDFI Gross Domestic Fixed Investment  IBRD International Bank for Reconstruction and Development IDB Interamerican DeveloPm_nt Bank IFS International Financial Statistics IICA Instituto Interamericano de Interamerican Instltute for Cooperacion Agricola Agricultural Cooperation IMF International Monetary Fund INDEC Instituto Nacional de National Institute for Stat- Estadistica y Censo istics and Census INPE Institute Nacional de National Economic Planning Planeamiento Economico Institute INTA Instituto Nacional de National Institute for Agri- Tecuologia Agropecuaria cultural Technolog JNC Junta Nacional de Carnes National Meat Board JNG Junta Nacional de Granos National Grain Board LIBOR London Interbank Offer Rate NADE Nouenclatura Arancelaria de Customi Classification for Exportacion Exports MRESEX Programas Especiales de Special Export Program (PEX) Exportacion RER Real Exchange late REER Real Effective Exchange Rate sIC Standard Industrial Classification SIGEP Sindicatura General de General Comptroller of Empresas Publicas the Public Enterprises SITC Standard Industrial Trade Classification SKD Semi-knocked Down SMI Small and Medium Industry SNESR Servicio Nacional de Economia National Rural Economic y Sociologia Rural and Sociological Service TAR Temporary Admission Regime VAT Value-Added Tax VNA Valores Nacionales Ajustables Indexed National Bonds WPI Wholesale Price Index YPF Yacimientoo Petroliferos State Oil Company Fiscales  CONTRY DATA - ARIENTINA AREA POPULATION 9/ DENSITY 1/ 2766.9 thous. sq km. 31.1 Billion (19Db) 10.7 per sq. ik. Rate of Droeth: 1.6 16.9 per sq. km. of arable land POPULATION CHARACTERISTICS 1I HEALIN 2/ Crude Birth Rate Iper 1000) 23.6 Population per physician (thous.) 0.5 Crude Death Rate (per 1000) 8.9 Poulation per hospital bed Ithous.) 0.2 Infant Mortality (per 1000 live births) 34.4 INCONE DISTRIBUTION 2/ DISTaIBUTION OF LAND O#NERSHIP Z of national income, highest quintile 50.3 2 owned by top 102 of owsn lowest quintile 4.4 2 owned by smallest 102 of owners ACCESS TO SAFE WATER (1980) ACCESS TO ELECTRICITY 11980) Z of population - urban 65.0 2 of population - total 07.0 rural 17.0 NUTRITION 1/ EDUCATION Calorie intake as I of requirements 119.2 Adult literacy rate 2 93.0 31 Per capita protein intake (gram per day) 99.7 Primary schowl enrollment 2 107.0 1/ SNP PER CAPITA IN 1986: US * 2153 41 EROSS NATIONAL PRODUCT IN 1996 81 ANUAL MROMTH RATES (2, const. prices) US S Nm. 2 of GNP 1970-75 1975-80 1900-85 1996 8) GNP at market prices 6661.1 100.0 2.9 1.8 -3.4 7.1 Cross Domestic Investment 8257.6 12.5 1.9 4.4 -16.2 18.5 Bross National Savings 7487.9 11.3 0.5 2.0 -13.8 -7.0 Current Account Balance -2645.0 -4.0 Exports of 6oods & NFS 8797.0 13.3 -4.7 14.1 5.2 -8.6 Itports of Wonds & NFS 7025.0 10.6 0.6 13.3 -13.0 16.9 OUTPUT, LABOR FORCE ND PRODUCTIVITY IN 1986 U/ 'Value Added Labor Force 5/ V.A. Per worker US $ "In. 2 Thous. 2 US , Agriculture 10637.0 15.2 1334 12.0 7970.9 Industry 25192.8 36.0 3498 31.4 7222.5 Services 34150.2 48.8 6277 56.6 5440.7 Total/Average 69980.0 100.0 1109 100.0 6304.9 GOVERNMENT FINANCE Consolidated Public Sector Central Government AuS Nln. % of DP Au$ NIn. X of SOP 1985 1985 1993-95 1995 1985 1993-85 Current Receipts 10712 27.0 24.5 66bb.5 6 .8 16.1 Current Expenditures 10077 25.4 25.8 4146.6 10.5 10.6 Current Dalance 635 1.6 -1.3 2519.9 6.4 5.5 Capital Expenditures 2420 6.1 6.7 645.3 1.6 1.6 Surplus or Deficit -1746 -4.4 -7.9 2176.8 5.5 4.5 External Financing (net) 436 1.1 1.4 489 1.2 1.0  COUNTRY DATA - ARBENINA MONEY, CREDIT AND PRICES 1990 9I9 1992 1993 1994 1985 196 (Millions of Au outstanding end of period) Money and Quasi Roney 8.6 16.0 38.3 193.6 1195.3 7337.9 Bank Credit to Public Sector 2.8 10.9 34.8 212.3 994.9 1640.1 Bank Credit to Private Sector 8.3 22.2 68.9 290.9 1822.4 9398.3 Roney and Quasi Money as 2 of SDP 30.4 29.3 29.4 29.4 22.6 18.5 Iholesale Price Index t1981z100) 47.9 100.0 357.3 1646.0 11093.0 94820.7 138992.2 Annual percentage chanqes in: General Price Index 75.4 109.0 257.3 360.9 573.6 664.6 63.9 Bank Credit to Public Sector 0.3 395.2 322.2 610.1 468.6 164.9 Bank Credit to Private Sector 0.2 266.0 310.4 422.1 626.7 515.7 BALANCE OF PAYMENTS 1975 1980 1996 U/ MERCHANDISE EXPORTS tAVERAGE 1984-1996 (Millions of USS) VS "In. Z Exports of Soods, NFS 3704 10765 8797 Imports of Goods NFS 4518 14024 7025 Agricultural goods 3462.7 44.2 Resource Gap Ideicit a , J -814 -3259 1772 Iltanuf. goods of agric. orig 2545.7 32.5 Manuf. of industrtal origin 1921.3 2!3.3 Interest Payeents Inet) -460 -947 -3938 Other Factor Payments (net) -15 -584 -494 Total 78W.7 100.0 Net Current Transfers 5 23 5 Balance on Current Account -1284 -4767 -2645 Direct Investment to 788 574 EXTERNAL DEBT, DEC. 31, 1986 Us S Mln. Public K&IT Loans (net) -12 3400 762 Public Debt 40496 Disbursecents 1018 S809 3134 Private Mebt 8579 Amortization 1030 2409 2372 Total Outstasding & Disbursed 49074 Subtotal -12 3400 762 IDRD 996 Other Capital (net) 189 -2217 487 IDB 1368 IIF 2326 Changes in Reserves (- incr 1107 2796 822 Bilaterals 3140 Bnds 3354 Comercial Banks 37"99 Gross Reserves (and year) 618 7298 3927 Net reserves lend year) -520 6641 -9998 DEBlT SERVICE RATIO FQR 1996 6/ 75.9 RATE OF EXCIANGE 7/ -- -