Argentina - Financial Sector Adjustment Loan Project

Documt of The World Bank FOR OMCLAL USE ONLY Repot No. P-5862-AR REPORT AND RECOMMENATION OF THE PRESIDENT OF THE INTERNATIONL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ONA PROPOSED FINANCIAL SECTOR ADJUSTMENT LOAN IN N AMOUNT EQUIVALENT TO US$400 MILLION TO THE ARGENTINE REPUBLIC JANUARY 25, 1993 MICROFICHE COPY Report (N!o. :P- 5862-AR Tvpe: (PR) Title: FINAlNCIAL SFCTOR ADJUSTMENT LO Auuthor: STEFAN Al.BER Ext. :30C16 Room:I 61555 DeDt. :LA4Tr This document has a resticted d;stribution and may be wsed by recipients only in the performance of tbeit official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Currency ArMgntne Unit - Peso Since April 1, 1991, the exchange rate has been, by law, Peso 1.00 = US$1.00 Fiscl Year J- ;a 1 - December 31 Princi^al Abbreviations and Acrnm s: AFP Administradores de Fondos de Jubilaciones y Pensiones - Pension Fund Administrators BANADE Banco Nacional de Desarrollo - National Development Bank BCRA Banco Central de la Repaiblica Argentina - Argentine Central Bank B1N Banca Hipotecario Nacional - National Housing Bank BNA Banco de la Nacion Argewina - Argentine National Commercial Bank BPBA Banco de la Provincia de Buenos Aires - Bank of the Province of Buenos Aires CAJA Caja Nacional de Ahorro y Seguro - National Savings and Insurance Bank CNV Comisi6n Nacional de Valores - National Securities Commission DDSR - Debt and Debt Service Reduction DGI Direccidn General de Impuestos - National Tax Authority EFF - Extended Fund Facility ESW - Economic and Sector Work FONAVI Fondo Nacional de la Vivienda - National Housing Fund GDP - Gross Domestic Product IDB - Inter-American Development Bank IFC - International Finance Corporation IMF - International Monetary Fund LIBOR - London Interbank Offerred Rate PE - Public Enterprise PERAL - Public Enterprise Reform Adjustment Loan PEREL - Public Enterprise Reform Execution Loan PSRL - Public Sector Reform Loan PSRTAL - Public Sector Reform Technical Assistance Loan SECAL - Sector Adjustment Loan SEF Superintendencia de Entidades Financieras - Superintendency of Banks SSIMTAL - Social Sector Management Technical Assistance Loan VAT - Value Added Tax  FOR OFCIAL US ONy ARGENTINA FINANCLAL SECTOR ADJUSTNDWT LOAN TABLE OF CONTENTS Pag No, I. COUNTRY POLICIES AND BANK ASSITANCE STRATEGY ............... 1 A. Recent Perfrmance ............... I Origins of Macroenomic Istability and Decin e.. Structural djustment, Stabiliation and Bank Support ................ 2 B. Argentina's Extna Environment. 6 C. The Bank's Comtry Assistance Stategy. . 7 Argentna's Development Objecives and Eted Financing Requirements ... 7 Bank Assistance: Objecdves and Activities ...... ................ 11 Levels of Bank Assistance and Relons with Other Creditors .... ....... 20 Issues for the Lending Staegy .............................. 22 II. TaEFINANCIAL SECrOR ...... .. ......................... *.*. 23 A. Resource Mobilzation ........................................ 23 B. Ihe Banking System ........................................ 26 The Central Bank ...................................... 26 PublicBas ......................................... 26 Private Banks and Bank Supervision ...... ..................... 28 Capitl Markets ........................................ 29 mI. THE FINANCIAL SECTOR REiORM PROGRAM ... .............. 29 A. Overview ..29 B. Reduced Involvement of the Public Sector in Banking . .30 C. Strengtiened Bankdng Sector and Bank Supervisory Framework . .32 D. Revitalzaion of the Capitl Market ..33 E. Fiscal Impact of Refrm Meures ...34 IV. T* HE PROPOSED LOAN ..........3.. .................. . 35 A. Background .......... ...... ............... 35 B. Loan Amount, Borrower and IlementingAgency .. 35 C. LoanConditions ............... 35 D. Disbursemen Procrment, Audit..t 38 E. Benefit and Ris ......................... 38 V. RECOhl MENDATION ... 4...... .........*G**4*4*.*****4***4 39 'h pou is bad oa te flnda of Appa Mssi of I . SMissio nmamb Icludms. S. Aba dOom Load. ad Tas ManeSsO. M. Cad. (otl Econois). C. FPot (Tiil Analyst), D. Sott enior FInancial Ssislls), D. Cadam Boommls4 Reside Ofce Agm, P. Doty (Ihu ft u )S,posltoauta),andM. Lab. PubflloBankSpeasia.Cnaultsnt. spot ta y C. Css and L. NaU. M This document has a restricted distribution and may be used by tecipients only in the perfonnance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Annexes: I. MattixofFinanalSeCtDRefom Poliicies ........................... 40 H. DoveopmetPolicy Ltter ................................ 42 m. Key Maraoeconomicndicators ................................ 49 IV. Banco delaNaci6nArgentina ................................ 50 V. Analysis of Basco Naona iotecario ............... ...... 52 VI. CajaNadond deAhorfoySegr ................................ 56 VJ. Deposit Protection ................................ 64 VIIL PfoincalBak ............................. ... ...... 71 IX. SuplemetaryLoan DataSheet ................................ 77 X. StatementofBank Loans ................................ 78 XM. StaterentofWC lvestmets ................................ 79 XH. Poficy ssuesinProosdFY93-97L fdtg .......................... 80  - i ' ARGENTIA IlINANCLIAL SECT(R ADREDOT LOAN Lo and fa=m &Imma Ign.ro.wm: The Argeaine Republic Bolar: I-The Argentine Republic Amount: US$400 million equivalent Temm: Repayable in 15 years, including 5 years of grace, at the standard variable rate. Qbjec