Argentina says will miss IMF-agreed targets
BUENOS AIRES, Argentina (Reuters) - After months of worsening
Argentine economic performance, the government said on Monday it and
the International Monetary Fund accept it will fail to meet agreed budget
deficit targets for this year and 1999.
South America's second largest economy will now run a budget deficit this
year of $3.85 billion rather than $3.5 billion and in 1999 it will reach $2.95
billion instead of $2.65 billion, an economy ministry spokesman said.
The decision to relax the deficit targets came after meetings between the
IMF and the government last week when it was noted the international
financial crisis was taking a heavy toll on the economy, making deficit targets
set a year ago impossible to reach.
Private economists have been saying the country's budget deficit targets
were becoming increasingly unrealistic because of the sharp slow-down in
growth due to the financial crisis which was hurting tax revenues.
The spokesman said the IMF and the government had agreed to assume
1999 growth will be 1-1.5 percentage points lower than the 4.8 percent
growth rate projected in the government's 1999 budget bill. This year the
government expects 4.8 percent growth.
The government was hoping it could still meet the 1998 deficit target with
measure to collect in December taxes which were due in 1999.
"This was expected," said Gustavo Canonero, head of research for
Mercosur at Deutsche Bank Global Markets Research. "But they were not
sure before the end (of the year) as they were still going to collect the extra
revenues," from the special tax measure.
The news emerged as IMF economists were in Buenos Aires carrying out a
quarterly review of Argentina's fiscal accounts.
The deficit targets are part of a three-year $2.8 billion voluntary loan
agreement between Argentina and the IMF which started this year.
On Friday, IMF representative Tomas Reichman said it was likely Argentina
would overshoot its 1998 deficit target but that the IMF would not consider
whether a waiver was necessary until it had seen the final 1998 fiscal
accounts. He also said it would be "difficult" for Argentina to reach 4.8
percent growth in 1999.
Growth has been hit by sky-high interest rates, ebbing consumer confidence
and a looming recession in neighbouring Brazil, Argentina's main export
Last week, the government said growth in the third quarter was 2.9 percent,
sharply down from 7.4 percent in the second quarter, and clearly showing
the slowing trajectory predicted by economists.
"That's still too high," said analyst Christopher Ecclestone at Buenos
Trust Co., referring to the government's new 1999 growth estimate.
"Everybody's saying nothing will happen in the first half."
While economists predicted growth could be still lower than what the
government thinks, they were not alarmed by the backtracking on the deficit
targets, in large part because the government has cut spending. The
worsening is coming from lower revenues, they said.
"It (the deficit overshoot) is not an issue because the government is very
below the expenditure target," said Canonero. "That prevents any problem
with the IMF."
The government has already cut more than $1.0 billion in spending this
in attempts to meet the targets.
Copyright 1998 Reuters.