Announcement of the World Bank has Lent Three Billion Three Hundred Million US Dollars to Argentina Since 1961 on May 19, 1987

World Bank 1818 H Street, N.W., Washington, 0.C. 20433, U.S.A.• Tel~hone: (202) 477-1234 BANK NEWS RELEASE NO. 87/S32 Contact: Ciro Gamarra (202) 477-5320 THE WORLD BANK HAS LENT $3.3 BILLION TO ARGENTINA SINCE 1961 WASHINGTON, May 19-- The World Bank has been associated with Argentina's development efforts since 1961. During these 26 years the World Bank has made 31 loans totalling $3,3 billion to assist development projects, mostly in the transportation, energy and industrial sectors. Argentina, one of the 151 countries that own the World Bank, became a member in September 1956. It holds 9,351 shares or 1.35 percent of the total. Argentina is the fourth largest recipient of World Bank lending in Latin America and the twelfth in the developing world. The first Bank loan to the country, of $48.5 million, was made in June 1961 to assist the National Highway Directorate in carrying out a program to improve 2,600 kilometers of roads. Past Bank lending to Argentina has been sporadic because of periodic macroeconomic and sectoral difficulties in the country. However, the government of President Alfonsin, which took office at the end of 1983, has established very close cooperation with the Bank. Nine operations, including one supplemental loan for refinery conversion, have been approved since then, amounting to $1.4 billion. World Bank lending since 1985 has focused on the improvement of water supply services, development of the hydrocarbon and power sectors, and, more importantly, on support for structural reforms in agriculture and improvement in public sector management. In fiscal year 1986, the World Bank approved 3 loans.to Argentina amounting $544.5 million. In the current fiscal year, the Bank has already approved four loans to Argentina, totalling $685 million. In addition to the $500 million trade policy loan approved on May 19, the Bank has made a $14 million loan for power engineeriag, a $125 million loan for small- and medium-scale industries; and a $50 million loan for the rehabilitation of the Port of Bahia Blanca. Disbursements under World Bank loans, which in the past suffered delays, have increased substantially in recent years because of new procedures for monitoring and for periodic implementation reviews with the government. Disbursements almost tripled in 1986 (about $400 million) compared to the level of 1982-84. The government has requested the Bank's assistance in implemEfnting structural reforms and in preparing the way for sustained long-term economic growth. It has presented the World Bank and the commercial banks NOTE: Money figures are expressed in U.S. dollar equivalents.  - 2 - its framework for a medium-term economic policy reform and development program. The Bank intends to support this program with a substantial expansion of lending, to total about $2 billion in the period 1987-88. The Bank lending to Argentina has several distinctive characteristics. First, the program has been designed as an integrated whole, in association with a program of action based on the medium-term policy framework. Second, it is diversified, encompassing essentially all areas in which the government is undertaking important structural reforms. Third, it is policy-based with a focus on associated analytical framework. The expanded lending program covers the areas of export diversification, financial system, energy development, public sector rationalization, and industrial development. The Bank's support for export diversification would be to raise the efficiency and international competitiveness of the Argentine economy and to strengthen the country's capacity to import and service its debt. The trade policy and export diversification loan will serve as an umbrella operation for improving the incentive framework for the private sector, while specific credit and financial intermediary loans would provide financing. Other operations currently being prepared for possible World Bank financing in this sector are: - An export promotion loan which would provide working and investment capital financing and marketing assistance to exporters. - An agricultural credit loan which would provide credit for technological adjustment in the agriculture sector, and financing for medium-term credit for modernization of farm machinery, crop storage and handling facilities, and livestock development. The reform of the financial system is a logical sequence to the reform of the trade regime. Financing costs will have to be lowered in order to undertake the investment needed for incresing Argentina's competitiveness. Among the operations for this sector are a banking sector adjustment loan to support the first phase of the government's structural reform in the financial sector, whose emphasis would be placed on cutting financial costs, improving intermediation and reducing controls on financial institutions. Another lending priority is energy development to ensure rational development of hydrocarbon and hydro resources; reverse the declining trend of oil and gas production; and provide adequate and reliable energy supply to meet the requirements of a growing economy. In the area of oil and gas development, the objectives would support the government in rationalizing the scope for private sector development; enhance the efficiency of resource use; and establishing financing mechanisms to reduce demands on the budget, expand production and reserves, and substitute relatively abundant gas for liquid fuels.  - 3 - With respect to electric power, the objective would be to ensure adequate and reliable power supply, restore satisfactory self-financing capacity to overcome uneven access to and quality of electricity service, improve sector organization and institutional relationships and complete the Yacyreta hydropower project. To support these objectives, the Bank is preparing lending operations for private oil and gas development, and power distribution. Among the projects being prepared are the rehabilitation and expansion of electricity distribution networks in Buenos Aires through the fifth project with SEGBA, the power utility in Buenos Aires; and the second loan for the Yacyreta project. Also a petrochemical privatization loan which would strengthen private enterprise's role in this sector by supporting the privatization of public industrial enterprises. The World Bank would also assist the government program of reform of the public sector. The Bank is preparing a new policy-based lending and technical assistance operation - a public sector rationalization loan whose role in the public sector rationalization loan - whose role in the public sector would be analogous to that planned for trade regime and banking sector loans in reforming private sector incentives and regulatory arrangements. ) To assist industrial development, the Bank is preparing several operations including an industrial restructuring loan which would provide support for institutional mechanisms for industrial restructuring through investment banking and financial advisory services. Finally, the Bank is planning to extend its cooperation into two other sectors in which it has not yet operated in Argentina. First, the government has indicated interest in Bank support for social sector development. Second, the Bank is preparing a municipal development loan in support of government efforts to strengthen provincial economic management. The loan would focus on themunicipalities' capacities to plan, finance, and execute cost-effective investment programs and to recover their costs. Currently, there are about 16 World Bank-assisted projects under implementation in Argentina. As of March 31, 1987 about $1.6 billion of the $3.3 billion in Bank loans were disbursed. Of this amount, Argentina has repaid about $600 million and owes the World Bank about $1 billion, not including undisbursed loans. At the end of 1986, the World Bank's share of Argentina's total external debt outstanding and disbursed was estimated as 1.9 percent, and the Bank's share of external debt-service payments was about 3.1 percent. The terms of World Bank loans to Argentina are for 15 years, including three years of grace, with a variable interest rate, currently 7.92 percent, linked to the cost of the Bank's borrowings. They also carry an annual connnitment charge of 0.75 percent on undisbursed balances. - 0 -  .,. - 4 - WORLD BANK LENDING TO ARGENTINA (As of May 1987) SECTOR LOANS AMOUNT* Agriculture and Rural Development 4 $ 530.3 Education 1 58.0 Energy (oil, gas, coal) 5 633.0 Industry 3 700.0 Power 7 631.0 Small and Medum Scale Enterprises 1 125.0 Technical Assistance 1 18.S Transportation 8 576.0 Water Supply 1 60.0 TOTAL: 31 $ 3,331.8 * Original amount, round numbers, in millions of U.S. dollars.