December 14, 1998

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 a
                  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 Aires
                  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 far
                  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 year
                  in attempts to meet the targets.

                   Copyright 1998 Reuters.