Announcement of World Bank Lends Five Hundred Million US Dollars to Assist Argentina's Trade Reform on May 19, 1987

•World Bank i 1818 H Street, N.W., Washington, 0.C. 20433, U.S.A.• Telephone: (202) 477-1234 BANK NEWS RELEASE NO. 87/69 Contact: Ciro Gamarra (202) 477-5320 WORLD BANK LENDS $500 MILLION TO ASSIST ARGENTINA'S TRADE REFORM WASHINGTON, May 19 -- A $500 million World Bank loan will support Argentina's crucial trade policy reform. The loan will help finance the first phase of the government's trade policy reform program which aims at improving export competitiveness and increasing the efficiency of Argentine industry. In addition to supporting reform of the trade regime through this loan, the World Bank is preparing an export promotion project to help exporters make full use of incentives provided under the Trade Policy Loan. Both operations are an important part of the expanded World Bank lending program in support of Argentina's medium-term program of structural reforms. In association with these reforms, the Bank envisages a lending program of $2 billion for the period 1987-88. The $500 million loan, the largest ever made by the World Bank to Argentina, grew out of discussions with the government beginning in February 1986 on the policy measures required to promote export-oriented growth, to correct the continuing balance of payments deficit, and to make the economy more competitive. The trade reform program is expected to redress the strong anti- export bias in the present system of tariff and non-tariff protection. It would also be linked to the maintenance of an adequate exchange rate. The loan will focus on measures needed to strengthen export competitiveness and expand exports rapidly while initiating a gradual process of import liberalization. The main thrust of this effort is to strengthen export promotion through the expansion and automacity of the two temporary admission regime systems and to initiate a process of removal of quantitative import restrictions over a three-year period. In conjunction with the loan, the government simplified the whole system of approvals and controls of trade administration, eliminated most export taxes on manufactures and introduced a mechanism to reimburse indirect taxes on exports. The government would also rationalize the protection system through the gradual phasing out of non-tariff barriers to trade, including the elimination of prior documentation requirements for import tariff positions equivalent to 58.5% of the value of industrial production. NOTE: Money figures are expressed in U.S. dollar equivalents.  . . - 2 - ) The main benefit of the government program, which focuses on the adoption of an outward-looking development strategy, will be an improvement in the balance of payments. The program's success s~ould strengthen the confidence of international lenders and investors in Argentina's growth, balance-of-payments and employment prospects. The bulk of the loan ($496 million) will be disbursed to reimburse the cost of the imports needed for exports under the two existing temporary admission regimes, in addition to the import tariff positions moved out of the prior consultation list during 1986-87. The remainder.of the loan ($4 million) will be disbursed to purchase computer and telex equipment and weight scales and consultant's services required to strengthen the capability to carry out the program. Imports to be financed under the loan will be made by public entities and a large number of private sector importers from eligible sources. The loan will be disbursed in two tranches of $248 million and is expected to be fully disbursed within 12 months after loan effectiveness. The second tranche will be released by December 1987 provided the review of the macroeconomic program and trade policies demonstrates satisfactory implementation of the agreed program. The World Bank loan is for 15 years, including 3 years of grace, with a variable interest rate, currently 7.92 percent, linked to the cost of the Bank's borrowings. It also carries an annual commitment charge of 0.75 percent on the undisbursed balances. - 0 -