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REPORTS DESK IILL tUf 1IWITHIN

ONE WE. K_

This report was prepared for use within the Bank and its affiliated organizations.They do not accept responsibility for its accuracy or completeness. The report moynot be published nor may it be quoted as representing their views.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL DEVELOPMENT ASSOCIATION

ECONOMIC POSITION

AND PROSPECTS

OF

ARGENTINA

November 21, 1967

Western Hemisphere Department

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CURRENCY EQUIVALENTS

U.S. $1 350 pesos1 peso (M$N) = U.S. $0. 002851 billion pesos = U.S. $2, 850, 000

TABIE OF CONTENTS

Page Number

BASIC DATA ...................... 12e.o.e 1-2

SUMMARY AND CONCLUSIONS ........................ o. . . i*iv

I. INTRODUCTION *.............................e......e 1

II. RECENT TRENDS IN ECONOMIC PERFORMANCE AND POIICY . 2

Performance . *.***.*.e*,@**e**o,*. 2Policy . *0***** *o *.... c.* *e. eo.. * 6

III. THE 1967 STABnLIZATION PROGRAM .......................... 8

The Budget *....... ... 8Savings and Investment in the Public Sector.......... 14Ilonetary Policy ..... ..*.*.....0... . ................ --. 18Wages and Prices ....... .. ............... ...... 19The Balance of Payments *...e........e...,.oooo. 21

IV. DEVELOPMENT PROBLEMS AND POLICIES ........................ 25

The Private Sector and Economic Recovery ............. 25Public Sector Savings *......9... ......... ......... 27Investment Decisions .****.....*...........*.*.*.*.*. * 30

V. PERFORMAANCE PROSPECTS AND CREDITWORTHINESS ............... 33

Growth Prospects ............ ..... .. . 33The Stabilization Program .......-....-...........-. 35

Balance of Payments and Creditworthiness . 38

STATISTICAI APPENDIX

This report is based on finding of a mission to Buenos -Aires-inApril-May 1967 composed of Messrs. Ross, Dosik and Pichler.

BASIC DATA

Area: 2.8 million km(1.1 million sq.miles)

Population (1966) 22,871,000

Growth Rate (195o/51-1965/66) 1l8 percent

Gross Domestic Product (1966): N$i* 4,043.4 million

Real Growth Rate (19505/1-1965166) 3.0 percent

Per Capita GDP $650-750

Origins of Gross Domestic Prodtuct (1966): Percent of GDP

Industry 31 %Agriculture 14 a

Commerce 12 %Transport and Communication 8%

Expenditure on Gross Domestic Product (1966): Percent of GDP

Gross Fixed Investment 17.9 %Private Consumption 68.8 %Public Consumption 11.5 %Current Account Balance 2.0 %

Cost of Living: Annual AveragePercent Change

196h 22.1 %1965 28.6 %1966 31.9 %1967 (Jan-July, seasonal-ly adj.) 19.8 %

Money !upply: N1Nj End of Period Percent Change

1964 395 39.6 %1965 498 26.1 %1966 672 3h.9 d

1967 (June) 746 11.0 %

Public Sector Finances: Percent of GDP

1965 1966

Budget and Decentralized AgenciesCurrent Revenue 10.1 9'9Current Expenditure 9.1 10.0

Total Public Revenue (incl. social security) 15.7 16.2

Public Saving 1.4 - 0 5

Public Investment 3.7 3.7

Balance of Payments ($ million): 1965 1966 1967, eget-

Exports 1,493 1,593 1,550Imports -1,198 -1 124 -1,075

Trade Balance 295 469 7Invisibles -111 -216 -225

Current Account Balance 164 1 253 250

Foreign Exchange Reserves ($ million): 1965 1966 1967,Sept.

Assets, Central Bank 250 223 702

Net Position, Incl. Treasury Liabilities -167 -157 216

Foreign Debt (December, 1966): $ million

Total Debt (Central Bank estimate) 2,662.9

Public Debt (as reported by IBRD) 1,704.5

Debt Service Ratio, Total Debt (1966) 35%

Debt Service Ratio, Public Debt (1966) 21%

SU4MMARY AND CONCtUSIONS

1. In no country in Latin America has the shortfall between de-velopment potential and actual economic performance been as striking asin Argentina over the past 15-20 years. During the first four decadesof this century, Argentina enjoyed an enviable growth record and achievedthe highest per capita income in Latin America, but the record sinceWorld War II has been one of slow and unsteady growth, endemic inflation,and recurring balance of payments crises. To an important extent, thesedifficulties reflect the deep damage done to the Argentine economr duringthe Peron era but, especially in more recent years, the failure to consis-tently maintain the economic policies necessary to stabilize prices andstrengthen the balance of payments have imparted a stop-go character toeconomic growth which has effectively precluded any sustained expansion.After two years of recession, a new boom got under way late in 1963 andan expansionary monetary policy plus bumper wheat harvests made 196h-65the most rapid period of expansion since the 1920's. However, monetarypolicy had to be tightened after mid-1965 to protect the balance of pay-ments, the wheat harvest returned to more normal levels and, with the twoprincipal stimuli to expansion gone, the economy slipped into recessiononce again last year.

2. When the present Government took power in June 1966, one of itsprincipal objectives was to bring about a radical improvement in economicperformance. Following the appointment of a new economic team in Januaryof this year, rapid progress was made in developing and putting into effecta comprehensive stabilization program; the peso was devalued by 40 percentto M$N350 to the dollar and complementary stabilization measures were takenin the fields of fiscal, monetary, foreign trade, wage and price policy.The 1967 program is pragmatic and well balanced, promises substantial pro-gress toward stabilization and, in so doing, to help in laying the foun-dations for more rapid and sustained economic growth. However, the bestgrounds for hoping that the present program will have both a greater measureof success and a more durable impact than preceding stabilization effortslies in the determination and the ability of the present Government tocarry it through.

3. The Budget is clearly the most crucial element in the stabili-zation program. To achieve a 5.0 percent reduction to M$N75 billion in thebudget deficit, the Government prepared a fiscal program calling for anincrease of nearly 70 percent in revenues and only 23 percent in expen-ditures, (i.e., virtually no increase at all in real terms). The mostimportant revenue measure taken to implement this program was the imposi-tion, following the devaluation, of heavy taxes on major exports, atraditional Argentine fiscal device. On the expenditure side, the budgetwas based on the Government's decision to limit wage increases for publicemployees to 15 percent, compared to raises of more than 30 percent grantedin 1966, and to hold transfers to the state enterprises to the 1966 level.

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To make the latter possible, smeeping tariff increases were granted tomost of the state enterprises early in the year. However, the majorfiscal problem in the state enterprise sector this year, as in the past,is the huge deficit of the railways and whether the combination of highertariffs and limited wage increases would, in fact, suffice to bring aboutthe improvement in the railways finances required by the fiscal programappeared very much an open question.

4. Actual budget results through the end of June showed totalrevenue and expenditure moving very much in line with the Government'stargets and, for the full year, revenues could exceed the projected levelby an amount sufficient to offset any additional requirement for transfersto the state enterprises. Achievement of the principal targets of thefiscal program would also mean an impressive rehabilitation of publicfinances in terms of the public sector's ability to finance its investmentsfrom its own savings. In contrast to net dissaving in the public sectorin 1966, this year's program provides for public savings totalling M$N157billion, more than three times the level achieved in 1965, the best previousyear on record. At the projected level, public savings would cover morethan 60 percent of investment this year, even though the Government's planscall for an increase in investment of more than two-thirds.

5. In making an effective incomes policy a keystone of its program,and dealing firmly with labor, the Govermient has clearly recognized amajor shortcoming of previous stabilization efforts. While wage increasesin the public sector are to be held to 15 percent, for the private sectorprovision was made for a round of graduated wage increases in April andMay of this year to be followed by a total wage freeze until the end of1968. Real wages rose sharply through June but, with further increasesbarred, real wages will inevitably decline in the latter part of the year,making this a crucial testing time for the Government's wage policy.

6. GDP is expected to rise by about 3 percent this year, mainly asa result of a larger wheat harvest and a bumper corn crop. However,through mid-year there was no clear evidence of a general recovery fromthe recession in industry. Although the cost of living rose by 20 percenton a seasonally adjusted basis through July, or somewhat more than in thecorresponding 1966 period, a large increase in prices this year was unavoid-able in view of the sharp devaluation and there was a steep rise in foodprices at mid-year reflecting frost damage to the crops.

7. 1967 promises to be the best year for the balance of paymentsin recent experience, with exports continuing near the record $1.6 billionlevel reached in 1966 and another current account surplus of some $250million in prospect. The devaluation was accompanied by the virtual elimi-nation of all quantitative restrictions on imports and by substantial tariffcuts on a wide range of commodities. While the immediate impact of thedevaluation on Argentina's foreign trade was cushioned by the export taxesand the tariff cuts, the move from an over-valued peso to what was clearlyregarded as an under-valued one succeeded in attracting a massive inflowof capital from abroad. In the first six months of the year, the Centralsank's gross foreign exchange reserves rose by nearly $450 million to $670million.

81 As important as the achievement of this year's stabilizationtargets is, Argentine experience clearly indicates that success in thefight against inflation is likely to be short-lived and of little signi-ficance in terms of economic development unless accompanied by measuresto promote growth and to deal with the basic structural problems of theeconomy. IWith its stabilization program in operation, the Governmenthas in recent months been concentrating on measures to stimulate recoveryfrom the recession and to promote the redeployment of resources to moreproductive employment that is essential to more rapid and sustained long-term growth. The Government s most immediate concern vis-a-vis the privatesector has been to bring about a recovery of private investment in industryand agriculture and a variety of measures, including generous tax creditsfor investors, have been introduced for this purpose. In the public sector,the key development problem lies in the inadequacy and instability of publicsavings, with the railway deficit and the failure to take full advantageof the possibilities of generating savings in the petroleum sector beingthe major weak points. The Government realizes that public finances willremain precarious as long as the budget must carry the burden of a largenumber of redundant public employees, and, in July, a law was enactedestablishing the legal basis for rationalizing public sector employment.However, implementation of a rationalization program is likely to proveas difficult as it is essential, not only because of the inherent diffi-culties of the problem, but because of the vested interest in the statusquo built up over the years in the government bureaucracy and in the stateenterprises, as well as in the unions.

9. The realization of the promise of this year's stabilizationprogram will depend on the maintenance and reinforcement where necessaryin 1968 of the-existing policies of restraint in the fiscal, monetary andincomes fields. However, the Government may well face a more difficultfiscal situation in 1968 than was the case this year in that, without theextraordinary revenue possibilities opened up by the devaluation and otheremergency measures, greater emphasis will have to be given to the,in manyways,more difficult problem of expenditure control. A strenuous effort toincrease public savings next year would appear to be required for immediatebudgetary reasons, as well as to further the long term process ofstrengthening the fiscal structure to meet development needs. This willcall for a broad effort to tighten budgetary controls in the CentralAdministration and Decentralized Agencies and to improve the current positionof the state enterprises but, in the final analysis, the possibility ofachieving meaningful savings on the expenditure side will depend on theprogress that can be made in implementing the labor force rationalizationprogram. A substantial reduction in the railway deficit is essential tosatisfactory fiscal performance in 1968 and will require the rapid formulationand implementation of a definitive program for reducing railway employmentand eliminating uneconomic branch lines and other services. Unless therationalization program can be put into operation on a substantial scalein the railways and elsewhere in the months immediately ahead, it willhave little fiscal impact in 1968. However, even on the most favorableassumptions, economies in current expenditure can be expected to meetonly a limited part of the need for increased public savings in 1968,

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and increases in state enterprise tariffs and new tax measures will alsobe required. Tax policy will have to be shaped in the context of how wellthe economy is responding to the stimuli administered this year, of theGovernment's plans for expanding public investment, and of the possibilitiesof financing the savings gap through non-inflationary borrowing at homeand/or abroad.

10. The balance of payments outlook for the next several years appearsfavorable, assuming the maintenance of a realistic exchange rate, prudentdebt management, and a suitable domestic stabilization and developmentpolicies. While exports may not rise as rapidly as during the 1961-65period, the growth of foreign exchange earnings should be sufficient topermit the increased imports that will be needed in an expanding economy,and to generate substantial current account surplus. However, Argentina'sforeign debt totalled more than $2.6 billion at the end of last year andsome 75 percent of this amount was scheduled for repayment within five years.Given the heavy debt service burden, a gross capital inflow of some $1.3billion wall be required to balance Argentina's external accounts duringthe 1968-71 period, although the annual requirements will decline sharplyas the debt burden is worked down. A net reduction in Argentinats extermaldebt over the next four years of upwards of $800 million, or more than 25percent, should be possible. However, if full advantage is to be taken ofthe opportunity for reducing the onerous debt service burden, a determinedeffort will have to be made to ensure that the new borrowing that will benecessary in the coming years is done on much more favorable terms thanhas been the case in the past. Assuming this is done, the debt serviceratio may be expected to decline from 38 percent in 1968 to 20 percent,or less, in 1971.

I. INTRODUCTION

1. In no country in Latin America has the shortfall betweendevelopment potential and actual economic performance been as strikingas in Argentina over the past 15-20 years. During the first four decadesof this century Argentina enjoyed an enviable growth record and at theend of W4orld liar II it could count among its basic assets, in additionto the favorable geography and climate upon which its prosperity had beenbased, the highest per capita income in latin America, a homogeneous andwell educated population, sizeable foreign exchange reserves, and soundfinancial institutions. Despite these formidable advantages the actualeconomic record since the war has been one of slow and unsteady growth,endemic inflation, and recurring balance of payments crises. To animportant extent, these difficulties reflect the deep damage done to theArgentine economy, and particularly to agriculture and the balance ofpayments, by the pursuit of industrialization at any price, the constantpushing up of real wages and the building up of the trade unions into adominant political force during the Peron era. However, especially inmore recent years, the authorities' inability, in the face of politicalinstability and trade union and other pressures, to maintain consistentlythe policies necessary to internal and external financial stability hasbeen a major factor in the disappointing performance of the economy.The alternation of periods of restraint and relaxation has imparted astop-go character to economic growth which has effectively precludedany sustained expansion.

2. 1Then the present Government took power in June 1966, one ofits principal objectives was to bring about a radical improvement ineconomic performance. Following the appointment of a new economic teamin January of this year, rapid progress was made in developing and puttinginto effect a comprehensive stabilization program comprising measures inthe fields of fiscal, monetary, foreign exchange, wage and price policy.With its 1967 "action program" largely in operation, the Government hasin recent months been concentrating on measures to stimulate a revivalof economic activity and to promote the basic structural reforms andredeployment of resources essential to put the economy on the road tomore rapid and sustained long-run growth.

3. This report focuses on the prospects for success of the stabi-lization program as an essential pre-condition for the restoration ofthe growth process, on the Government's major development problems, andon the principal issues for economic policy in 1968. This report shouldbe read in conjunction with the earlier ones which have discussed indepth the characteristics of economy, its long-run growth, potential, anddevelopment problems and policies in the major sectors.&/

1/ The last report distributed to the Executive Directors was WH-144a,"The Economic Position and Prospects of Argentina," May 5, 1965. Asubsequent draft report, NH-162a, June 1966 was overtaken by thechange in government and not completed.

II. RECENT TRENDS IN ECONOMIC PERFORMANCE ANID POLICY

Performance

4. Since 1950 gross domestic product has grown by an average ofjust 3 percent yearly. Thus, while population pressure in Argentina isrelatively light, the annual increase being estimated at about 1.8 percent,GDP per capita has risen by only about 1 percent per year as a result ofthe slow expansion of output. W4hile production has expanded quite rapidlyin some years, the periods of expansion have been repeatedly cut short byrecessions during which the earlier gains have largely been lost. Indeed,GDP has actually declined in six of the past 16 years and three of thepast seven years. A very sharp recession in 1959 was followed by two yearsof rapid growth stimiulated by an investment boom financed largely by theinflow of foreign capital. This boom collapsed toward the end of 1961 whenthe capital inflow dried up as confidence was undermined by balance ofpayments difficulties and growing political instability. After two yearsof recession, a neti boom got under way late in 1963 and an expansionarymonetary policy plus two bumper wheat harvests made 1964-1965 the mostrapid period of expansion for the Argentine economy since the 1920's.However, monetary policy had to be tightened after mid-1965 to protectthe balance of payments, the wheat harvest returned to more normal levelsand, with the two principal stimuli to expansion gone, the econorm slippedinto recession once again in 1966.

5. Manufacturing is the largest single sector of the economy,accounting for nearly one-third of GDP, and it has long been the mostfavored one. High tariff barriers, an over-valued exchange rate makingimported inputs relatively cheap, and direct government promotion throughtax incentives for investment and other measures have provided powerfulincentives for manufacturers to take maximum advantage of opportunitiesfor import substitution across a broad field. Argentine industry is nowcapable not only of providing virtually all of the countryts consumergoods, but also of meeting the bulk of its requirements for capital goods.But, while the growth of manufacturing has outpaced that of the rest ofthe economy, production has fluctuated widely through the periods ofoverall economic expansion and contraction, and the average annual rateof growth of manufacturing since 1960 has been a relatively modest 4percent. In recent years, motor vehicles, metals, and machinery havebeen among the fastest growing lines of industry. However, they havealso been the ones most susceptible to cyclical influences, and the 1966recession was concentrated in these fields.

6. Agriculture has been the most laggard sector of the economy,output having expanded by an average of only a bit more than 2 percentper year since 1950. Year-to-year fluctuations around the trend havebeen sharp in periods of particularly favorable or unfavorable weather,and the changes in agricultural production have had an important impacton the overall fluctuations of the economy, as was evident most recently

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in the role of the extraordinary wiheat harvests in the 196h-1965 boom.On balance, a significant strengthening in the trend of agriculturalproduction has been discernible over the past several years as discrimi-natory exchange rate and price policies have been replaced by measureswhich have shifted the internal terms of trade in favor of agriculture.In addition, agriculture has benefited in recent years from tax andcredit policies designed to stimulate investment, and from the relatedprogress in the adoption of more modern technology. Among the principalcrops, the gains in wheat production have been modest, apart from yearsin which the weather was exceptionally favorable, but there has been astrong upward trend in corn, with the harvests in the past two yearsnearly double those of the 1960-1961 period. The cattle herd has beenincreased rapidly in recent years to an estimated 48-49 million head,a level wihich seems adequate to support considerably expanded beefproduction for export plus the high level of consumption demanded bythe home market.

7. Investment has run at a relatively high level throughout theperiod, an average ratio of gross fixed investment to GDP of nearly20 percent being indicated by the national income accounts. Whilethere is good reason to bel'eve that these figures considerably over-state the investment rate,&/ there can be little doubt that the levelof investment has been out of all proportion to the growth of theeconomy. That much investment has been "wasted" in terms of its con-tribution to growth has been an inevitable consequence of the failureto achieve sustained economic expansion and therefore to make full useof the productive capacity built into the economy. However, the un-favorable capital-output relation undoubtedly also reflects the factthat a good deal of investment has gone into inefficient industries inthe public and private sectors. Such industries, sheltered from foreigncompetition and operating in an inflationary environment, have had littleincentive to maximize output or labor and managerial efficiency. Publicinvestment has accounted for an average of 15 percent of total capitalspending and in recent years has remained relatively constant at some3-h percent of GDP. On the other hand, fluctuations in private invest-ment have played a major role in the swings in overall economicactivity. Private investment rose to over 19 percent of GDP in theboom of the early t6Os, but then fell back sharply to the 14 percentlevel at the bottom of the subsequent recession. The revival of demandin 1964-65 was largely consumption-oriented, the relatively modest risein investment probably reflecting the extent to which productive capacityhad been built out ahead of requirements in the investment boom. At theheight of the boom in 1965, manufacturing industries were still operatingat only a reported 70 percent of capacity.

1/ Because of the relatively high price of capital goods in Argentina.

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8. Inflation, not growth, has been the most persistent theme inArgentine economic history over the past 15-20 years. Since 1950, thecost of living has increased by an average of 28 percent per year; in

none of the last ten years was inflation less than 14 percent. Evenmore striking is the fact that the rate of inflation has appeared to be

quite independent of the overall state of the economy, actually dis-playing a distinct tendency to speed up as the economy has slowed down.In recent years, the sharpest rise in prices, more than 100 percent,

occurred during the most severe slump (1959), while the closest approxi-mation to price stability was achieved during the 1960-1961 boom when

price increases averaged 14 percent. Last year, in the recession,prices rose by 32 percent. Along with the inexorable rise in the

general price level there has been a substantial shift in relative

prices in favor of the agricultural sector. Since 1950 wholesale prices

of agricultural commodities have risen 325 percent, while prices of

manufactured and other goods increased 265 percent indicating an improve-

ment of some 23 percent in the terms of trade of agriculture.

9. The perverse behavior of prices in periods of falling outputunderscores the fact that Argentinals inflationary fever has been symp-tomatic of something more than a simple case of excess demand. Endemicinflation, in Argentina as elsewhere, reflects the interaction of acomplex of demand-pull and cost-push factors, of domestic and balance

of payments considerations, of expectations, and of social and political

pressures. The major elements in the Argentine inflation havebeen fiscal weakness, wage pressure, and the successive devaluations ofthe currency. Public savings tended to deteriorate markedly after 1957,mainly owing to a sharp decline in real revenues, with the result that

increasing recourse had to be made to the banking system for the financingof public investment, even though the latter was not being expanded inreal terms. On the cost-push side, the wage price spiral hasplayed a key role in the Argentine inflation. Since 1958, industrialwages have risen by some 34 percent per year, speeding up or slowing downfrom year to year in parallel with the changes in the pace of inflation.The increase in wages has tended to lag behind the rise in prices inperiods of particularly sharp price increases while, in years of rela-tively moderate inflation, wages have tended to outpace prices. After

advancing over the l950-l958 period, real wages fell sharply during the1959 inflation. Since then, however, wages have risen more rapidly thanprices in every year but one. Iast year, real wages were some 23 percentabove the 1960 level, although still below their 1958 peak.

10. The relationship between prices and the exchange rate hasclearly been a special factor in the Argentine inflation. The pesodepreciated by an average of some 21 percent per year between 1950 and

1966, the exchange rate actually rising by more than 30 percent in

several years. While repeated devaluations have been necessary to keepexports moving in the face of rising domestic prices and costs, theexchange rate adjustments have, in turn, entered powerfully into the

inflationary process owing to the fact that Argentinats principal

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exports are basic foodstuffs whose prices weigh heavily in the cost ofliving. Devaluation has, of course, also increased the cost of importedraw materials and equipment upon which so much of Argentine industrialproduction depends. Taken together, the items which have a high exportor import component appear to have a weight of at least 50 percent in thecost of living index, and it is thus not surprising that the major recentdevaluations, in 1959 and 1962, were followed by the sharpest inflation.

11. The frequent devaluations have reflected the underlying balanceof payments constraint to economic growth. Forced industrialization atthe expense of agricultuire in the Peron era resulted in a stagnation ofexports during the 50ts which made 4t impossible for Argentina to earnthe foreign exchange necessary to keep its economr fully employed andgrowing. In the past five years, however, export performance has vastlyimproved as a result of favorable trends in foreign markets as well asthe domestic policies favoring agriculture already mentioned, Afterhaving remained around the $1 billion level up to 1961, exports rose bysome 60 percent over the 1962-1966 period, nearly reaching $1.6 billionlast year. About $160 million of the increase was the result of a risein meat exports, attributable to both increased volume and higher prices;wheat and corn accounted for roughly $200 million and $100 million,respectively, of the export gain, mainly on higher volume; and miscella-neous exports, including manufactured products, also gained sharply.Capital goods imports have been sharply lower since the early 60's and,with the total import bill remaining within the $1.0-$1.2 billion rangeover the last four years, there have been trade surpluses of $300-$400million.

12. Despite the impressive export performance in recent years, thebalance of payments constraint has remained very much a fact of Argentineeconomic life owing to the onerous debt service burden which has con-sumed the bulk of the increase in foreign exchange earnings. Whileexports lagged, Argentina had to have increasingly heavy recourse toforeign borrow%ing in a process which culminated in the 1959-1962period in the acquisition of more than $800 million of new debt, raisingthe total foreign debt to some $3 billion. The debt, much of it in theform of supplierst credits, was contracted on unfavorably short termsand this gave rise to the need for successive partial refinancings.These took place in 1961 and 1962 and, again, as recently as 1965when the Paris Club countries agreed to extend over a five-year period60 percent of the-maturities falling due in that year on guaranteedsuppliers credits. However, as useful as they were, the refinancingshad the effect of "bunching-up" payments in future years and in1966 more than $600 million, an amount equivalent to about one-thirdof Argentinats gross foreign exchange earnings, had to be paid outfor debt service. All told, the Central Bank estimates that some$500 million of debt has been repaid, net, since 1963, reducing thetotal outstanding on December 31, 1966 to some $2.6 billion, of whichsome two-thirds was public debt. Little, if any, improvement has beenmade in the term structure of the debt and about 75 percent of the

outstanding amount was scheduled for repayment during 1967-71. SomeIncrease in Argentina's sorely depleted foreign exchange reserves hasbeen possible in recent years, although at the end of 1966 the Central]3ank's gross gold and foreign exchange holdings were only $222 million,an amount sufficient to cover about two months' imports. Calculatednet of foreign exchange liabilities (including the Treasury's) thereserves were a negative $157 million.

Policy

13. Stabilization efforts have been under way during most of theperiod since 1958. In 1962-1963, the effects of the tight monetarypolicy imposed to deal with the critical balance of payments situationwere distorted by soaring budget deficits resulting from a sharp declinein revenues during the business recession. The calling of foreign loanscontributed to the paralysis of a commercial paper market that had assumedmajor proportions and, with a severe liquidity squeeze on the private sectorbut no effective overall monetary restraint, output fell while inflationaccelerated. The futility of this course, together with an easing of thebalance of payments situation, led at the end of 1963 to a switch to apolicy of monetary expansion which undoubtedly contributed importantly tothe rapid revival of the economy in the succeeding year. In 1965 a broadlybased anti-.inflationary program was undertaken with the aim of tapering offthe boom into a period of sustained economic growth. Based on the diagnosisof Argentipa'ls economic ills contained in the National Development Plan for1965-1969,Y/ the Government's efforts in 1965 and 1966 focused on theachievement of clearly established targets for groith, for monetary andfiscal policy, and for wage and price restraint.

14. While certain of the targets of the 1965 program were achieved,overall performance was uneven. The most impressive accomplishment wasthe recovery of public finances as new taxes and the general economicexpansion boosted revenues by 65 percent (26 percent in real terms). Thebudget deficit was cut by more than 25 percent. Looking at the publicsector as a whole, savings rose sharply to the equivalent of 39 percentof public investment. This was, nonetheless, short of the Government'ssavings target owing to the disappointing financial performance of theDecentralized Agencies, the social security system and the state enter-prises. With the budget in hand, monetary expansion was held close totargeted levels, but the other major elements in the stabilization program- wage and price restraint - proved inoperative. The Government's wagepolicy, based on voluntary guidelines not announced until mid-year, wasvitiated in both the public and private sectors, and money wages rose by35 percent compared with the 22 percent targeted. Prices followed suit,with the rate of inflation accelerating sharply in the second half of theyear. With credit to the private sector restricted, a severe liquiditysqueeze began to develop.

1/ This Plan, analyzed in the 1965 iconomic Report, has been a dead lettersince the change in government in mid-1966.

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15. To meet the challenge of inflation, the Government plannedfor 1966 a considerably tighter fiscal policy, with greater emphasis onexpenditure control, a more restrictive monetary policy, and a much moreserious effort to limit wage and price increases. Success in the latterarea was crucial since, without a substantial slowing of inflation, theplanned monetary program implied a further tightening of liquidity in-consistent with continued growth. In practice, however, the Governmentwas unable to carry out its wage policy. Under strong pressure from thetrade unions it yielded up 30 percent wage increases, double its target,in the state enterprises (where sizeable increases had already beengranted in 1965) and in so doing set the pattern for the rest of theeconomy. The continued rapid rise in prices intensified the liquiditysqueeze, and while the monetary program was abandoned after mid-year,output and employment had already turned down. In these circumstances,fiscal performance also deteriorated sharply, with budgetary expendituresfar exceeding the targeted level and an increase of more than 60 percent(22 percent in real terms) in the treasury deficit. As regards the restof the public sector, the railway deficit rose sharply, while thesavings performance of the other major state enterprises fell far shortof expectations, with the result that public savings as a whole werenegative.

III. THE 1967 STABIIIZATION PROGRAM

16. The Government t s "Action Program" for 1967 is based on theprinciple that inflation must be attacked immediately and simultaneouslyon all fronts. A truly comprehensive approach was deemed essential, notonly to avoid the economic pitfalls which upset previous stabilizationefforts, but also in order to alter expectations decisively and buildconfidence at home and abroad, an aspect of its policy to which theGovernment attaches great importance. The foundation for the programwas laid by a thoroughgoing revision and tightening of the 1967 budget,enacted in January. This was quickly followed up by the adoption of amonetary program in agreement with the IMF, by legislation to limit wageincreases, and by a program of price restraint. On the external side,the action taken was, if anything, even more sweeping. A 40 percentdevaluation of the peso to PON 350 to the dollar was announced onMarch 13 and accompanied by the virtual elimination of all quantitativerestrictions on trade and payments and by substantial tariff cutsaffecting a wide range of co,mmodities. In support of its program, theGovernment was able to obtain more than $400 million of "stand-bycredits" from the IMF, the US Treasury, and American, European andJapanese commercial banks.

17. The 1967 program is a pragmatic and well-balanced one whichpromises to bring about substantial progress toward stabilization and,in so doing, to help lay the foundations for more rapid and sustainedeconomic growth, In making a marked improvement in fiscal performanceand an effective incomes policy the keystone of its efforts, the economicteam clearly recognized the major shortcomings of economic policy inpast years. However, the real strength of the program now under way,and the best grounds for hoping that it will have both a greater measureof succeos and a more durable impact than preceding stabilization efforts,lies in the determination and ability of the present Government to carryit through.

The Budget

18. The budget is clearly the most crucial and, at the same time,the most difficult element in the 1967 program. The basic decision takenin preparing the program was that the budgetary deficit would have to becut back by more than 50 percent to a maximum of M$N75 billion if therewas to be a significant reduction in inflationary pressures. To achievean improvement of this magnitude in one year would be a formidable taskanywhere, and particularly so in the Argentine situation given the com-bination of a structurally weak fiscal system and a depressed economy.The price inelasticity of the tax system, reflected in the fact that taxcollections in real terms had dropped again in 1966 and were some 20percent below the level attained five years earlier, meant that thecreation of major new sources of revenue would be indispensable. Inaddition, measures would be required to boost collections sharply by

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putting them on a more current basis and by inproving administration,the latter being particularly important in view of the past tendencyfor collections to drop precipitously in recession years as hard-pressedbusinessmen found non-payment of taxes a ready way out of their financialdifficulties. Expenditure control posed equally serious problems. Morethan one-third of budgetary expenditure consists of transfers to financethe deficits of the Decentralized Agencies, Special Accounts, and StateEconomic Enterprises over whose spending the governments have had littleeffective authority. The Government's ability to control the other one-third of budgetary expenditures going to wages and salaries, which hadrisen nearly 20 percent in the real terms over the preceding five years,also appeared problematical.

19. The budget constructed in the face of these difficulties callsfor an increase of nearly 70 percent in revenues. As the table belowshows, the bulk of the targeted increase is to come from new taxes, fromincreases in the rates of existing taxes, and from specific steps takento increase collections. The magnitude of the planned revenue effort isreflected in the fact that new measures are expected to account for morethan one-quarter of this year's total income.

PROJECTED REVETUE INCREASES, 1967(billions of pesos)

1. 1966 Revenues 284

2. "Vegetative" Increase 70

3. New Tax Measures 115

Export taxes 52

Internal taxes 35

Real Estate (20)Loans ( 6)lubricants ( 6)Excises ( 3)

Increased collections 28

Sales tax Pay-As-You-Go (12)Greater Federal Participation (16)

4. Improved Administration 9

5. 1967 Revenues 478

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20. It was the devaluation which made possible the single mostimportant revenue measure - the imposition of heavy taxes (retentions)on exports, a traditional Argentine fiscal device. These taxes, imposedat the rate of 25 percent on the major export products, are expected toprovide nearly 50 percent of the additional revenues to be generated bythe new measures. In estimating the yield from the export taxes,allowance was made for the fact that the rates initially establishedleft exporters of traditional products with only limited benefits fromthe devaluation, and that it would, as in the past, undoubtedly benecessary to adjust the rates downward from time to time in order tokeep exports moving in the face of rising domestic costs. On thedomestic side, special "emergency taxes", to be applied in 1967 onlywere imposed on real estate (1 percent of assessed valuations) and loans(2 percent per annum on outstanding-balances), and various excise taxeswere increased by differing amounts. A substantial amount of additionalinternal revenue is also sought through increased collections resultingfrom the placing of the sales tax on a Pay-As-You-Go basis and fromlegislation which increased the participation of the National Governmentfrom 54 to 59 percent in several important taxes which are shared withthe provinces. An important contribution to the tax drive is alsoexpected from the program for improving tax administration which has beenunder way for some time with the aid of technical experts from abroad.In addition, the Government undertook to adopt additional revenue measuresif this appeared necessary to compensate for any shortage of revenue orexcess of expenditure at midyear.

21. The revenue targets appear reasonable on the whole, and actualcollections in the first half of the year were up an impressive 68 percentover the 1966 level, or just about in line with the targeted gain for thefull year. Moreover, the trend of receipts rose steeply in the secondquarter of the year as collection of the new taxes got under way; comparedwith the corresponding 1966 months, revenues nearly doubled during April-June compared with a gain of only 30 percent in the first three months.Partial data for the third quarter pointed to a continuation of thefavorable trend in tax collections and, indeed, made it seem that theyear's revenue target might well be exceeded by a modest amount. Noimportant adjustments were made in the export taxes until the end ofSeptember, by which time nearly M$N 50 billion had been collected, makingit appear certain that the yearts revenue from this source would substantiallyexceed the budget estimates. In addition, the real estate tax yielded agood deal more than expected in the first of the two installments in whichit was being collected and monthly income tax receipts were also runningahead of the projected level, the latter presumably reflecting the fact thatthe enforcement drive was proving even more effective than had been hoped.These trends would more than compensate for the dropping of the tax onloans in July in order to reduce borrowing costs as part of the GovernmentWseffort to stimulate the economy.

22. On the expenditure side, the budget is built on the propositionthat total spending nust be held to about the 1966 level in real terms,an increase of only 23 percent in money terms being allowed for. Theexpenditure target is based, in the first instance, on the Government'sdecision to limit the 1967 salary increase of all public sector employeesto no more than 15 percent, compared with the increases of more than30 percent granted in 1966. To enforce the ceiling, all salary increasesthroughout the public sector were made subject to prior review by aspecial commission wqhich decided that, for the Central Administration,they would take effect from July 1. Coming on top of the very substantialraise granted in the second half of last year, the effect would be toboost the average level of wages this year by some 25 percent, an increasewhich seems to have been adequately allowed for in the budget. The 15percent ceiling applies to the rest of the public sector as well, but inthe case of the state enterprises its application to the various wagecontracts requires case-by-case decisions -- e.g., it was announced inJuly that the railway workerst 15 percent increase would be retroactiveto the expiration of the previous wage contract at the end of January.

23. The second, and most crucial, element on the expenditure sidewas the decision to impose a severe limit on budgetary transfers to theState Economic Enterprises. The Government has specifically undertakento limit transfers to the enterprises to M$N 105 billion, an amount justabout equal to the 1966 level which, of course, implies a sharp reductionin real terms. The major action taken to reduce the enterprises' depend-ence on the budget was the granting early in the year of sweeping tariffincreases amounting, for example, to 66 percent in the case of the railways,58 percent in electric power rates and 75 percent for telephone charges.The Government does not intend to authorize further tariff increases thisyear and is looking to economies in the enterprises' budgets to bring theirfinancial performance to the required level. Measures to improve operatingefficiency by restoring labor discipline and revising work rules have beenapplied in several enterprises and notable results were quickly apparentin the railways and ports, whose management was placed in the hands of thearmed forces. In addition, the Government was seeking (perhaps for thefirst time) to carefully review the budgets of the individual enterpriseswith the aim of adjusting their current expenditures and/or investmentprograms as necessary to fit them into the overall fiscal program.

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FINANCING OF STATE ECONOMIC ENTERPRISES, 1967(billions of pesos)

Railways YPF/Gas Other Total

Indicated Financing "Gap" 94 55 27 176

Special Financing Assumed - 29 15 44

Reduction Working Capital - 15 - 15Central Bank Credit - 14 - 14Energy Fund - - 15 15

Budgetary Transfers 74 16 12 102

Economies Required 20 10 - 30

Source: Ministry of Economy and Mission Estimates

24. The Governmentts budgetary planning, as the table above shows,was to hold transfers within the ceiling by allocating no more thanM$N 74 billion to the railways, M$N 12 billion to other transport enter-prises and M$N 16 billion to the enterprises in the energy sector (withM$N 3 billion left unallocated for contingencies). The problem thereforefocuses, as in the past, mainly on the huge deficit of the railwJays.Over the 1961-66 period, the railways'drain on the budget rose by nearlyone quarter in real terms and last year transfers to the railways accountedfor 18 percent of total budgetary expenditures compared with 14 percentfive years earlier. This underscores the magnitude of the economy effortin the railways implied by the ceiling on transfers, since the M$N 70 bil-lion allotted for ordinary expenditures (M$N t billion would be to coverincreased costs resulting from the devaluation) would be actually 10 per-cent lower than the railways required in 1966 in current prices, and about30 percent less in real terms. The extent to which the combination oflimited wage increases and sharply higher tariffs this year would contri-bute to the necessary turnaround in the railways finances appeared verymuch an open question at the time of the Mission's visit, owing to thepaucity of up-to-date information on the enterprise's accounts, but whatevidence there was pointed to the need for substantial economies if therailways were to live within the budget ceiling. While a financial planfor the railways consistent with the Government's budget strategy had notbeen prepared through mid-May, the first rough estimates of the railwayaccounts that were available to the mission indicated that planned expen-ditures have to be reduced by some M$N 20 billion and that this would, verytentatively, require a M$N 7 billion, or one-third, cut in planned

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investments and the postponement of M$N 13 billion of debt repaymentsfalling due this year.

25. After the railwJays, the most important enterprises from theviewpoint of the budget are those in the energy sector, particularly theState Petroleum Company (YPF) and the State Gas Company. These enter-prises run substantial current account surpluses, but depend on the budgetfor financing a portion of their investment programs, which they plannedto increase very sharply this year. The Governmentts budgetary planningallocated transfers totalling no more than M$N 16 billion to these enter-prises to cover the estimated cost of the devaluation, although this wouldleave an unfinanced "gap" of some M$N 10 billion according to the enter-prises' financial projections. The latter projections, moreover, assumedthat no less than M$N 15 billion in financing could be made available byfreeing working capital through a program to reduce drastically the largebacklog of unpaid bills owed these enterprises by their clients in boththe public and private sectors.!/ The financing needs of the other enter-prises in this sector (the water and power company and the coal company),while substantial, would be met by transfers from the lhergy Fund. In sum,then, even assuming that all of the projected special financing is forth-coming, the maintenance of the planned ceiling on transfers to the stateenterprises appeared to require the achievement of economies of at leastM$N 20 billion by the railways and M$N 10 billion by YPF and the gascompany.

26. Actual budgetary expenditures in the first half of the yearwere within the Government's planning targets for the period. The increasein current expenditures compared with the monthly average 1966 level wassuch as to indicate that the projected increase for the full year shouldnot be exceeded, provided that salary increases in the second half do not,in fact, exceed the 15 percent already granted. Transfers to the stateenterprises through the end of June were, in total, also at a level con-sistent with the year's budgetary goals, although there was evidence ofpressures that presaged greater difficulties in the latter part of theyear, Transfers to the railways totaled M$N 34 billion, less than halfthe amount allocated for the year. In the second half of the year,however, the railways would have to pay a 15 percent wage increase retro-active to February 1, while there would presumably be less scope forholding down the need for transfers from the Treasury by running downworking balances and deferring payments to suppliers, devices to whichthe railways had to have extensive recourse during January-June judgingby the complaints voiced by both its management and those to whom it

1/ In addition, it should be noted that the enterprises' financial pro-jections also counted on the use of some M$N 14 billion in Central Bankcredit to finance purchases from domestic suppliers. The monetaryimplications of such financing would be no different than drawing onthe Treasury.

owed money. Moreover, while the new management had m!ade the trains run on time.little, if any, action appeared to be in the offing in the way of laborforce redictions or other measures which would produce substantial savingsthis year. An additional factor was that the need for transfers to theState Enterprises during the first half of the year was moderated by thefact that YPF and the gas company made only negligible claims on theTreasury, a situation which cannot be expected to continue in the latterpart of the year, as noted above.

27. With both revenues and expenditures very nearly on target, thebudget deficit in the first half of the year did not exceed the M$N 50 billionplanned for this period. For the full year, transfers to the state enter-prises may exceed the Governmentts ceiling, as just discussed, but thebudget seemed to contain some cushion against suLch an eventuality in thefact that approximately M$N 14 billion of investment funds had been setaside in an unallocated reserve. In addition, the Government sought tobolster its budgetary position by delaying any major adjustment in exporttaxes until the latter part of-the year and, as indicated above, revenuescould exceed the planned level. All in all, achievement of the basicfiscal target of holding the 1967 budget deficit to M$N 75 billion seemedto be well within reach.

Savings and Investment in the Public Sector

28e The fiscal program also entails an impressive rehabilitationof public finances when viewed in terms of the improvement planned in thepublic sectort s ability to finance its investments from its own savings.In 1966, the budgetary position deteriorated to the point where revenuesbarely covered current expenditures, while the current deficit of thestate enterprises as a group rose sharply. As a result, the public sectoras a whole had to turn to the banking system to finance a portion of itsoperating expenditures, as well as all of its investments. In contrastto the net dissaving in 1966, this year2s program, as the table belowshows, provides for public savings totalling 1$N 157 billion, more thanthree timles the level achieved in 1965, the best previous year on record.At the projected level, public savings would cover more than 60 percentof investment this year, even though the Governmentts plans called foran increase in investment of more than two-thirds to the M$N 255 billionlevel. In practice, the savings ratio achieved may be even higher thanplanned since, while actual savings are likely to closely approximatethe target amount, investment may well fall short of the planning levelowing to the administrative difficulties of implementing so large anincrease in one year, and also to the financial pressures on some of theenterprises. Be this as it may, there is no reason to doubt that savingsperformnsuce will show a vast improvement, not only from the collapse of thesavings effort last year, but also compared to 1965, when a savings ratio ofnearly 40 percent was achieved. In absolute terms, the savings-investmentgap this year would be reduced some 40 percent to less than M$N 100 billion.

SAVINGS AND INVESTPIENT OF THE NATIONAL GOVERNMENT, 1964-67(in billions of pesos)

1964 1965 1966 1967(Actual) Planned Actual Planned Actual (Planned)

SAVINGSI. Central Administration (Budget) - 30.0 6.8 25.2 47.0 2.9 136.0

Revenues 123.4 211.0 223.8 300.0 283.9 478.0Current Expenditures -153.4!! -204.21/ -198 . 61/ -253.0 -281.0 -342.0

II. Decentralized Agencies - Special Accounts 18.1 3.2 8.6 - 3.0 - 7.8 - 2.4Revenues 80.2 72.0 106.4 107.0 116.22/ 198.0Current Expenditures - 62.1L/ - 68.81/ - 97.8L/ -110.0 -124.0 -200.4

III. Energy Fund 8.o 14.0 10.0 16.0 11.4 18.5

IV. Social Security System 12.2 35.0 11.4 11.0 - 6.6 n.a.Colle ctions 98.4 141. 0 135.6 190.0 168.3 n.a.Payments - 86.2 -106.0 -124.2 -179.0 -174.9 n.a.

V. State Economic Enterprises -19.0 - L.0 -7.8 4.0 -21.0 5.4State Railways n.a. -39.0 -40.6 - 40.0 -57.7 -52.0State Petroleum (YIF) n.a. 28.0 23.7 48.0 30.6 32.5

VI. Total Public Savings (I-V) -10.7 55.0 47.4 75.o - 20.9 157.0

INVESTMENT 3/VII. Central Administration n.a. C ( ( 14.0 31.0

( 40.0 (46.8 (48.0VIII. Decentralized Agencies - Special Accounts n.a. ( ( ( 36.1 64.7

IX. State Economic Ehterprises n.a. 84.0 74.0 119.0 99.2 158.9

X. Total Public Investment (VII-IX) 99.0 124.0 120.8 167.0 149.3 254.6

SAVINGS/INVESTMENT "GAP"Xi. Total Public Sector (X minus VI) 109.7 69.0 73.4 92.0 170.2 97.6

XII. Savings as per cent of Investment - 44.4% 39.2% 44.9% - 61.6%

Note: Columns may not add to totals because of rounding.

1/ Mission estimates2/ Excludes K$N 20.6 billion of revenues assumed to Ihve been utilized-in "financial investment."3/ Includes M$N 14 billion of unallocated funds.Source: Ministry of Economy

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29. Virtually all of the proposed saving is to be done throughthe budget which is expected to produce a current surplus of M$N 136billion this year, compared with less than M$N 3 billion in 1966. Thebasic realism of the savings target was indicated by the foregoing dis-cussion of the revenue and expenditure measures taken, and actual trendsthis year. The bulk of the budgetary savings would be transferred tothe rest of the public sector, since investment by budgetary entitiesis relatively modest and only a small increase was planned for this year(allowing for the fact that the reported total of budgetary investmentincludes some M$N 14 billion that was actually being held as a contin-gency reserve and would most likely be used for transfers).

30. The Decentralized Agencies as a group are expected to show anet operating deficit only slightly smaller than in 1966, despite muchhigher revenues (mainly earmarked t,axes), because of a projected sharpincrease in current expenditures.)L/ The major agencies in this groupare the National Highway Authority, Sanitary WpJorks, the developmentbanks and the universities. Only partial information on their budgetswas available at the time of the missionts visit, but it appeared thatmost of the major agencies expected to generate current surpluses, thenegative savings for the group as a whole being mainly attributable tothe large operating deficits of the universities. Investments by theDecentralized Agencies were expected to increase by more than 80 percent,most of the planned expansion being in highways and water and sewerprojects in line with the enphasis the Government had put on expandingpublic works activities which would have an immediate impact in increasingemployment, particularly in urban areas. With their savings performancenegative, the planned increase in investments could only be financed bydrawing on the Treasury and a rO percent increase to M$N 75 billion inbudgetary transfers to the Decentralized Agencies was budgeted for thisyear.

31. In the past, the social security system generally contributeda substantial volume of savings to the financing of the rest of thepublic sector. Last year, however, collections lagged far behind theincrease in payments and the social security accounts showed a deficitfor the first time in ten years. The lag in collections was a reflectionnot only of the 1966 recession, but also of the gross inadequacies of theentire social security mechanism and the general lack of public confidencein it. The Government early this year launched a vigorous campaign tobring contributions up to date by waiving penalties for those complying

1] While much of the Governmentts budgetary data for the DecentralizedAgencies had to be estimated, and the rise in current expendituresmay not be as great as projected, savings performance is not likelyto be substantially better since experience indicates that, inpractice, variations in current expenditure tend to be closely linkedto available income.

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within a given period, and threatening stiff sanctions against those whodid not. This effort apparently met with great success, as a result ofwhich collections in the first half of the year rose very sharply andthere was a substantial surplus of income over outgo. While benefitswere raised substantially in June, it appeared possible that a considerableamount of savings, not included in the official projections shown in thetable, might be generated in this sector.

32. The State Economic Enterprises as a group are expected togenerate savings of about M$N 5 billion, compared with their combinedoperating deficit of some M.$N 21 billion in 1966. The expectation of asignificant turn-around in savings performance in this sector is under-pinned by the sharp tariff increases put into effect and, while theamount of savings envisioned is modest, it would be the first time thatany net savings have been generated by the enterprises since collectionof data in this form began in 196h. On the other hand, state enterpriseinvestments were programmed to increase by some 60 percent to the M$N 160billion level; about two-thirds of the rise in total public investmentplanned for 1967 would thus be taking place in this sector. The gapbetween the savings generated by the state enterprises as a group andtheir investments would grow to about M$N 165 billion, some M$N 30 billionmore than in 1966.

33. YPF is both the largest source of savings and the heaviestinvestor among the state enterprises. BEt, while its savings wereexpected to increase only slightly this year, owing principally to thefact that petroleum prices were not significantly raised, YPF planned tonearly double its investment expenditures to about M$N 60 billion, thusaccounting for nearly one-quarter of total public investment. At theplanned level, YPF's investments would exceed its projected savings bysome M$N 28 billion. A slightly larger gap appears in the projectedaccounts of the gas company, the other major enterprise in the petroleumsector, which planned to increase its capital spending by some M$N 10billion while expecting some decline in its modest savings. The railwayshad intended to increase investment by 50 percent to about M$N 20 billionbut, as noted above, budgetary considerations would appear to dictate amaximum effort to pare these plans. The other principal investors amongthe State enterprises, the lWater and Power Agency and the National Tele-phone Company, would have sufficient savings available to cover plannedincreases in capital spending; the former would be able to draw on theEnergy Fund (a mechanism for channeling earmarked taxes on petroleum andelectricity to enterprises in the power sector) for this purpose, whilethe latter would generate sufficient savings of its own.

Monetary Policy

34. The test of monetary policy in 1967 will be the authorities'ability to impose the degree of credit restraint required for the successof the stabilization program and the maintenance of a strong balance ofpayments position. Insofar as the domestic credit operations of theCentral Bank are concerned, the upper limits to expansion are fixed bythe authorities' undertaking to the IMF to limit the increase in theBank's net lending to the public and private sectors to M$N 110 billion,equivalent to an increase of about 25 percent over the December 1966level. WIithin this total, Central Bank financing of the Treasury is notto exceed YMN 80 billion, which would be 20 percent less than in 1966.While these ceilings appear adequately to circumscribe the growth ofCentral Bank credit, the massive inflow of foreign exchange which hasbeen under way since the devaluation could provide the basis for anexcessive monetary expansion. From mid-1wch through June 30, the CentralBank's net foreign exchange purchases exceeded M$N 100 billion equivalent.As a result, although Central Bank advances to the Treasury were negli-gible after March, and Central Bank credit to both the public and privatesectors was well under the programmed levels for the first half of theyear, the money supply rose by nearly 15 percent during January-Junecompared with an increase of 10 percent a year earlier. Even assumingno substantial additional foreign exchange inflow in the second half ofthe year, the liquidity build-up which has already taken place could,according to Central Bank estimates, provide the basis for a creditexpansion of 35 percent or more.

35. The authorities are fully aware that an expansion of thismagnitude would be incompatible with the stabilization program, and ofthe difficult problem of monetary management with which they are faced.However, through mid-yrear the task of monetary policy was greatly easedby the fact that the banks, uncertain as to how long they might continueto enjoy their sudden affluence, were taking a cautious attitude towardexpanding their credit operations. More than half of the increase inthe banks' deposits was put into their cash reserves and loan expansionwas relatively modest. In these circumstances, the climate of monetaryease resulting from the foreign exchange inflow could be considered apositive development in the context of the Governmentts desire to stimu-

late a revival of economic activity and to see costs reduced. Interestrates on the extra-bank market, which provides a substantial part of thefinancing for business, came down sharply in the second quarter of theyear to the point where the rates charged were generally reported to benot much in excess of the effective cost of borrowing at the banks. Tnus,through mid-year, there appeared to be no pressing need for across theboard measures to reduce the liquidity overhang, and the strategy beingpursued by the authorities was mainly to seek to counter the impact ofthe foreign exchange inflow through reductions in the planned expansionof Central Bank credit.

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36. The principal measure adopted was to take advantage of theexisting situation to undertake open market sales of short-term Governmientsecurities in order both to absorb excess liquidity in the banking systemand to limit the Treasury's need to have recourse to the Central Bank.Sales of 15-360 day Treasury bills were begun toward the end of April andmet with considerable success,as it proved possible in the ensuing monthsto readily sell an average of more than M$N 4 billion in regular biweeklytenders. Yarket interest has been mainly in the shorter maturities inthe 30-90 day range which were being sold at a relatively low (forArgentina) average annual interest cost of 6-9 percent. Net Treasurybill sales through June 30 totalled more than M$N 12 billion and this,together with the success in holding the line on the budget deficit, madeit possible for the Treasury to make substantial repayments to the CentralBank in the second quarter of the year and thereby play an importantabsorptive role in the monetary situation. As another means of limitingpotential for credit expansion, the Central Bank has sought to reduce itsrediscount operations with the private sector and during the second quarterof the year rediscounts were cut by M$N 9 billion.

IWages and Prices

37. As discussed earlier, wage pressures were a major factor inundermining Argentina's stabilization efforts in the past and it is theGovernment's demonstrated firmness in dealing with labor so far, togetherwith the comprehensive incomes policy it has established that, perhapsmore than anything else, provides grounds for hope that the present pro-gram will be carried through more successfully than its predecessors.As previously mentioned, wage increases in the public sector are to beheld to 15 percent. For the private sector, a law passed at the end ofMarch provided for the granting of a round of graduated wage increases inApril and May this year and then a total wage freeze until the end of1968. The increases permitted this year range from 8-24 percent dependingon the expiration date of the existing wage contracts in different indus-tries, with workers who received their previous adjustments most recentlybeing allowed the smallest raises in 1967. Taking into account that thisyear's raises will in many cases come on top of sizeable adjustmentsgranted in the latter part of 1966, an increase of at least 27 percentin the average level of wages this year is indicated. As large as thisappears to be, it would nonetheless be a step forward, since wages areestimated to have risen by about 35 percent last year. During the firstsix months of this year, industrial wages in Buenos Aires rose by 24 per-cent, or about 17 percent in real terms after allowing for the cost ofliving increase during the period. However, with wages frozen after theend of May, the real wage will inevitably decline in the latter part ofthe year and little improvement is likely to remain at the year end.

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38. With real wages falling, and probably quite sharply, the lasthalf of the year will be a crucial testing time for wage policy. Thesuccess the Government has had in overcoming union resistance to itspolicies in the railways and the ports, and particularly its decisiveaction in turning back the central labor organization's "Battle Plan"in IMarch, seems to have engendered a new attitude of compliance on thepart of labor which makes a frontal attack on the wage program appearmost unlikely now. It will, nevertheless, be most important for theGovernment to review individual settlements for compatibility with thelaw and to resist pressures for exceptions, keeping the latter to aminimum and allowing them only where special circumstances do, in fact,exist. The Government appears to recognize this and, in approving anextra 10 percent wage increase in the construction trades, went to somelengths to point out that it had only done so after having verified thatthere would be a definite and measurable net saving in labor costs asthe result of the unionts agreement to the elimination of the specialseverance pay practices in the industry.

39. For prices, like wages, 1967 can best be regarded as a transi-tional year during which progress must be measured more in terms of thelaying of the bases for stabilization than of the actual slowing ofinflation in statistical terms. The absence of a specific price targetin the stabilization program may be taken as a reflection of the difficultyof realistically assessing the short-term price effects of the many mea-sures taken this year. Tne extent and timing of the impact of the deval-uation is clearly the major imponderable in the current price picture.A 40 percent devaluation could, on the basis of the experience discussedearlier, be expected to exert a major upward push on the price level.However, in the present case, the immediate repercussions on the domesticprices of major export commodities was narrowly limited by the high exporttaxes imposed, while the impact on the cost of imported goods was partiallycushioned by the tariff reductions. Moreover, with the devaluation takingplace in the context of a comprehensive stabilization program in whichthere was substantial public confidence, there was also a cushioning ofthe psychological impact which devaluation often has ib stimulating in--flationaiy expectations.

40. In the circumstances, the 6.1 percent rise in the cost of livingin the first six months of the year, no more than in the corresponding1966 period, could be regarded as encouraging. However, prices rose bymore than 4 percent in June and this was followied by a 5 percent increasein Jully. bWhile these rises were apparently attributable in the main tosharply higher food prices resulting from frost damage to certain crops,they nonetheless cast a pall over the price outlook. On a seasonallyadjusted basis giving better grounds for judging the outlook for the yearas a whole, the price increase through July was nearly 20 percent. More-over, the full price effects of the devaluation, and the year's round ofwage increases, were undoubtedly still to be felt, and it will not beuntil the impact of these factors has been absorbed, and probably notuntil next year, that a marked slowing of the pace of inflation can beexpected.

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41. WIhile it is particularly concerned with the trend of prices,not only because of its implications for wage policy, but also because ofits importance to general public confidence, the Government has escheweddirect price controls as both ineffective and inconsistent with its generalphilosophy of restoring competition and the role of the price mechanism inthe Argentine economy. Thus, the Government's major effort in the pricefield took the form of a program for enlisting the full cooperation of theprivate sector in holding the line on prices on a voluntary basis. In May,the nation's businesses were invited to subscribe to a set of price guide-lines established by the Government which provide, basically, that theenterprises shall absrob three percentage points of the rise in costs overthe next six months, raising prices during this period only to the extentthat the increase in costs since the beginning of the year exceeds thisamount. Within a short time after the announcement of the program, vir-tually all major business firms and many smaller ones had pledged them-selves to adhere to the price guidelines. While stressing the voluntarycharacter of the program, the Government made it clear that it intendsto make a major effort to ensure compliance. Firms wishing to raiseprices during the six months' period must give the authorities 15 daysadvance notice together with a justification of the intended increase interms of the guidelines. Although Government approval is not required forputting price increases into effect, firms making "unjustified" increasesare to be subject to sanctions ranging from the withholding of Governmentpurchases and restriction of their access to bank credit to, in extremecases, the free importation of the items in question.

The Balance of Payments

42. 1967 promises to be the best year for the balance of tpaymentsin recent experience. With exports expected to continue near record levels,another substantial current account surplus seems assured. However, it isin the capital account that a major change in the balance of payments pic-ture is to be expected this year as a result of the inflow of foreignexchange which got under way after the devaluation in mid-March. Thedecision to undertake a sweeping devaluation of the peso was, insofar asthe balance of payments was concerned, based principally on the Government'sdesire to establish an exchange rate which could clearly be held for aconsiderable time as a means of generating confidence and attracting aninflow of capital from abroad. That the move from an overvalued peso towhat was clearly regarded as an undervalued one has served this purpose,and to perhaps an even greater extent than had been hoped, was clearlyreflected in a very sharp increase in foreign exchange reserves.

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43. As regards Argentina's foreign trade, the devaluation is notlikely to have a major impact this year owing to the compensatory charac-ter of the accompanying measures affecting both exports and imports. Onthe export side, a tax of 25 percent was levied on the major traditionalexports including meats, grains, wool and hides; other traditional itemssuch as fresh fruit, dairy products and processed meat were subject totaxes of 20 percent or 16 percent. For the great bulk of Argentine exportsin the first category, the tax meant that the effect of the devaluation,in terms of the actual peso returns to exporters on their sales abroad,was to raise the rate ornly to about 262.50, or just some 9 percent abovethe pre-existing level, as shown in the table below. Exports of non-traditional products, mainly manufactured goods and other items accountingfor some 10-15 percent of total exports in recent years, were not taxedand so return a full YON 350 per US$1. However,-the tax reimbursementfacilities ranging from 6 to 18 percent of F.OB. values which exportersof these products previously enjoyed were uuspended at the time of thedevaluation, so that in practice the stimulus given to these exports wasmore on the order of 20 percent than 40 percent. Across the whole exportlist, the Central Bank estimated that the devaluation gave a net advantageof about 9 percent on a weighted average basis. W4hile this was sufficientto keep exports moving to market at high levels in the short run, it wasclear that the limited benefits afforded by the devaluation with exporttaxes at the rates initially established would be subject to erosion bydomestic cost increases within a relatively short time. Indeed, as wagesand other costs rose in the months subsequent to the devaluation so,inevitably, did the claims of the agricultural sector for tax relief. TheGovernment began to readjust the export taxes at the end of September andreductions for most major products had been announced by early November.The effect of the reductions was to replace the initial 25/20/16 percentrate structure with a new 18/12/8 percent one, thus increasing peso returnsto exporters by a further 9-10 percent.

"REAL" EXPORT EXCHANGE RATES(pesos per US dollar)

Post-Devaluation After Tax ReductionsPercent Percent

Export Taxes (%) Real Rates Change Export Taxes (%) Real Rates Change

25 262.50 8.9 18 287.oo 9.320 28 0.oo 6.7 J 12 308.oo 10.016 294.oo 5.°0/ 8 322.oo 9.50 350.oo 18.62/ 0 350.oo 0

lJ Central Bank estimates allowing for tax reimbursementsavailable prior to devaluation for most products in thesegroups.

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44. As regards imports, the devaluation was accompanied by thevirtual elimination of all quantitative restrictions (excepting, mainly,the prohibitions on imports of motor vehicles) and by substantial tariffcuts affecting a wide range of commodities. The tariff revision wasundertaken with the twin purposes of (1) compensating in part for theimpact of the devaluation in increasing the cost of the imported goodsand (2) promoting greater efficiency and lower costs in Argentine industryby reducing excessive protection. The maximum rate of duty was cut from320 percent to 1h0 percent and the unweighted average of all tariffs from120 percent to about 70 percent. Under the new structure, tariffs arescaled up from 20-40 percent on raw materials to 100-140 percent onfinished products, with the higher rates in each category generallyapplying to items produced in Argentina, depending on the adequacy ofthe local production. TNhile no official estimates were available to themission, there are indications that the tariff cuts had only a limitedeffect in offsetting the cost increase resulting from the devaluation.A private study based on a broad sample of items in the import list in-dicates that the net effect of the devaluation, on the one hand, and thetariff cuts, on the other, would be a 26 percent increase in import costson a weighted average basis.i/

45. Trends during the first six months of the year appear to con-firm the likelihood of a current account surplus for the year of someUS$250 million, about equal to the 1966 result. 2 Exports can be expectedto be somewhat lower than last year's record of nearly US$1.6 billion,mainly owing to a likely decline of US$100-125 million in wheat sales.Theat exports were kept up in 1966 in the face of a very poor harvestonly by sharply running down stocks and, with the improvement in the 1967harvest apparently smaller than originally estimated, Argentina not onlyhad to prohibit further exports after June, but also actually to arrangefor imports of at least 150,000 iT later in the year to ensure domesticsupplies. Fortunately, the bumper corn crop should make possible anincrease in exports which will compensate for as much as half of the lossin foreign exchange earnings on wheat. Meat exports should show a modestgain, despite declines in world market prices for traditional frozen andchilled beef, owing to an increased volume of exports, particularly ofcanned meats and meat exported for processing abroad. Imports are notlikely to exceed last yearfs level, unless demand picks up in the latterpart of the year. During the first six months of the year capital goodsimports were running well ahead of the 1966 level, but other imports weredown by roughly the same amount, with the saving due in large measure toreduced imports of petroleum products. The net deficit on invisiblesduring January-June was also lower than in 1966, making it seem likelythat the twelve month figure will be no greater than last yearts.

lJ Chamber of Argentine Electronic Industries, "Analysis of the RecentTariff-Exchange Reform", Monthly Bulletin, April 1967.

2J The ensuing discussion of the 1967 balance of payments outlook isbased on the Mission estimate shown in the last column of Table 18.

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46. From the devlatuion through June 30, the Central Bank's netpurchases of foreign exchange averaged some US.150 million per month and,over the entire first half of the year, its gross gold and foreign exchangeholdings rose by about US$450 million, while the net reserve positionimproved by more than US$300 million. With this year's current accountsurplus orly slightly higher than in 1966, according to preliminary CentralBank estimates, the reserve gain was clearly attributable, in the main, tothe capital inflow taking place in the wake of the devaluation. Includedin this phenomenon was the exchange of foreign currency held by the public,which was particularly important in the first weeks after the devaluation;the repatriation of funds held abroad by individuals and business enter-prises; and short-term business borrowing abroad to take advantage of lowerinterest rates once foreign exchange oontrols had been removed and a viableexchange rate established. While there are no data on the inflow of capital

in these forms, information released by the Central Banlk on balance ofpayments developments in the first six months of this year, indicates thatthere was a net inflow of capital not otherwise identified of nearlyUS.$100 million, compared with a net outflow of "other capital" of morethan US$150 million in the like 1966 period. It thus would not appearunreasonable to estimate the capital inflow following the devaluation asof the order of magnitude of US$250 million.

47. Judging from the additions to foreign exchange reserves in Julyand August, the capital infloiwq was continuing, albeit at a reduced rate.While the inflow could be expected to taper off more sharply with thepassage of time, the result for the year as a whole might well be a netinflow of "other" capital of US$150 million, assuming there are no deve-lopments which might set off a capital flight. In addition to this inflow,Argentina may expect to receive some US$260 million on capital account fromsuppliers' credits, other foreign loans, and direct investments. Suppliers'credits financing an estimated 75 percent of capital goods imports, mainlyfor the private sector, would account for the bulk of this amount. Thus,including the US$195 million drawn from foreign banks and the estimatedUS$250 million current account surplus, there should be at least US$860million of foreign exchange available against scheduled debt repaymentsof about US$540 million. This would indicate an increase of aboutUS$320 million over the year in the reserves.

IV. DEVELOPMNT PROBLEMS AND POLICIES

48. As irmportant as the achievement of this year's stabilizationprogram is, the Argentine experience clearly indicates that success in thefight against inflation is likely to be short-lived, and of little signi-ficance in terms of economic developmernt, unless accompanied by measuresto promote growth and to deal with the basic structural problems of theeconomy. The Government is well aware of this and has, from the beginning,sought to emphasize the inportance it attaches to measures to deal withthe "real" as well as the financial problems of the economy. Stabilizationis regarded as a necessary, but far from sufficient, condition for bringingabout the "great transformation of the entire economic and social apparatus"which the Minister of Economy, in a major policy speech delivered at thetime of the devaluation, described as the Governmentts essential objective.The process of putting Argentina on the road to more rapid and sustainedeconomic growth is looked at basically as one of shifting resources fromless to more productive employment, a view that seems basically well-foundedin light of the fact that, at Argentina's relatively advanced stage ofdevelopment and with its relatively high levels of savings and investment,the problem is clearly less one of mobilizing resources than of puttingthem to good use.

The Private Sector and Economic Recovery

49. Increased efficiency in the utilization of resources is recognizedto be as great a problem in the private sector as in the public sector,With inflation rampant, the rewards for efficiency were few as the costsof slack management and excess labor could easily be passed on in the formof higher prices, The stabilization program, if successful over the longerrun, promises to alter radically the business environment in this respectand, for the short run, the Government clearly hopes that one of the majorresults of its price policy this year will be to impell businessmen tolook to their costs. This will necessarily entail a more efficient useof labor, something which should be greatly facilitated by the impact ofthe GovernmLent's policy in cutting back the power of the trade unions.The reduction in tariffs was another measure intended to promote efficiencyby eliminating excess protection.

49a. But, while attempting to establish the basis for a long runimprovement in resource utilization, the Government's most pressing concernvis-a-vis the private sector was to stimulate an immediate revival of eco-nomic activity. With the capital goods industries suffering the most fromthe recession, the Government introduced in June and July a series of fiscaland other measures directed primarily toward a revival of investment, Themost important of these were:

(1) Tax credits. The full cost of investments in industry andagriculture using doinestically produced machinery or equip-ment may be deducted from taxable income provided only thatthis does not reduce an enterprise's taxable profits in anyyear by more than 60 percent. Investment credits exceedingthis amount may be carried fonrard for two years. The Lawapplies to investments made between June 30, 1967 and theend of 1968.

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(2) Suppliers' credit liberalization. To promote alsoinvestments requiring imported machinery and pquip-ment, the Central Bank relaxed its regulationsestablishing minimum credit terms which importersof capital goods must obtain from their suppliers.The new regulations permit cash payments of up to15 percent, plus freight and insurance, and minimmngrace and repayment periods were reduced, for examplein the case of imports in the $500,000 to $1 millionrange, from two to one year for the grace period,and from seven to five years for repayment. In addi-tion, the costly tax on interest payable on suppliers'credits was reduced and a higher tax exemption wasallowed on financial credits obtained from abroad.

(3) Revaluation of assets. New guidelines covering theadj,ustm nfof capital values to reflect inflationwere introduced, permitting enterprises to make morerealistic depreciation allowances, and to reducetheir tax liability accordingly.

(h) Housing, The tax credit for investment in housingwas raised from 10 to 50 percent and put on a revisedbasis intended to encourage the construction ofdwellings for the middle and lower income groups.

50. Agriculture, in addition to these general investment stimuli,may benefit from special incentives introduced to meet the specificproblems of this sector. To induce the livestock industry to maintainits basic capital and productive capacity - i.e. its breeding animals -at the high level reached last year, a 10 percent tax credit was providedfor the purchase or retention of breeding animals, provided they are heldfor three years, while a partial tax exemption was allowed on the sale ofother animals. To encourage the application of more modern techniquesin all phases of agriculture, the tax deduction already allowed for fertil-izer purchases was extended to include pesticides and herbicides, andfarmerst expenditures for technical assistance were also made partiallytax deductible. The fiscal incentives were supplemented by a broadeningof credit facilities for agricultural investment, and a reduction in itscost. The Banco de la Nacion announced that it would amplify its lendingprograms for such purposes as the retention and purchasing of breedingstock, pasture improvement and silo construction and, in July, interestrates on such loans were reduced from 15 to 12 percent and to 10 percentin certain specified "development areas".

51. The tax allowances granted to investors appear most generous,particularly in view of the fact that they entail a substantial loss inTreasury revenue which will aggravate the budgetary difficulties in1968. This aspect of the problem was no doubt fully examined in thelengthy debate which preceded the announcement of the tax measures, andthe action decided upon reflects the Government's consideredjudgment that lesser concessions would not have an appreciable impact

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on capital spending plans. But tax advantages, however generous, arerarely basic to businessmen's investment decisions, and the liberalgeneral investment allowances which existed prior to 1965 were elimina-ted in part because studies had shown them to be of only minor importance.The response the tax allowances evoke will be determined, in the finalanalysis, by the hard facts of the economic situation and whether thiswas pointing in the direction of a substantial upswing in capital spend-ing appeared very much an open question, as discussed below.

Public Sector Savings

52. The key problem in this sector is unquestionably the inadequacyand instability of public savings, a problem which must be solved ifArgentina is to mount an effective development effort and finance it ina manner which will not once again endanger the stabilization programand the balance of payments. As impressive as this year's fiscal efforthas been, the net result stated in terms of the mobilization of publicsavings equivalent to some 60 percent of projected investment cannot beregarded as more than minimal performance for a country at Argentina'sper capita income level. Moreover, in the context of the general down-trend in public savings since the late 50's and the sharp fluctuationsexperienced over the past few years, a sustained and intensive effort onboth the revenue and expenditure sides is clearly still to be made beforethe savings outlook can be viewed with confidence. Extensive improve-ments in tax structure and administration, as discussed in depth in thelast Bank report, will be required to give revenues the long-term stabilityand real growth potential necessary to fiscal balance in an expandingeconomy. However, measures to raise budgetary revenues, and to containgovernment expenditures, will be of limited value unless paralleled byequally strenuous efforts to raise savings in the rest of the publicsector, The tightening of budgetary control over the DecentralizedAgencies and a thoroughgoing reorganization of the Social Security systemmust be accorded high priority in this process. However, the greatestweakness lies in the state enterprise sector, and particularly in theoperating deficit of the railways and the inadequate savings generated inthe petroleum sector.

53. Public savings requirements and the improvement of real resourceallocation in the public sector come to a focus in the problem of thegross overstaffing which exists in many government agencies and, especially,in the state enterprises. Public payrolls became swollen out of all pro-portion to economic requirements over a period of many years in whichgovernment employment served, in effect, as a means of absorbing unem-ployment in a slowly growing economy. While the number of redundantworkers can only be roughly estimated in the absence of comprehensivemanpower studies, it was reported to the mission that in the major stateenterprises, where the problem is concentrated, about one-third of thelabor force - some 100,000 workers - may be considered superfluous.The worst offender, with an estimated 40,000 redundant workers, is therailways, while YPF, the telephone company and SEGBA are together believedto have another 35-40,000 employees in excess of their requirements. Pub-lic finances will remain precarious as long as the budget must carry the

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burden of so large a number of non-productive employees, and a substan-tial beginning on labor force reduction is essential to the viability ofthe present stabilization effort.

54. As a first step in this direction, the Government in July en-acted legislation establishing the basis for a "rationalization" programto be conducted throughout the public administration. In essence, thislaw makes the top management of each government entity responsible foridentifying redundant employees, removes all legal obstacles to theirimmediate dismissal from the public service, and provides compensationfor the employees so released. The latter are entitled to severance payequivalent to 80 percent of their present monthly earnings for each yearof service, to be paid in monthly installments or, at the employees'option, in an immediate lump sum with a 20 percent discount. Provisionis also made for financial assistance to dismissed workers seeking re-training and for special credits for those wishing to establish theirown businesses. No quantitative targets or time schedule were establishedfor the implementation of the rationalization program and, through mid-September, it seemed off to a slow start.

55. Implementation of the rationalization program is likely toprove as difficult as it is essential, not only because of the inherentdifficulties of the problem, but because of the vested interest in thestatus quo built up over the years in the government bureaucracy and inthe state enterprises, as well as in the unions. Since no centralmechanism for guiding or monitoring the implementation of the programwas established, much will depend on the energy and ability which themanagement of the individual entities can bring to bear on the difficultand in many ways unpalatable task assigned to them. The top executivesof many of the most important government agencies and state enterprisesare men selected by the Goverrment for the purpose of instituting basicreforms, but the difficulties they face in getting to the heart of theredundancy problem are formidable, indeed, since the proper identifica-tion of superfluous staff will in most cases necessitate the revision oflong-established work rules and changes in deeply ingrained habits ofoperation, Moreover, trade union resistance is likely to build up asthe program progresses, and especially as it comes to involve areas suchas work rules in which the unions have in the past had the dominant voiceand where action in many cases requires changes in existing labor con-tracts. Eut, beyond the intrinsic difficulties of the program, the basicconstraint on how far and how fast rationalization can realistically beexpected to proceed in practice will be the ability of the economy toabsorb the dismissed workers in productive employment. A large increasein unemployment appears unacceptable to the Government, and the pace ofthe program thus seems closely linked to the success of its efforts tostimulate the economy.

56. However urgent, labor force rationalization can be only a par-tial answer to the problem of improving efficiency in the public sector.Organization and management are generally antiquated, and the introduc-tion of modern techniques in areas ranging from purchasing and inventorycontrol to cost accounting and tariff setting is necessary for a really

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comprehensive approach to improved economic efficiency and financialperformance. The Government's emphasis on budgetary austerity andoperating efficiency has undoubtedly created the right climate for aserious approach to modern management in the public sector and, in addi-tion to the streamlining of operations in the ports and railways as al-ready noted, significant steps in the same direction were reported to beunder way in other agencies, particularly the telephone company, the StateMaritime lines and SEGBA. In this connection, legislation was enactedmaking it possible to change the legal status of certain of the major Stateentities and to operate them more on commercial lines than as Governmentagencies. Reorganizations under this law, which should help clear the wayfor more agile and efficiency-oriented management, were being prepared inthe Water and Power Company and YPF.

57. A sizeable labor force reduction is, of course, the key tocutting back the railway operating deficit, but decisive progress in thisdirection will require decisions on reducing the scope of the enterprise'soperations to more economic dimensions. A fundamental aspect of the rail-way problem is the continued operation of a large number of uneconomicbranch lines (in 1962 it was estimated that some 14,000 Kms. of track,more than one-third of the existing railway network, could be economicallyabandoned), of stations serving little traffic, and of workshops and otherfacilities which have similarly outlived their usefulness. These problemswere recognized in the rehabilitation plan adopted at the end of 1965,although meaningful action under this plan was effectively precluded bythe terms under which it was accepted by the unions. NIhile the unions arepresumably no longer the obstacle they previously were to the necessaryaction, and the present railway management is reportedly studying the prob-lem in depth, a comprehensive and definitive program for the closing downof uneconomic services had not been made known by September.

58. The implications of the failure to exploit more fully the savingspotential of the petroleum sector (YPF and G7as Del Fstado) were strikinglyapparent in 1967 when, with YPF2s planned investments boosted to a levelmore nearly commensurate with the need to expand production, savings inthis sector were estimated to fall some I4$M57 billion short of investment.Moreover, it was estimated that the petroleum sector's contribution togeneral treasury revenues would be only M$N 13 billion, or just 5 percentof gross sales. In many countries with similar resource endowments, thepetroleum sector not only finances its own capital requirements, but alsocovers much, if not all, of the requirements of the transport sector andis, in addition, able to contribute a sizeable portion of its cash flowto the Treasury. The causes of the inadequate performance of the Argentinepetroleum sector are a combination of low prices, low profits and low taxes.Regular gasoline presently sells at M$N 20 per liter and the superiorvariety is available for M$N 4 more, prices equivalent to only US$0.22 andUS$0.27 per gallon, respectively, at the present exchange rate. The tax onregular gasoline was the equivalent of uS$0.08 1/2 per gallon. Substantialincreases in prices and taxes would clearly be required to put the financesof petroleum sector on a sound footing, and to achieve the Government'savowed goal of making it independent of budgetary support.

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Investment Decisiena

59. The 1968 budget will provide the Government with its first realopportunity to implement its views on development priorities in the pub-lic sector in a concrete and comprehensive fashion. However, decisionstaken in the course of this year appear to go far to determine the basicpattern of public investment that will be emerging, and also reflect theGovernmentts commitment to maximizing private investment in areas inwhich it can play an important role. The most important decisions were:

(1) To expand public investment in the petroleum sectorand to open this sector to private investment,

(2) To go ahead with the huge El Chocon hydroelectricproject,

(3) To give high priority to expanding investment inroads and to accelerate the preparation of projectsfor international financing, and

(4) To approve plans for a sharp expansion of basicsteel making capacity in both the private andpublic sectors.

60. The near doubling in YPF's capital spending planned for thisyear reflected the GovernmentTs decision that the investments necessaryto substantially expand petroleum production must be undertaken on anurgent basis. During 1962-66 petroleum production increased only slowly,and consumption requirements, rising at about 7 percent per year, couldbe met only by sharply increased imports which reached the $100 millionlevel in 1965-66. The Governmentls goal is to eliminate the need forimports by 1970 by raising production some 65 percent above the 1965 level.Argentina's petroleum resources are sufficient for this and the goal is,indeed, one strongly recommended by the last Bank mission. However, evenat the planned 1967 investment level, YPF would be undertaking only abouthalf of the drilling which the production target is estimated to call for,and an adequate petroleum investment program would clearly be beyond thefinancial capabilities of the public sector.

61. Recognizing this, the Government gave highest priority to thepreparation of a new hydrocarbons law, a particularly difficult and sen-sitive task in view of the highly charged political background of thepetroleum issue in Argentina. The new law, enacted in June, ends YPF'smonopoly on exploration and development and establishes the basic condi-tions for the participation of domestic and foreign private capital inthis sector. The law is complex, but in essence provides that privatefirms may be granted straightforward concessions for exploration andproduction in specified areas and that they are also to be permitted toengage in the refining, transport and marketing of petroleum products.The duration of the concessions and the rents to be charged appear in linewith common practice elsewhere, and the Government's share of the profitearned by the concessions is fixed at a maximum of 55 percent, which

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would appear to be relatively modest given the prevailing practicesin some other countries. On the other hand, the law reserves to YPF allareas in which there are important known oil deposits. This is a provis-ion which, if it does not unduly discourage private investors, would seemto put off for several years the date at which their efforts would bereflected in a substantial addition to Argentine production.

62. The maintenance of adequate electric power supplies has been acontinuing problem in Argentina and it is one to which the Governmentclearly intends to give top priority in planning public investment. As aresult of decisions taken towards the end of last year and early in 1967,Buenos Airest requirements over the next several years will be met throughthe installation by SEGBA of 120 4.W. of peaking capacity for use in 1968,by a new 250 M.We base load unit to be put in operation by the Italo-Argentine Electric Company in 1969 and by a similar SEGBA unit in 1970.These thermal additions, which are presently either under construction orin an advanced stage of procurement, should provide sufficient power through1971, although reserve capacity will be limited. For the longer run, theGovernment has decided to turn to hydroelectric power for Buenos Aires byproceeding with the construction of the long-debated El Chocon-CerrosColorados project on the Rivers Limay and Neuquen some 1,000 Kms. southwestof Buenos Aires. This project, now estimated to cost about $500 million,would begin to produce power in 1974 and would have a total capacity of1,650 M1.i. when completed in 1979. The Government hopes that constructionmay begin in mid-1968; to prepare for this, consulting engineers wereselected in August and action was being taken to establish the independentauthority which will manage the project for the Government. In anotherdecision which could have an important impact on the future course ofdevelopments in the power sector, the Government decided to call for bidsfor a nuclear power plant in order to determine its feasibility as a meansof filling the potential power gap. in the Buenos Aires area between thetime the capacity of the planned thermal projects would be fully utilizedand the availability of power from El Chocon.

63. Highway construction is another field in which the Governmenthopes to move ahead rapidly, but in which there are major problems to beovercome. The first is that inadequate advance highway planning in thepast has resulted in a shortage of fully engineered projects. A second majorproblem is posed by the need to improve the managerial capabilities of theNational Highway Authority and to re-define the roles and responsibilitiesof the highway agencies at the national and provincial level, as well asthose of the specialized agencies for the toll facilities now being planned.At present, the most advanced of the possible major new projects is a$75 million one for the improvement of the principal highway links withneighboring countries; this project is under consideration by the Inter-American Development Bank. Another major project currently being developed,and one which the Government has called to the Bank's attention is for theimprovement of the highway connections between Buenos Aires and the north-eastern provinces of Misiones, Corrientes and Entre Rios. This projectinvolves the construction of a major toll bridge over the Parana Rivernear Buenos Aires, the improvement of the national highway leading norththerefrom, and road construction in Misiones and Corrientes provinces.

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64. Basic decisiols slaping the future of the Argentine steel in-dustry were also taken early this year when the Government approved theeaxpansion plans of the existing finms in the public and private sectors.Under these plans basic steel making capacity would be more than doubledto about 4 million tons by 1973. Somisa, the State firm, would expandcapacity by 1 million tons through a project with an estimated total costof $195 million while Acindar, a private firm now engaged primarily inrolling operations, plans to integrate into basic steel making with acapacity of 800,000 tons through a project costing $160million. Foreigncredits play a crucial role in the financing plans of both enterprises;Acindar also expects to obtain substantial equity participation from abroadand to rely heavily on its foreign partner for technical and administrativesupport in the construction and operation of the project. In addition tothese projects, the Government has also approved the long range plans ofPropulsora S.A. for the construction of a new integrated steel mill withan eventual capacity in excess one million tons.

V. PERRN4ANCE PFOSPECTS AND CREDITWORTHINEKS

65. The principal objectives of economic policy in 1968 must be:

1. To bring about a general revival of economic activity,

2. To consolidate the stabilization program, and

3. To maintain a solid balance of payments position.

This is obviously a formidable program, but the indicated objectives arefundamentally compatible in real resource terms and mutually supportingin the context of the Government's major policy endeavors. With theunder-employment of plant and labor long characteristic of the Argentineeconomy having become more pronounced as a result of the recession, thereseems little reason to doubt that output and employment can be substan-tially expanded without putting undue pressure on resources. On theexternal side, good export prospects and this year's buildup of reservesmean that immediate balance of payments considerations should not be a barto prudent measures to spur economic growth. As regards the stabilizationprogram, a revival of economic activity would ease the fiscal problem byboosting revenues and by facilitating the reduction of excess public em-ployment; recovery would also bolster confidence in the Government'seconomic policies and strengthen its hand in maintaining wage and pricerestraints. However, the close interrelationship between the indicatedobjectives also puts a high premium on the careful balancing of policiesso that, for example, fiscal and other measures to stimulate the economydo not endanger the stabilization program and, ultimately, the balanceof payments.

Growth Prospects

66. The danger that the imposition of a stabilization program in acountry long accustomed to inflatlon will have an adverse impact on out-put and employment was particuarly acute in Argentina this year becausethe economy was already in the throes of a recession. In this light,trends in the economy through the third quarter of the year may be con-sidered favorable, since there were few signs of a deepening of therecession, although neither was there any clear evidence of a generalrevival of economic activity. The most important source of strength inthe economy in 1967 was undoubtedly the sharp rise in agricultural pro-duction reflecting, principally, the better wheat harvest and bumpercorn crop. Industrial production continued its downward slide in thefirst quarter of the year and, while production seems to have bottomedout after that time, there were only partial signs of an upturn in out-put. Among the cross-currents were a rise in iron and steel productionand automobile production running well ahead of the 1966 levels. On theother hand, the deep recession in the metal working and capital goodsindustries appears to have been unalleviated. Given the gain in agri-cultural production and the strength in residential construction andsome other sectors, a rise of 3-4 percent in GDP for the year as a wholeseems likely. Preliminary Central Bank estimates indicate that, during

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January-June, GDP was actually running at an annual rate some 3.7 percentabove the level of the corresponding 1966 period.

67. The Government has indicated that it believes a 5 percent risein GDP can be achieved in 1968. A continued expansion of agriculturalproduction can be expected, but barring exceptionally favorable weather,the gain next year is unlikely to be as great as that which took place in1967. Thus, a significant acceleration in the overall rate of growth ofthe economy in 1968 would appear to depend on a general and substantialrevival of industrial activity which may, in turn, only be expected ifthere is a substantial strengthening of final demand. Consumption is notlikely to be very buoyant, with the Government's incomes policy and sharplyincreased tax and social security collections pointing to a decline inpersonal disposable income. To stimulate consumption, it was announcedin August that the banks would be permitted, for the first time in manyyears, to extend credit to wage earners and pensioners for the purchaseof domestically manufactured consumer durables. The Banco de la Nacionannounced that it would make DON 10 billion immediately available, butthe programts general popularity seemed questionable in the light of thelimits put on the use of the credits and the apparently cynbersomeprocedures established for the operation of the program.:/

68. As regards investment demand, the Government clearly intendsto further expand public investment in 1968, although its ability to doso in a manner consistent with the stabilization program will be conditionedby the fiscal problem, as discussed below, W4hile increasing publicinvestment can make an important contribution to stimulating demand, thetrend of private capital spending will be a critical factor in the economicoutlook. The fiscal and other measures taken to promote private investment,together with the general easier availability and lower cost of credit,would appear to go as far as is feasible in the direction of leading thehorse to water. In addition, the Government has evidently had a broadmeasure of success in building business confidence. However, as favorableas the investment climate now is in these respects, there are basic factorsin the economic situation which make prospects for a broadly based upswingin capital spending in the immediate future appear problematical. Inindustry, the basic stumbling block to increased investment is thesubstantial margin of excess productive capacity prevailing in many linessince the investment boom of the early 60's. As regards agriculturalinvestment, the most fundamental problem would appear to be to convincethis sector of the Government's determination to consistently carry out inpractice its commitment to pursue foreign exchange, tax and price policiesthat will permit the long term expansion of output, particularly for export,on a remunerative basis. Through the end of the third quarter of the year,

lJ Recipients of the credits are to be given notes valid only for theitem specified in their loan applications, not cash; firms from whomgoods are purchased may use the notes only to reduce their indebted-ness to their suppliers.

- 35 -

there were few signs of any general enthusiasm for expansion, and business-men still seemed to be very much in the process of taking stock of thereal implications for their own activities of the changes in the economicenvironment, and of the new investment stimuli.

The Stabilization Program

69. As noted earlier, it may be hoped that this year t s stabilizationefforts will begin to bear fruit in the form of a significant slowing ofthe rate of inflation in 1968. However, the realization of the promiseof the stabilization program will depend on the maintenance and reinforce-ment wihere necessary in 1968 of the existing policies of restraint in thefiscal, monetary and incomes fields. A sound monetary program and thecontainment of wage pressures will, of course, be essential, but the fiscalproblem is likely to remain the heart of the matter. The principal fiscaldesiderata in 1968 will undoubtedly be to (1) further reduce the need forbudgetary financing by the Central Bank in line with stabilizationrequirements while (2) raising public investment in order to help stimulatethe economy and expand development programs. However, the Government maywell face a more difficult situation in attempting to achieve its fiscalobjectives in 1968 than was the case this year in the sense that, withoutthe extraordinary revenue possibilities opened up by the devaluation andother special measures, greater emphasis will have to be given to the inmany ways more difficult area of expenditure control.

70. The fiscal problem for 1968 stems basically from the fact thata large part of this year t s estimated increase in tax collections wasobtained on a non-recurring basis from the export taxes, which will haveto be reduced for balance of payments reasons, and from the emergencyproperty tax, which was imposed for one year only. The export tax, atthe rates initially established, might yield about M$N 100 billion in afull year, but given the need to progressively reduce the rates in linewith the trend of domestic costs in order to keep exports moving, it wouldseem prudent to allow for no more than M$N 30-35 billion of revenue fromthis source in 1968, compared with the M$N 52 billion in this year'sbudget. The Government2s commitment to drop the property tax will costM$N 20 billion. In addition, the investment credits will cost the Treasurya substantial sum; although the probable loss is difficult to measure,M$N 20-25 billion would appear to be a conservative estimate. All told,these factors point to a revenue "loss" of some M$N 60-65 billion whichmeans that, even assuming a healthy revival of economic activity and alarge vegetative growth in other tax collections, only a modest increasein revenues can be expected next year on the basis of present taxes.

71. In these circumstances, current expenditure may be expected torise more sharply than revenue even if, in strict compliance with theGovernment's incomes policy, no wage increases are granted for 1968. Forexample, next yearts wage bill would be 7.5 percent higher simply as aresult of the application over a full year of the 15 percent increasegranted for the last half of 1967. Even allowing for the margin of errorinherent in the rough global estimates of the fiscal outlook that can bemade at this time, it seems clear that budgetary savings in 1968 are unlikely

- 36 -

to exceed this year's level, and might well be even lower, in the absenceof corrective action. A strenuous effort to increase public savings nextyear thus appears to be required for immediate budgetary reasons as wellas to further the long term process of strengthening the fiscal structurein order to meet development needs, as previously discussed.

72. The mobilization of additional savings on a substantial scalecan be accomplished only by means of a concerted effort to tightenexpenditure controls in the Central Administration and DecentralizedAgencies, to improve the operating results of the state enterprises, andto raise additional taxes. The Government is beginning the budgetary reviewprocess much earlier this year and intends to conduct it in a much morethorough manner than has been the case for some time. The Ministry ofEconomy's hand in the budgetary process has been strengthened by personnelchanges and by improvements in treasury accounting and careful scrutinyof spending requests should uncover opportunities for sizeable economiesin many areas. The potential for savings appears particularly great inthe case of the Decentralized Agencies which have, in the past, beensubject to only perfunctory budgetary review. If the sharp upward trendin their current expenditures can be curbed, and the increase in 1968held to the amount estimated for the Central Administration, additionalsavings of sorme M$N 10 billion or more might well be forthcoming inthis sector./

73. In the final analysis, however, substantial savings on currentexpenditure will depend on how much of a beginning can be made inreducing public employment under the rationalization program. TheGovernment will, as noted earlier, have to strike a balance between thebudgetary exigencies under consideration here and the possible "social"costs of dismissing large numbers of public employees in the presentuncertain state of the economy. What is most important, however, is thatthe necessary decisions be taken in time to permit the establishment andimplementation of meaningful quantitative targets in connection withthe preparation of the 1968 budget. Unless the rationalization programcan be put into operation on a meaningful scale in the months immediatelyahead, it will have little fiscal impact in 1968 since the compeneationwhich must be paid to dismissed employees narrowly limits the savingsthat can be obtained in the first six to nine months after the programgets under way.

74. A substantial improvement in the savings performance of thestate enterprises will be crucial in 1968, and the sine qua non for thisis a significant reduction in the operating deficit of the railways. The

lJ The lack of hard information on the 1967 budgets of the Decen-tralized Agencies makes any estimate of what may be accomplishednext year particularly conjectural, but some M$N 10 billion ofsavings were achieved in this sector in 1965.

- 37 -

Government's determination to achieve such a reduction in 1968 has beenrepeatedly affirnmed by the Minister of Economy and was explicitly under-scored by the President in a major press conference at the end of August.To translate this determination into action effective in terms of the1968 budget requires that a concrete, time-phased program for labor forcereduction and the closing-down of uneconomic services be put in operationin the immediate future. The actual savings from such a program woulddepend heavily not only on the number of workers affected, but on suchvariables as the timing of the dismissals and the average length ofservice of the employees involved. However, even with prompt and effectiveaction, it would probably be unrealistic to think of very large savingsbeing achieved in 1968 through economies in the railways alone. The sameurgency thus applies to the need to implement the rationalization programand institute related economies in the other state enterprises.

75. Economies in expenditure will presumably be preferred by theGovernment to increases in tariffs as the principal means of achievingthe necessary increase in state enterprise savings in 1968, especially inview of the sharp rise in tariffs this year and the direct impact oftariff increases on the price level. However, even with a maximum efforton the expenditure side, a substantial increase in tariffs is likely tobe unavoidable. The magnitude of the necessary increases cannot be esti-mated in the absence of projections of the 1968 accounts of the individualenterprises, but it would seem that increases sufficient to restoretariffs to the real level attained by the 1967 adjustments (i.e., increasesin the 20-30 percent range) would yield enly a modest increment in savings,even assuming that no wage increases will be granted next year.

76. Even on the most favorable assumptions about what is likely tobe achieved through economies and adjustments in state enterprise, tariffs,it will still be necessary to provide for additional tax revenues if anadequate level of public savings is to be achieved. While the new taxesmay be raised in a variety of ways, a basic consideration would appear tobe to create a permanent source of increased revenue to replace the exporttax and this year's emergency measures. The magnitude of the requiredtax effort will depend both on the Government's ability to limit currentexpenditures (including its ability to maintain the wage freeze in thepublic sector) and on the size of the increase in public investment thatis to be sought in 1968. However, tax policy, and the general problem ofthe financing of the public savings gap, will have to be weighed in thecontext of how the private economy appears to be responding to the stimuliadministered this year. Evidence that private demand is beginning torecover satisfactorily would favor additional taxes, while signs ofcontinued sluggishness would indicate the need for a maximum effort todevelop alternative means of financing the budget. In the latter regard,the successful opening up of the treasury bill marlset this year indicatesthat it should be possible to draw more heavily on private savings in thefuture. A possible next step in this direction would appear to be to offermedium-term government securities; in addition to an attractive rate ofinterest, such securities would probably have to be offered on a maintenanceof value basis (e.g., by providing for the periodic adjustment of theprincipal amount in accordance with a suitable price indicator). Foreign

- 38 -

savings might also be tapped, since the restoration of confidence inArgentina abroad this year would appear to make it realistic to explorethe possibility of foreign bond issues through which general purposetreasury funds might be obtained on longish terms (say, 10 years or more.)

Balance of Payments and Creditworthiness

77. Over the next several years the balance of payments positionshould, with a modicum of good management, continue to improve. Theunderlying world demand for Argentina's major traditional products isstrong, and a continuation of the upward trend in agricultural productionnotable over the past few years should make possible a steady expansionof exports. While exports may not rise as rapidly as during the 1961-65period, the growth in foreign exchange earnings should be sufficient topermit the increased imports that will be needed in an expanding econony,and to generate substantial current account surpluses. While sizeablegross capital inflows will be required to help meet heavy debt repaymentsfalling due during the period, it should be possible to make substantialprogress toward relieving the balance of payments of the onerous debtservice burden of the past decade.

78. The extent to which these favorable prospects are realized inpractice will depend on the maintenance of suitable foreign exchange,stabilization and development policies, as well as on circumstances, likethe weather, less amenable to government control. A realistic exchangerate is the most important contribution Argentina's policy makers canmake to the balance of payments. The reductions in the export tax inOctober and November were significant not only in the immediate balanceof payments context, but also as the first major test of the government'scommitment to maintaining over time an exchange rate structure which willprovide the necessary long run incentives to export expansion. Exchangerate policy will, of course, be greatly facilitated to the extent that thestabilization program takes hold in the form of a significant slowing ofthe rate of inflation. Moreover, the adequacy of the exchange rate policy,and the diligence and success with which the stabilization program ispursued, will be crucial factors in maintaining domestic and foreignconfidence and, with it, the capital influx that was one of the government'smajor accomplishments this year. The possibility of a reversal of thecapital flow will hang over the balance of paynents until the stabilizationprogram is firmly consolidated. If basic export incentives are maintained,the tax and credit benefits offered for agricultural investment shouldprove effective in helping build up the export base, as should the variousmeasures the Government has taken to stimulate non-traditional (i.e.,manufactured) exports. The easing of restrictions and the threat ofrestrictions on the entry of Argentine products into important foreignmarkets could also contribute importantly to export expansion, but thestrenuous efforts the Government made during the Kennedy Round negotiationsto reduce barriers to Argentine meat exports to the European CommonMarket were rebuffed at the last moment.

- 39 -

79. Projections of the basic balance of payments magnitudes for1968-1971, assuming favorable policies and an accelerated growth rate,are shown in the table below. Export growth should be renewed next year,with a sizeable gain if the early promise of a good wheat crop is ful-filled. With cattle herds apparently being maintained at or near recordlevels, a further expansion in meat exports also appears likely and theincreased foreign exchange earnings from wheat and meat should substantiallyexceed the probable decline in corn exports as a result of the return tomore normal yields on next year's crop. Imports are, however, likely tospurt ahead sharply next year if the hoped for economic revival materializes.These trends point to a decline in the current account surplus from thehigh 1966-67 levels, although it should not fall below the $150 millionlevel. N4hile still quite impressive, a current account surplus of thismagnitude in 1968 would cover only a fraction of scheduled debt amortization,since the latter is expected to remain at about the 1967 level of nearly$540 million. On the other hand, receipts on long-term capital accountshould rise substantially next year, reflecting increased drawings on IDBand IBRD loans; some $180 million of new credits from these institutionswere expected to go into the pipeline in 1967. The bulk of the additionalcapital required may be expected in the form of suppliers' credits which,especially in view of the relaxation of Central Bank restrictions, couldfinance some 70-75 percent of capital goods imports, as has been the casein recent years. In this case, only a modest drawdown of reserves fromthe record level to which they were boosted this year should be necessaryin the absence of speculative capital movements.

80. The continuance of current account surpluses in the neighbor-hood of $150 million may be expected during 1969-71. Exports during thisperiod are assumed to grow by some 5 percent per annum, a substantiallylower rate than that experienced over the past five years, but one whichrecognizes that exceptionally favorable weather contributed importantlyto the recent performance of the agricultural sector. Imports are pro-jected to rise at an average 6 percent per year, a rate which should permita sizeable expansion of capital goods imports and the growth in imports ofraw materials and intermediate products that would be required for themaintenance of a 5 percent growth rate. Turning to the capital account,amortization of the existing debt begins to fall off in 1969 and declinessharply in 1970 and 1971, amounting in the latter year to only about 45percent of the 1966-67 level. The easing of the debt burden, together withthe maintenance of substantial current account surpluses, implies a signi-ficant decline in Argentinats gross capital inflow requirements. Over thenext four years, nearly $1.3 billion, or an average of some $325 millionper year, will be required to balance Argentinafs external accounts, but theannual requirements will decline from nearly $400 million in 1968 to justover $200 million in 1971. About a third of the required capital inflowshould come from long term loans already in the pipeline, and from privatedirect investment, which may be expected to expand at least modestly underthe assumed conditions.

BALANCE OF PAYIhENTS PROJECTION 1967-71(M4illions of Dollars)

1967 1968 1969 1970 1971

Exports 1550 1625 1700 1791 1880Imports -1075 -1250 -1325 -1404 -1488Invisibles, Net - 225 - 225 - 230 - 235 - 240

1. Current Account Balance 250 150 151 152 152

2. Debt Amortization - 538 - 537 -542 - hh5 - 372

Existing Debt - 538 - 505 - 454 - 301 - 211New DebtlJ - 32 - 88 - 144 - 161

3. Gross Capital Inflow Required (1-2) - 288 - 387 - 391 - 293 - 220

4. Capital InfloD! Available 68 130 110 115 60

Direct Investment 32 40o 45 50 50Long Term Loans 36 90 o5 65 10

5. Additional Capital Required (3-4) 533Z/ 257 281 178 160

6. Change in Reserves 313 0 0 0 0

lJ Assuming that the "Addit ional Capital Required" is obtained on terms averaginga one year grace period and four years for repayment.

2 / Mission estimate of actual inflow.

81. WShile Argentina's foreign borrowing requirements will be dimin-ishing, prudent debt manageunent will remain an essential ingredient ofbalance of payments policy. The present debt service problem is largelya reflection of the unfavorable terms on which debt was incurred in thepast. The terms on which the public sector has borrowed abroad in recentyears have been among the least favorable ones Latin American countrieshave reported to the Bank. In 1965 Argentina incurred some $235 millionof public debt on terms averaging an interest cost of 5.7 percent, a 1.8year grace period and repayment over five years; by contrast, the averageterms for all Latin American countries for which similar data was availablewere 5.1 percent interest, a four year grace period and 16 years for repay-ment. The average terms on which Argentina's total foreign borrowing hasbeen done may be presumed to be even less favorable than that reported forthe public sector alone, since the latter includes loans from internationalagencies and foreign governments while private sector borrowing abroad hasbeen very largely through supplierst credits.

82. The extent of the easing of the debt service burden that can beachieved over the next several years will depend on Argentina's ability toobtain the new credits it requires on improved terms. It is in the ultime4.einterests of lenders to Argentina, as well as in the interests of the borrower,that extended terms should be offered on suppliers' credits which in recentyears have financed the bulk of Argentinats imports of capital goods. Theterms on which Argentina has borrowed abroad in recent years simply do notmake sense from an economic point of view, and it is to be hoped that infuture both average grace periods and periods of repayment can be substan-tially lengthened. At the same time Argentina should make every effort toshift as large a proportion of public sector borrowing as possible frommedium-term suppliers' credits to loans from international developmentlending institutions and other sources of long-term credit. To do thiswill require, in addition to the maintenance of sound economic policies,a major effort at project preparation. However, if the role of developmentproject financing in meeting Argentina's balance of payments needs is tobe expanded significantly, it will be necessary to include a substantialelement of local cost financing in such projects. Argentine industry iscapable of meeting the bulk of the country's capital goods requirements,as reflected in the facts that imported equipment has accounted for onlyabout 10-15 percent of gross domestic investment and for less than 20 per-cent of total imports in recent years. Moreover, much imported equipmentis not project related. Argentinats relatively modest requirements forimported capital goods, and the heavy debt service burden over the nextfew years, also make a case for general purpose borrowing abroad on termswhich would help significantly to lengthen the structure of the debt.

83. A net reduction in Argentinats external debt over the next fouryears of upwards of $800 million, or about 25 percent, should be possibleon the basis of the projected annual current account surpluses of $150million plus some $h0-50 million of private direct investment. Amortizationand interest payments on the debt outstanding as of December 31, 1966 arescheduled to decline from $650 million in 1968 to $275 million in 1971.The actual debt service burden in the latter year would, of course, alsoinclude service on the new loans which must be contracted during the period.

STATISTICAL APPENDIX

rTABLE NO.

I. PRODUCT AND POPUIATION

1 Growth of Real National Output and Population, 1950-662 Gross National Expenditure, 1958-663 Changes in Gross National Expenditure, 1958-66

Change in Gross Domestic Product by Sectors, 1958-665 lManufacturing Production6 Capacity Utilization in Manufacturing, 1963-667 Agricultural Production

II. PUBLIC FINANCE

8 Central Administration Budget, 1966-679 Central Administration Revenues, 1961-67

10 Savings and Investments of the Decentralized Agenciesand Special Accounts, 1966-67

11 Savings and Investments of State Economic Enterprises, 1965-6712 Public Investment, 1965-67

III. PRICES, WAGES, AND M4ONEY

13 Changes in Prices, Wages, Foreign Exchange Rate, Credit andMoney Supply

14 Cost of Living in Buenos Aires, 1963-6715 Industrial Wages, 1961-6716 Monetary Situation, 1963-67

IV. BALANCE OF PAYIWTS AND EXTERNAL DEBT

17 Balance of Payments Summary, 1958-6718 BA:vance of Payments, 1965-6719 Exports (f.o.b.) By Main Commodity Groups, 1958-6720 Volume and Price of M.ajor Exports: Average 1953-57, 1958-6721 (Composition of Imports, 1960-6722 Official Foreign Exchange Reserves, 1961-6723 Argentina - External Medium- and long-Term Public Debt

Outstanding Including Undisoursed as of December 31, 196623a Argentina - Reported Additions January 1 - June 30, 1967 to

External Medium- and Long-Term Public Debt24 Argentina - Estimated Contractual Service Payments on External

Mledium- and long-Term Public Debt Outstanding IncludingUndisbursed as of December 31, 1966

28a Argentina - Estimated Contractual Service Payments on ReportedAdditions January 1, 1966 to June 30, 1967 to ExternalMedium- and Long-Term Public Debt

24b Argentina - Estimated Contractual Service Payments on ExternalMedium- and Long-Term Public Debt Outstanding IncludingUndisbursed as of December 31, 1966

Table 1

GRO-JTH OF REAL NATIONAt OUTPUT AfD POPULATION, 1950-66(GDP at 1960 prices)

Year Real GDP Index Annual Population Real GDP Index Annual19W0=100 Per cant per capita 1960=100 Per cent

Charges Charges

1950 710,329 73.9 1.5 17,093 41,557 89.3 - 1.0

1951 739,165 76.9 4.1 17,514 42,204 90.7 1.6

1952 692,066 72.0 - 6.4 17,893 38,678 83.2 - 8.3

1953 741,088 77.1 7.1 18,228 40,657 87.4 5.0

1954 768,962 80.0 3e8 18,559 41,433 89.1 1.9

1955 821,829 85.5 6.9 18,900 43,483 93.5 4h9

3.956, 835,285 86.9 1.6 19,249 43,394 93.3 - 0.2

1957 881,423 91.7 5.5 19,606 44,957 96.7 3.6

1958 944,863 98.3 7.2 19,963 47,331 101.8 5.3

1Q59 890,074 92.6 - 5.8 20,317 43,809 94.2 - 7.5

1960 961,203 100.0 8.o 20,666 46,511 100.0 6.2

1.961 1028,487 107.0 7.0 21,020 48,929 105,2 5.2

1962 10092263 105.0 - 1.9 21,377 47,213 101 5 - 3.5

196:3 973,699 101.3 - 3.5 21,737 44,795 96.3 - 5.1

19614 1051,556 109.4 8.0 22,103 47,575 102.3 6.2

1965 ii4ihgo9 i18.8 8.6 2258475 5o807 109.2 6.7

1966 1136.142 118.2 - 0.5 22,871 49,676 106.8 - 2.2

COMPOUND GROWTH RATES

1950-55 1955-60 1960-65 1950/51-1965/66

Real GDP 2.9 3.2 3.4 3.0Population 2.1 1.7 1.6 1.8Real GDP per capita 0o.8 1.5 1.8 1.2

Source: Central Bank

Table 2

GROSS NATIONAL EXPENDITURE, 1958-66(in billions of pesos at current prices)

1958 1959 1960 1961 1962 1963 1964 19651/ 19661/

Consum tion 316.9 601.6 75 4. 5 922.3 12118 3 1 397.5 1 924.9 2 582.3 3,245.1Private -279.0 377. 66O .2 ; - 962: 1J221.3 lJ68?72: 2:2433 2,782.6Public 37.9 64.0o 86.3 117.1 156.0 176.2 242.7 338.8 462.5

Gross Fixed Investment 77.2 125.5 208.6 270.3 320.2 316.4 390.0 558 9 723.4~~rivate - -- ~~~~n.a. n.a. =7.T ?UST :717f :575 :rT8 463.1 62-Private ~W~~T F T Y I 620.4

Public n.a. n.a. 34.1 44.4 48.7 59.9 65.2 95.8 103.0

Change in Inventories - o.6 9.2 9.7 -5.7 -4.8 - 21.4 29.1 58-7 - 6.o

Foreign Balance - 6.8 4.2 -11.6 -38.8 -22.1 41.6 19.3 46.1 81.3

Gross Domestic Expenditure 386.7 740.5 961.2 1 148.1 1,411.6 1 734 1 2,363.3 3 246.0 4,043.4Net factor payments - 1 -. :TT -fl EX -T 4.5 -14. -4. 1

Gross National Expenditure 385.1 737.3 956.5 1J139-7 1,403. 1,72h.6 2,348.9 3,232.1 4,012.3

PER CENT DISTRIBUTION

Consumption 81.8 82.5 79.5 79.8 78.9 79.3 82.7 79.6 80.2Private 72.1-7T -77: ~76.1 bo 7n:- -71n- 679.1 60.oPublic 9.7 10.0 10.0 9.7 10.7 8.9 11.5 10.5 11.4

Gross Fixed Investment 20.0 16.9 21.7 23.5 22.7 18.3 16.5 2 9Private n.a. n.a. T 2 -- 1.2 1 13.7 14Public n.a. n.a. 3.5 3.9 3.5 3.5 2.8 2.9 2.6

Foreign Balance - 1.8 o.6 - 1.2 - 3.3 - 1.6 2.4 0.8 1.4 0.7

Gross Domestic Expenditure 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0


1/ Provisional, as of July 1967.

Table 3

CHAIIGES IN REAlL GROSS NATIONAL EZENDITURE, 1958-66(Indices: 1960=100)

1958 1959 1960 1961 1962 1963 1964 19651/ 1966

:Private consumption 106.3 97.7 100.0 110.7 106.3 io4.o 1J4-4 123.2 123.3

Public consumption 9o.4 91.5 100.0 102.5 98.4 95.5 94.6 96.5 99.1

Gross fixed capitalformation 81.8 66.4 100.0 117.7 106.7 85.6 91.8 94.7 96.2

Exports of goods and -services 95.1 99.4 100.0 92.4 125.0 127.5 119.3 129.1 133.3

Imports of goods and -services 91.6 811 100.0 118.9 114.2 88.9 103.2 95.1 90.1

GDP at market prices 98.3 92.6 100.0 107.0 105.0 101.3 109.4 118.8 118.2

Indirect taxes, net of subsidies 98.4 92.6 100.0 106.9 104.7 101.7 108.9 117.5 106.3

GDP at factor cost 98.3 92.6 100.0 107.0 105.0 101.3 109.h 118.8 118.3

1/ Provisional, as of July 1967.


CHANGE IN GiiOSS CO-.MSTIC P.t.RODUCT BY SECTORS, 1958-661/IndiCeS 1960=100)

Percentage AverageDistribution per centof GDP in 1960 1958 1959 1960 1961 1962 1963 1964 1965 19661/ Growth rates

1960-66

Agricu1ture 17.4 99.4 98.4 100 99.2 101.0 101.2 108.3 115.0 111. 3 .8

ivaning 1.1 63.7 73.1 100 129.9 i45.4 145.t 1483.3 15L;.4 1iO-1 E.2

Aanufacturing 32.2 99.3 91.4 100 109.7 10o.7 99.9 115.0 129.$ 127.9 1.2

Jonstruction 4.2 111.3 83.7 100 105.7 97.0 89.5 90.0 91.L 97.0

1ectricity, gas andwater 1.3 92.4 94.0 100 117.0 130.4 138.4 1,52.1 173.8 180.1 11.1

Pransportation andcommunications 7.6 97.3 94.o 100 106.7 101.6 98.5 108.1 115.9 114.5 2.3

lommerce 17.0 98.1 86.5 100 112.9 111-8 102.0 106.6 116.8 1145 2.3

Binancia1 services 4.1 97.7 98.4 100 103.3 106.0 108.2 109.8 113.5 113-.S '

rovernment services 7.4 99.6 99.3 100 100.6 99.1 100.2 100.3 1D3.7 14.3 C.7

ther services 7.7 90.8 94.4 100 104.4 103.0 99.3 102.5 10i; 108 .4 1 .4.GDP at factorcost 100.0 98.3 92.6 100 107.0 105.0 101.3 109.4 118.) ." 1)f.3 2.e

/ Provisional, as of July 1957.

ource: Central Bank

Table 5

iMUE.TJFACTURING PRODUCTION

PercentageDistribution 1960=100

____ ____ ____ ____ ____ ____ in :'960 7 T1 1962 1-/(3 1%14 177 1 66/

Food, beverages, and tobacco 19.5 105.2 11266 115.3 108.6 11h.6 116.8

Textiles and clothing 118 109.2 88.7 84e9 105.3 120.2 116.6

lumber 1.7 116.3 108.2 95,9 114,3 129.6r 133.6r

Paper and printing 5.2 117.7 106.1 103.4 112.2 127.9 134.7

C;iemical products 7.1 104.9 100.5 104.9 130.5 1Uh.2r i4O.9r

Petroleum products 7.1 108.9 125.6 125,1 132.0 148.ir 15 9.7r

Rubber and leather 5.6 93.1 79.2 71.7 83,6 90.6 8949

Stones, glass, and pottery 4.3 116.3 113.8 100.0 111.4 131.9r 139.Ir

lMetals 8,7 110.6 101.6 102.8 141.5 15 7.2r 13 5 . 6 r

Vehicles and machinery 21.6 119.6 110.6 93.6 121.2 139.6 129.9

Other 7,4 99,0 91.9 88,5 94,7 101.1 99,0

Total 100.0 109.7 10o47 99.9 115.0 i29.6r i?2 7* 9 r

1/ Provisional. Data marked "r" revised as of July 1967.


'able 6CAPACITY UTIIIZATION IN MA1UFACTURING, 1963-66

(Percent of Estimated Maximum Capacity)

Change1963 1964 1965 19662/ 1966/65

Food and Beverage 60.2 61.2 61.5 63.2 2.8

Tobacco 83.8 88.5 77.5 73.1 - 5.7

Textiles 68.1 70.1 77.6 76.5 1 le4

Clothing 50.6 57.3 60o6 55.3 - 8.7

Wqood 53.8 58.7 67.3 71.0 5.5

Paper 64.6 71.5 74.5 78.8 5.8

Printing 57.6 6h4.6 66.6 70.1 5.3

Chemical Products 56.8 64.3 69.7 66.5 4.6

Petroleum Products 63.7 87.2 91.8 95e8 4.4

Rubber 54.6 66.9 83.6 80.6 - 3.6

rieather 73.6 79.8 79.6 79.4 - 0.3

Stone, Glass, Ceramics 5h.7 59.7 69.1 72.6 5.1

Metal Products 49.3 66.6 7h.2 64.9 -12.5

Vehicles and non- 41.2 50.1 61.7 53.4 -13.4Electrical machinery

Electrical Machinery 45.4 5205 63.9 58.9 - 7.8

All Manufacturing 56.3 64.6 70,0 66.7 - 4.7

lJ Preliminary

Souirce: CONADE

Table 7

AGRICULTURAL PRODUCTION

A. Principal Crops

Average1956-571960-61 1961-62 1962-63 1963-64 1964-65 1965-66 1966-67J/

Production (in thousands of metric tons)Wiheat 5,885 5,725 5,700 8,940 12,260 5,4oo 6,380Barlery 1,063 800 345 1,020 826 404 457Oats 962 700 487 906 805 480 550Rye 778 510 163 538 652 245 301Corn b4,279 5,220 4,360 5,350 5,140 7,0o40 9,054Linseed 651 818 839 771 815 570 540S2unflower seed 620 860 62 160 757 782 1,050

Area sownn (in thousands of hectares)1A'heat 5,206 4,952 4,847 6,276 6,497 5,426 6,281laarleyJ 874 742 361 695 553 384 431Oats2 839 597 412 693 570 421 417Rye.;/ 1,045 695 287 655 773 331 486Corn 2,956 3,300 3,420 3,778 3,693 3,921 4,100

B. Beef

195--$8~ 1961 1962 1963 19614 1965 1966

Cattle population(million head)J 44.1 43.2 42.6 40.3 142.5 46.7 48.o

Slaughtering(mill2i.n head) 11.5 10.2 11.8 12.9 9.4 9.5 11.2

Beef production(thousand tons) 2,406 2,145 2,379 2,605 2)019 2,088 2,352

1/ Estimate2/ Area harvested2/' At June 30, except 1964 at Sept;ember 30

So_rces: National Statistical Office and National Meat Board

Table 8

CENTRAL ADMINISTRATION BUDOET, 1966-67

(billions of pesos)

1966 1967(Actual) (Estimated)

I. Total Receipts 284 478

Tax Revenue 253 441Non-Tax Revenue 31 37

IIo Current Expenditures 281 342

Wages and Salaries 163 210Other Goods and Services 42 65Interest on Public Debt 26 28Social Security Contributions 23 28Subsidies 18 17Transfers to Provinces 9 10Economies - -16

III Budgetary Savings (I - II) 3 136

IV. Transfers to Public Sector 155 180

To State Economic Enterprises 106 105

Railways 78 74Other 28 31

To Decentralized Agencies/Special Accounts 49 75

V. Central Administration Investments 14 31 1/

VI. Deficit (III - IV - V) 166 75

1/ Includes M$N 14 billion of budgeted investment funds being heldin unallocated reserve.

Source: Ministry of Economy

Table 9

NATIONAL GOVERNMENT REVENUES(billions of pesos)

Budge1961 1962 1963 1964 1965 1966 1967

I. Central Administration (Budget) 108 97 119 123 224 284 478

I'ax Revenues 97 87 100 110 196 253 441

Income 21 17 21 26 47 65 95Sales 15 15 15 20 34 46 87Excise 8 10 11 14 20 29 43Stamrp 4 4 3 4 12 16 20Foreign Trade 38 30 29 41 63 70 143-Other 11 11 20 5 19 27 57

Non-Tax Revenues 11 10 19 13 28 31 37

rI Taxes Shared with Provinces 32 28 36 55 99 130 n.a.

III. Earmarked Taxes 28 23 32 48 52 68 n.a,

IV. Current Revenues (I+II+III) 168 148 187 226 375 482 n.a.

V. Social Security Contributions 42 41 60 98 136 168 n.ar.

VI. Total Revenues (IV+V) 210 189 247 324 511 650 n.ae

Real Revenues, 1961-100

Total Revenue 100 70 74 79 98 95 n.a.

Tax Revenue 100 68 67 70 88 87 n.a.

Revenue as Percent of GDP

Total Revenue 18.3 13.4 14.2 13.7 15.7 16.2 n.a.

Tax Revenue 2 13.6 9.7 9.7 9.0 10.7 11.3 n.a.

" 'Other" tax revenue for 1964-66 adjusted to conform to revised totals and may not becomparable with earlier years.

/ Including tax revenues of Special Accounts (estimated for 1961)./ Excluding social security contributions

Source: WH--lha, Annex II; IMF; Ministry of Finance

Thble 10

SAVINGS AND INVESTENTS OF THE, DECENTRALIZED AGENCIES AND SPECIAL ACCOUNTS, 1966-67(billions of pesos)

A. Decentralized Agencies

1966 _ 1967

Total Highways Sanitary Banks INTA Universities OtherW4orks

Own resources 92.31/ 151.8 19.5 26.4 34.3 7.0 6.6 54.0Current expenditure 107.0 164.1 16.4 12.9 31.4 5.4 541.8 6.2

Savings -14.7 -12.3 3.1 13.5 2.9 1.6 -33.2 -2.2

Investment 33.1 60.0 12.7 22.8 2.9 1.6 6.9 11.1

Transfers from Treasury 47.8 72.3 9.6 9,5 - - 40.1 13.1

B. Special Accounts

1966 1967

Own resources 23.91/ 46.2Current expenditures 20.1 36.3

Savings 3.8 9.9

Investment 4.6 12.1

Transfers from Treasury 0.8 2.2

Source ilinistry of Z.conomy1J/ Resoxurces of Decentralized Agencies and Special Accounts exclude 74$N 16.5 and 1.1 billion respectively,

consLdered to have been utilized in'financial investment.."

Table 11

SAVINGS AND INVESTM1NTS OF STATE ECONOMIC ENTERPRISES,1965-67(billions of pesos)

196 1966 1967Planned Actual lanned -tul Pnnd

I. Gross Investments 84 74 119 99 159

(a) State petroleum corporation 25 27 44 34 61(b) Water and Power authority 9 18 18 11 17(c) State Gas Corporation 13 12 20 23 34

(d) Port Administration 1 * 1 1 1(e) National Telephone Corporation 5 4 9 5 13(f) State Coal Corpowation 2 2 3 3 4

(g) State Maritime Fleet 4 2 2 2 2(h) State River Fleet 2 1 1 0 *(i) Argentine Airways 1 * 5 6 4

(J) Buenos Aires Subways 2 1 1 1 *(k) State Railway Corporation 21 7 16 14 201/

II. Gross Savings (-Deficit) - 4 8 4 -21 5

(a) State Petroleum Corporation 28 24 40 31 33(b) Water and Power Authority 1 1 4 3 10(c) State Gas Corporation 5 6 4 7 5

(d) Port Administration * * 1 2 1(e) National Telephone Corporation 5 5 9 4 14(f) State Coal Corporation - 1 -1 -2 - 2 - 3

(g) State Maritime Fleet -1 - - - 3 *(h) State River Fleet - - 1 - - 2 - 2(i) Argentine Airways - 2 - 1 - 1 - 1 *

(J) Buenos Aires Subways - 1 - -1 -1 *(k) State Railway Corporation -39 -41 -46 -58 -52

III. Savings - Investment "Gap" (I minus II)

1. Enterprises -90 _83 115 -120 A(a) State Petroleum Corporation 3 0 - 3 - 2(b) Water and Power Authority - 9 -15 -14 - 8 - 7(c) State Gas Corporation - 9 -13 -16 -16 - 29

(d) Port Administration * * * 1 *(e) National Telephone Corporation * 1 * - 1 1(f) State Coal Corporation - 3 - 3 - 4 -5 - 7

(g) State Maritime Fleet - 5 - 2 - 3 -5 - 2(h) State River Fleet - 3 - 2 - 2 -2 - 2(i) Argentine Airways - 3 - I - 6 -7 - 5

(j) Buenos Aires &bways - 2 - 1 - 1 -2 - 1(k) State Railway Corporation -60 -47 -64 -72 - 72

Source: CONADE and Ministry of Economy* Less than M$N 1 billion

lJ January estimate

Table 12

PUBLIC IIVESTMTEN, 1965-67(billions of pesos)

_19F65 37966 19_

Planned Actual Planned Actual Planned

arasport 42.2 23.9 38,2 42.1 50.7Highway Authority 11.0 11.0 11.2 17.2State River Fleet 1.6 1.0 1.3 0.1 o.4Ports and Waterways 1.5 1.7 1.7 2.9 4.3Port Administration 0.8 .4 .6 0.8 1.2Maritime Fleet 4.0 1.8 2.2 1.9 1.9Ar-gentine Airways) Airports 1.0 0dj4 4.8 6.1 4.7Subways 17 o.8 .0.8 0.8 0 5State Railways 21.2 6.8 15.8 14.3 20.5i/

Fnergy and Fuel 49.1 58.2 84.7 70 .4 115.9State Coal 177 2.7 2 2 5.7 -- E State Gas 13.4 11.8 20.1 22.9 33.6lWater and Power Authority 9.1 18.0 18.0 11.3 17.4State Petroleum 24.8 26.6 43.8 33.7 60.7

Comuaunications 5.3 4.6 9.3 5.0 13.8Mational Telephone Corp. 4.7 4.1 §7 g 13.1Post Office and Tele- 0.6 0.5 0.5 0.5 0.7communications

Health and Fducation 7.6 8.0 8.0 12.2 21.9Trater and Sewer Corp. T 9 3.1 3.1 v9 12.7Public Health Service 0.7 0.6 0.6 0.9 1.1Education 2.0 4.3 4.3 6.4 8.1

Other 20.0 26.6 26.9 19.4 52.3Agriculture 2.3 0.9 1.2 32Various 17.7 25.7 25.7 18.0 35.6?/Unallocated 13.53/

Total 124.2 121.3 167.1 149.1 254.6

Source: 1Ministry of Economry and CONADE

lJ January 1967 estimate2J Includes estimated 15 per cent increase for Decentralized Agencies not

included elsewhere and Special Accounts./ Unallocated balance of funds budgeted as emergency credit for public works.

Table 13

CHANGES IN PRICES, WAGES, FOREIGN EXCHANGE RATE, CREDIT AND MDNEY SUPPLY

(Annual rates of change, in %, 1951-1966)

Cost of living Wholesale Rate of Domestic CreditIndex Price Index Wage Index Foreign Exchange Total Public Private Money Supply

Sector Sector(net)

1951 33 49 - 4 23 4 37 231952 38 31 - -3 17 8 23 131953 5 12 - 0 20 31 14 261954 4 3 - 0 21 13 21 201955 13 9 - 158 19 -1 21 18

1956 13 26 - 4 14 -57 25 171957 25 25 - -1 22 95 18 161958 32 32 47 30 44 69 32 441959 114 133 68 65 27 h2 21 43

1961 27 15 17 5 28 15 37 291961 14 9 25 0 23 9 31 111962 28 30 25 37 14 24 9 31963 24 29 25 22 24 41 13 291964 22 26 30 1 41 52 30 42

1965 29 24 35 20 27 26 25 291966 32 20 33 23 30 32 33 33

Averages! in Soleted Periods1950-55 19 20 - 21 20 11 23 20

1955-58 23 23 - 10 26 26 25 251960-66 25 22 27 15 27 28 25 251951-66 28 29 - 21 23 24 23 23

General Note: AU data based on annual averages except Domestic Credit and Money Supply which arebased on end-year data.

Sources: Central Bank and National Statistics and Census Office except Domestic Credit and MoneySupply where definitions and data are from IFS.

Table 14

C0ST OF LIVIG IN BUSN08 AINES,1963-1967

I-NDTK. 1960-100Total

Seasonally b cseholdAdjusted Total Food Clothing Oeneral Ooods Houaing

1963 180.7 180.7 175.5 187.6 203.9 198.2 143.31964 220.7 220.7 222.6 224.6 235.7 220.4 146.71965 283.8 283.8 284.8 289.1 310.9 285.1 184.01966 374.1 374.3 356.8 387.4 430.3 364.3 393.2

1966January 334.3 336.6 323.6 334.5 377.0 357.9 375.8February 343.3 344.0 332.7 337.6 385.3 365.9 376.4March 351.1 351.5 336.8 349.4 405.3 371.0 376.4April 357.0 358.8 345.9 364.9 414.8 314.5 376.4May 364.7 362.5 346.7 378.8 418.2 318.6 376.4June 368.9 365.6 348.0 388.9 420.2 323.2 376.4July 375.2 371.4 353.2 398.2 426.2 329.5 376.4August 383.0 375.7 353.2 405.0 432.3 332.1 416.9September 389.6 381.4 357.5 410.2 445.5 343.6 416.9October 398.4 393.6 367.8 419.3 470.5 373.1 416.9November 404.0 402.8 373.4 427.1 477.4 464.9 416.9December 420.2 447.5 442.6 435.1 491.2 477.1 416.9

1967January 423.5 426.5 397.8 443.6 503.9 483.8 456.3February 434.7 435.6 408.7 451.4 511.8 487.6 456.3March 444.8 445.2 410.6 465.1 552.3 501.7 456.3April 448.4 450.6 417.6 479.7 565.4 420.3 456.3May 457.6 454.9 417.0 490.6 580.3 436.5 456.3June 479.0 474.7 443.3 506.8 586.9 443.9 456.3July 503.4 498.4 479.9 512.4 591.5 45 I t%63August 509.7e 500.1 479.2 519.1 597.4 453September 513.1e 502.4 478.1 524.3 611.4 461.4 456.3

Percent Change

1963 +26.0 +24.0 +22.9 +25.0 .+33.9 +15.6 + 9.51964 +22.1 +22.1 +26.8 +19.7 +15.6 +11.2 + 2.41965 +28.6 +28.6 +27.9 +28.7 +31.9 +29.4 +25.41966 +31.8 +31.9 +25.3 +34.0 +38.4 +27.8 +113.7

1966January + 3.4 - 2.3 -10.0 + 1.4 + 5.3 + 3.9 +101.3February +2.7 +2.2 +2.8 +0.9 +2.2 + 2.2 + 0.2March +2.3 +2.2 +1.2 +3.5 +5.2 + 1.4 -April + 1.7 +2.1 + 2.7 +24.4 + 2.3 -15.2 -May +2.2 +1.0 +0.2 +3.8 +0.8 + 1.3 -June +1.2 +0.9 +o0.4 +2.7 +0.5 + 1.4 -July +1.7 +1.6 +1.5 +2.4 +1.4 + 1.9 -August +2.1 +1.2 - +1.7 +1.4 + o.8 + 10.8September +1.7 + 1.5 + 1.2 +1.3 +3.1 + 3.5 -October +2.3 + 3.2 + 2.9 +2.2 + 5.6 + 8.6 -November + 1.4 + 2.3 + 1.5 + 1.9 + 1.5 +224.6 -December + 4.0 +11.1 +18.5 + 1.9 + 2.9 + 2.6 -

1967January + 0.8 - 4.7 -10.1 * 2.0 + 2.6 + 1.4 + 9.5February +2.6 +2.1 +2.7 +1.8 +1.6 + 0.8 -March +2.3 +2.2 +0.5 +3.0 +7.9 + 2.9 -April + 0.8 + 1.2 + 1.7 + 3.1 + 2.4 -16.2 -May +2.0 +1.0 +0.1 +2.3 +2.6 + 3.9 -June +24.7 +24.4 +6.3 +3.3 +1.1 + 1.7 -July + 5.1 + 5.0 + 8.3 + 1.1 + o.8 + 2.3 -August + 1.3e + 0.3 -0.1 + 1.3 + 1.0 + 1.0 -September + 0.7. + 0.5 - 0.2 + 1.0 + 2.3 + 0.6 -

Source% National Statistics and Census Office

IIIDUSTRIAL 1t.-'AGES-, 1961-67

Money Waages Real jaLes s

Annual Averages 196O=100 1960=100 Percent Change

1961 125 110 10.0

1962 157 107 - 2.7

1963 196 109 1.9

1964 256 116 6.4

1965 345 122 5.2

1966 462 124 1.6

December, 1965 375 109 - 1.5

December, 1966 507 113 4.0

June, 1967 628 132 16.8

Source: National Statistics and Census Office

1/ Industrial Nages in Buenos Aires based on collective bargaining contracts.

Table 16

- iONETARY SITUATION, 1963-67

(Billions of Pesosa)

Balances at End of Period Changes in Period_

Januar-y;--vJjne January-March March-June

1963 1964 1965 1966 June,1967 1< ;'- 1967 1967

I. Domestic Credit 380 542 676 895 924 53 28 1

Government Sector 125 198 233 328 270 25 31 -89

Private SectcrY 308 4G8 525 679 748 42 8 61

Other Accounts - 53 - 64 - 82 -112 - 94 -1 15 3

II. External Accounts 26 32 55 66 178 22 17 95

III. Money and Quasi Money 406 574 731 961 1102 74 45 96

Money 283 395 498 672 7)46 49 13 61

Quasi I;oney 123 179 233 289 356 25 32 35


1/ Includes National Grain Board and State Enterprises.

Table 17

BALANCE OF PAYMZNIS SUMMARY, 1958-67(millions of dollars)

1958 1959 1960 1961 1962 1963 1964 1965 1966 19672/(Est.)

I. Current Account

Exports (f.o.b.) 994 1,009 1,079 964 1,216 1,365 1,410.5 1,493.4 1,593.2 1,600Importa (c. and f.) 1,233 993 1,249 1,460 1 357 981 1,077.4 1'198 6 1.124 1 075

Trade balance *T_M 16 -T170 ___w -bW 333.1 294.1o 46075Invisibles (net) - 20 - 5 - 34 - 89 - 132 - 150 - 299.5 - 110.7 - 216.4 - 277

Total Current Account - 259 11 -204 - 585 - 273 234 33.6 184.1 252.5 248

II. Capital Account

Private and non-banking institutionsDirect investment (net) 41 90 94 - 18 72 78 27.0 46.8 29.7 32Other l3ng-tenm capital et) 20 - 18 261 177 226 82 - 16.6 - 31.1 - 52.6 - 79Short-term capia (netL)/ - 90 5 33 123 336 - 237 - 37.2 - 177.6 - 186.8 151Total private and non-banking

institutions (net) - 29 77 322 282 - 38 - 77 - 26.8 - 161.9 - 209.7 1014

Official and banking institutionsLong-term capital (net) 49 - 12 139 77 - 75 - 21 - 31.5 17.1 - 59.7 -81Short-term capital (net; mainly

reserve movements) 239 - 76 - 257 226 386 - 137 24.7 - 39.3 16.9 -271

Total official and bankinginstitutions (net) 288 -88 -11 303 311 157 - 6.8 -22.2 - 42.8 -352

Total Capital Account 259 - 11 204 585 273 - 234 33.6 184.1 - 252.5 -248

Note: Details may not add to total due to rounding.Source: 3entral Bank

1/ Including errors and omissions7/ April 1967 estimate based on "low" export projection

Table 18

BALANCE OF PAYMENTS, 1965 -(millions of dollars)

1967 1967 41965 1966 (Eat. )-/ (Eat. )/

I. Current Account 184 253 248 250

Exports 1,493 1,593 1,600 1,550Imports -1,198 -1,124 -1,075 -1,075

Trade Balance 295 469 525 475

Services 13 32 37 _Profits and Royalties - 40 - 90 - 65 -Int.erejt - 49 - 61 - 144 -

- 34 - 97 - 103

Xnvisibles Balance - Ill - 216 - 277 - 225

IH. Capital Account - 168 - 250 178 63

Direct Investment 47 30 32 32

Import Credits: Utilization 132 160 141 170(Private Sector) (84) (76) (83) _(Pablic Sector) (48) (84) (58) _

Long-Term Loans: Drawings 39 13 36 36

Amortization - 319 - 546 -498 - 538(Private Sector) (-64) (-216) (-190) (-190)(Public Sector) (-255) (-330) (-308) (-348)

Compensatory Financing: Utilization 110 183 213 213(IPW) -(48) - -(Foreign Banks and Other) (13) (29) (195) (195)(Debt Refinancing) (13) (39) (18) (18)(Dollar Bonds) (84) (67) - -

Other Capital, Net -177 -100?o 254 150

III. Erroro and Ocissions 1 - 7 -

IV. Chess in Reserves 16 - 4 1426Mnus-Dcrease)

Notes Detail may not add to totals due to rounding.Source: Central Bank and Mission Estimates

] Include. unilateral transfers/ Includes $70 -illion DOW subacription.

2/ Eatimate prepared by Central Bank in April 1967 adjusted for utilization of $195 *llion of"Stand-by credits" from US and lhropean banks in June 1967. Does not includeutilization of ID ($125 million) or US Treasury ($75 million) Stand-by credits.M/ Mission satimate based a SEA~ iW w

Table 19

EXPORTS (f.o.b.) BY MAIN COIMTODITY GROUPS 1958-67

(millions of dollars)

1958 1959 1960 1961 1962 1963 1964 1965 1966 (9t.)s~~~~~~15 196 ..L9 63 (s.),.-..

,ivestock 509 520 520 516 541 665 590 563 666 716Live animals 9 11 21 27 33 32Meat 298 259 219 217 229 334 329 329 379 431Hides 59 70 70 79 91 78 58 50 83 83clool 99 121 145 142 145 161 128 112 128 114Dairy products 25 43 48 32 29 32 31 29 25 24By-products 19 17 16 21 20 28 20 19 25 32

.griculture 441 445 509 388 607 526 695 821 810 738_1 76 _~~~~~~~ 1116 174- 2fflheat 127 1-3 1UfT 5 17-3 TE7 7_3 77 1-77Corn 82 124 124 83 122 127 168 154 202 261Other cereals 57 34 57 46 50 38 90 49 93 63Oil seeds, vegetable oil 126 98 125 128 167 139 120 160 145 133Fresh fruit 18 17 25 20 28 41 28 37 43 46Other agricultural products 32 37 34 45 67 65 47 48 51 61

'orest Products 19 18 15 13 12 13 16 16 17 16

lining Products 4 4 5 6 22 23 13 13 18 12

'ish and Game 2 4 4 5 5 9_ 4 _3 3

lanufactured Products 19 18 27 36 28 129 92 76 80 115Sugar n.a. n.a. 7 13 3 _6S 6 7 6 -gOthier manufactured products n.a. n.a. 20 23 25 65 86 69 74 109

Total 1,009 1079 9 1,216 1,3 TT 410 1,4937 16-00

ote:Details may not add to totals because of roinJiz;.oulrce: National Statistics and Census Office7T Mow Tt es timate prepared. by Central Bank in April 1967.

Table 20

VOLUME AND PRICE OF MAJOR EXPORTS: AVERAGE 1953-57, 1958-67(Volume: 1,000 metric tons - Price: US$ per metric ton - Value: million US$)

1953-57average 1958 1959 1960 1961 1962 1963 1964 1965 19662/ 19673/

Meat Volume 424 655 538 438 436 570 781 616 487 598 714Price 479 455 481 500 498 402 428 534 675 634 604Value 203 298 259 219 217 229 334 329 329 379 431

Hides Volume 173 201 198 167 195 267 228 168 156 185 191Price 364 294 354 419 405 343 342 345 321 449 435Value 64 59 70 70 79 92 78 58 50 83 83

Wool Volume 112 105 141 140 140 159 136 97 125 145 155Price 1,205 943 858 1,036 1,014 912 1,184 1,319 896 883 735Value 135 99 121 145 142 145 161 129 112 128 114

Wheat Volume 2,854 2,113 2,399 2,486 1,066 2,832 1,831 3,710 6,661 5,055 2,900Price 71 60 56 57 62 61 63 65 56 55 60Value 202 126 135 143 66 173 116 242 373 276 174

Corn Volume 1,097 1,679 2,686 2,570 1,730 2,931 2 ,447 3,337 2,802 3,752 5,200Price 59 48 46 48 48 41 52 50 55 54 50Value 65 82 124 124 83. 122 127 16 15i 201 261

Linseed oilVolumel/ 472 534 718 558 673 872 703 681 797 375 535Price 71 73 58 73 74 68 60 60 59 56 49Value 34 39 42 41 50 59 42 41 47 21 26

Total value ofabove items 702 703 751 749 637 820 858 967 .1,065 1,088 1,089

Other exports 298 291 258 330 327 396 507 443 428 505 511

Total export value 1,000 994 1,009 1,079 964 1,216 1,365 1,410 1,493 1,593 1,600


1/ Seed equivalent2/ Not strictly comparable with previous years due to change in nomenclature3/ "Low'l estimate prepared by Central Bank in April 1967

Table 21

COMPOSITION OF IMPORTSh 1960-67

(millions of dollars)

1960 1961 1962 1963 1964 1965 1966 E671/.~~~~~~~~~~~~~~~~~~~~~~~~~~R ' ... )*)

I. 2onsumer goods 69.0 72.4 79.9 58.6 84.2 101.0 87.0 108.0-Food and tobacco 30.1 33.1 - 27.7 2W7 39.2 39.1 37.0 33.0Other consumer goods 28.9 49.0 52.2 31.9 45.0 61.9 50.0 75.O

II. Ra-.w materials and intermediary--oods 587.9 769.7 597.4 426.1 647.0 792.0 712.3 671.0

Vietals and metal products 190.d 25.9 -T0. 101.5 l]3T7 271. 20 7.0 192.0Vehicles and parts 120.3 169.4 158.1 83.4 100.6 96.9 79.0 72.5Chemicals and pharmaceuticals 64.9 86.7 77.9 74.8 I11.9 132.0 125.0 115.0Rubber and manufactures 42.9 37.3 26.3 20.2 38.8 40.6 33.5 28.0Lumber and wood pulp 47.2 73.3 49.5 46.5 68.6 88.8 91.0 87.0Paper and paperboard 29.5 42.9 28.2 27.7 33.6 43.3 51.0 48.0Textile products 37.8 31.9 46.1 34.7 51.0 51.2 31.0 31.0Others 44.5 67.3 50.7 37.3 58.7 67.8 99.8 97.5

III. Oil and lubricants 156.0 129.7 91.6 57.4 83.7 115.3 110.0 106.0

IV. Capital goods 446.4 478.6 587.6 438.6 262.5 190.3 215.0 190.0

V. Total imports (I-IPI) 1,249.3 1,460.4 1,356.5 980.7 1,077. 1,198.6 1,214 105

Sources: National. Statistics and Census Office.1T/ stimate prepared by Central Bank in April 1967.

Table 22

OFFICIAL FOREIGN EXCEA'NGE RESERVE'S, 1961-67(laiV'icns of Dollars)

Central Bank _ Net PositionGold and Bilateral Exchange IifIF Net Treasury of Monetary

Foreign Exchange Balances Liabilities Position Reserves Liabilities Authorities

1961 386 111 - 400 - 157 - 61 - 25 - 86

1962 114 78 - 381 - 148 -337 - 45 - 382

1963 290 53 - 352 - 162 -171 - 67 - 236

1964 170 39 - 211 - 120 -122 - 127 - 250

1965 250 29 - 14 8 76 55 - 222 - 167

1966 223 36 - 74 - 30 154 - 311 - 157

4liarch, 1967 32 - 76 - 18 204 -295 - n4

June, 1967 674 37 - 2)2 - 7 466 - 292 17M

September, 1967 702 27 -237 0 495 - 27i 21l

Source: Central Bank and IMF

Table 23:ARGENTINA - EXTERNAL MEDIUM- AIM LONG-TERM /1 PUBLIC DEBT OUTSTANDING

INCLUDING UNDISBURSED AS OF DECEMBER 31, 1966

Debt Repayable in Foreign Currency

(In thousands of U.S. dollar equivalents)

Debt outstanding

Item December 31, 1966Net of Including

undisbursed undisbursed

TOTAL EXTERNAL PUBLIC DEBT /2 1,7o 9 1,887,792

Publicly-issued bonds 32,865 32,865

Privately-placed debt 906 9),2 964 789Suppliers' credits 58439 /3 624,3 /3Crude oil contracts 9,581 26,956Private bank credits 69,559 69,559Privately-placed bonds 243,410 243,410

IBRD loans 106,092 117,626

IDB loans 54,714 86,787

U.S. Government loans 331 969 405 189Export-Import Bank 25 2828h7AID 68,329 v1.,0l9

Other 10,883 10,883

Loans from governments of otherIBRD members and Switzerland 135,561 140 638France 19,85 Germany 33,698 36,834Italy 40,364 40,364Japan 10,224 10,224Netherlands 2,478 2,502Switzerland 3,852 3,852United Kingdom 24,844 26,533Yugoslavia 247 343

Loans from other governments 20 346 23,890Czechoslovakia 1,733Hungary 2,543 2,543Rumania 1,367 2,096U.S.S.R. 1)4,743 17,518

Compensation for annulled oil contracts 1162008 n6,008

/1 Debt writh an original or extended maturity of one year or more.75 Includes the debt of SEGRA which Argentina considers private debt.

Excludes fWF drawings./3 Figure includes Saipem credit to Gas del Estado of $263.5 million.

Note: Reported additions January 1 to June 30, 1967 are shown separatelyin Tables 23 and 24a service on total outstanding plus additionsis shown in Table 24b. Statistical Services Division

Econcmi cs Depar tment

Table 23a:

ARGENTINA - REPORTED ADDITIONS JANUARY 1 - JUNIE 30, 1967 TO EXTERNALMEDIUM- AND LONG-TERM PUBLIC DEBT



AdditionsItem January 1 -

June 30, 1967

TOTAL 239,592

Privately-placed debt 204,217Suppliers' credits 217Private bank credits 204,OOO

IDB loans 34,142

Export-Import Bank 1,233

Statistical Services DivisionEconomics Department

October 3, 1967

Table 214: ARGENTINA - ESTIMATED CONTRACTUAL SERVICE PAYMENTS ON EDTERNAIIL:=EDIUM- AND LONG-TERM PUBLIC DEBT OUTSTANDING INCLUDING UNDISBURSED AS OF

DECEMBER 31, 1966 /1



Page 1TOTAL

(BEGIN OF PERIOD) PAYMENTS DURING PERIODINCLUDING AMORTI-

YEAR UNDISBURSED ZATION INTEREST TOTAL

1967 1,885,931 319,711 115,304 435,0151968 1,566,220 298,951 105,219 404,1701969 1,267,269 269,969 83,237 353,2061970 997,300 192,699 62,024 254,7231971 804,601 136,646 49,778 186,4241972 667,955 130,480 41,513 171,9931973 537,475 116,283 33,130 149,4131974 421,192 92,902 25,752 118,6541975 328,290 70,266 20,522 90,7881976 258,024 66,310 16,277 82,5871977 191,7114 31,492 8,085 39,5771978 160,222 20,363 6,280 26,6431979 139,859 13,964 5,331 19,2951980 125,895 11,267 4,681 15n,9481981 114,628 10,298 4,129 14,427

PUBLICLY-ISSUED BONDSDEBT OUTST


YEAR UNDISBURSED ZATTION INTEREST TOTAL

1967 32,865 5,630 2,097 7,7271968 27,235 5,640 1,723 7,3641969 21,594 4,451 1,350 5,8011970 17,1143 3,263 1,101 4,3641971 13,880 3,040 896 3,9371972 10,840 3,000 700 3,7001973 7,840 7,000 505 7,5051974 840 - 50 501975 840 - 50 501976 840 - 50 501977 840 - 50 501978 840 - 50 501979 840 - 50 501980 840 - 50 501981 840 - 50 50

See footnotes at end of table.

Table 214: ARGENTIINA - ESTIMATED CONTRACTUAL SERVICE PAM.ENTS ON EXTERNALMEDIUM- AND LONG-TERM PUBLIC DEBT OUTSTANDING INCLUDING UNDISBURSED AS OF

DECEMER 31, 1966 /1 (COTIT.)



Page 2PRIVATELY-PLACED DEBT - TOTAL

DEBT OUTST(BEGIN OF PERIOD) PAY1ENTS DURING PERIOD

I,JCLUDING AMORTI-YEAR UNDISBURSED ZATION INTEREST TOTAL

1967 964,234 211,496 71,162 282,6581968 752,738 187,184 64,332 251,5161969 565,554 159,048 47,637 206,6851970 1406,506 84,574 32,598 117,1721971 321,932 64,7141 26,0514 90,7951972 257,191 56,796 21,950 78,746:1973 200,395 62,077 17,637 79,71419714 138,318 53,339 13,216 66,5551975 814,979 36,199 10,180 146,379:1976 48,780 36,796 7,640 44,4361977 11,984 3,945 926 4,8711978 8,039 720 401 1,1241979 7,319 720 366 1,0861980 6,599 600 330 9301981 5,999 600 300 900

SUPPLIERS? CREDITSDEBT OUTST

(BEGIN OF PERIOD) PAL4ENTS DURING PERIODINCLUDING AMORTI-


1967 624,308 110,732 54,136 1614,8681968 513,576 101,554 50,498 152,0521969 1412,022 94,810 38,109 132,9191970 317,212 68,011 26,828 94,8391971 2149,201 48,3141 21,186 69,5271972 200,860 140,395 17,978 58,3731973 160,465 40,297 15,295 55,5921974 120,168 35,189 12,626 47,8151975 84,979 36,199 10,180 146,3791976 48,780 36,796 7,640 44,4361977 11,984 3,945 926 4,8711978 8,039 720 404 1,12141979 7,319 720 366 1,0861980 6,599 600 330 9301981 5,999 600 300 900

See footnotes at end of table,

Table 2-1: ARGENTINA - ESTIMNATED CONTRACTUAL SERVICE PAYrMETS ON EXERNALMEDIUM- AilD LONG-TERM PUBLIC DEBT OUTSTANDING INCLUDING UIDISBURSED AS OF

DEC33MB.R 31, 1966 /1 (CONIT.)



Page 3CRUDE OIL CONTRACTS

DEBT OUTST(BEGIN OF PERIOD) PAYMENTS DURIN,G PERIOD

INCLUDING AMORTI-YEAR UIMflJISBURSED ZATION INTEREST TOTAL

1967 26,956 26,956 293 27,2149

PRIVATELY-PLACED DEBT - OTIERDEBT OUTST

(BEGIN OF PERIOD) PAYMENTS DURING PERIODIMCLUDING AMORTI-


1967 312,970 73,808 16,731 90,5391968 239,162 35,630 13,834 99,4641969 153,532 64,238 9,527 73,7651970 89,294 16,563 5,771 22,3341971 72,731 16,400 4,868 21,2681972 56,331 16,401 3,972 20,3731973 39,930 21,780 2,343 24,1231974 18,150 18,150 590 18,740


Table 24: ARGENTINA - ESTIMATIE CONTRACTUAL SERVICE PA,E1TS ON EXTERNALMEDIUM- AID IONG-TERM PUBLIC DEBT OUTSTANDING INCLUDING UNDISBURSED AS OF

DECEMBER 31, 1966 /1 (CONT.)



Page 14IBED IDANS

DEBT OUTST(BEGIN OF PERIOD) PAYMENTS DURING PERIOD

INCLUDING ANORTI-YEAR UNDISBURSED ZATION INTEREST TOTAL

1967 117,626 14,403 6,235 10,6381968 113,223 4,658 6,445 11,1031969 108,565 4,926 6,173 11,0991970 103,639 5,21. 5,885 11,0991971 98,425 5,516 5,581 11,0971972 92,909 5,844 5,259 11,1031973 87,065 6,187 4,918 11,1051974 80,878 6,512 4,557 11,0991975 74,336 6,922 4,176 11,0981976 67,414 7,331 3,773 11,1041977 60,083 7,755 3,345 11,1001978 52,328 4,583 2,943 7,5261979 47,745 4,853 2,677 7,5301980 42,892 5,133 2,393 7,5261981 37,759 5,438 2,094 7,532

IDB OANISDEBT OUTST

(BEGIIN OF PERIOD) PAY1ENITS DURING PERIODI11CLUDDNG AMIORTI-

YEAR 1IISBURSED ZATIO- INTEREST TOTAL

1967 85,1481 5,434 3,566 9,0001968 80,048 5,981 4,1149 10,1291969 74,067 8,044 4,297 12,3411970 66,023 8,628 3,844 12,4721971 57,395 8,576 3,327 11,9031972 45,819 8,621 2,809 11,4301973 40,198 8,668 2,288 10,9561974 31,530 6,701 1,794 8,4951975 24,828 6,655 1,384 8,0391976 18,173 4,974 1,006 5,9801977 13,199 4,990 712 5,7011978 8,209 3,281 427 3,7081979 4,928 2,522 250 2,7721980 2,406 1,580 111 1,6911981 826 330 38 368


Table 24: ARGENTINA - ESTIMATED CONTRACTUAL SERVICE PAYMETTS ON EXTERN)AL

MEDIUM- AND LONG-TERM PUBLIC DEBT OUTSTANDING INCLUDING UNIDISBURSED AS OF

DECaIBER 31, 1966 /1 (CoN1T.)



________________________________ Page 5

U. S. GOVME5;MYT LOANS - TOTALDEBT OUTST

(BBGIN OF PERIOD) PAYMENTS DURING PERIOD

INCLUDING AIIORTI-YEAR UNDISBURSED ZATION INTEREST TOTAL

1967 405,189 52,451 16,006 68,456

1968 352,738 47,845 1 4,430 62,2751969 304,893 45,835 12,334 58,1701970 259,058 43,856 9,934 53,7921971 215,201 29,293 7,810 37,1031972 185,907 29,234 6,302 35,537

1973 156,674 23,661 4,880 28,5521974 133,012 19,190 3,772 22,962

1975 113,822 18,647 2,845 21,4921976 95,175 15,366 2,041 17,4071977 79,808 12,959 1,405 14,3641978 66,8349 9,937 929 10,8661979 56,912 4,027 581 4,607

1980 52,886 2,111 509 2,6201981 50,774 2,087 479 2,566

U. S. GOVERNM1ENT - EXIMBANKDEBT OUTST

(BEGIN OF PERIOD) PAYMENIETS DTIRING PERIODINCLUDING AYORTI-

YEAR UNDISBURSED ZATIOI INTEREST TOTAL

1967 280,287 44,741 13,316 58,057

1968 235,546 41,361 11,858 53,2201969 194,185 39,878 9,840 49,7181970 154,307 37,898 7,666 45,564

1971 116,409 23,334 5,797 29,1311972 93,075 23,133 4,548 27,6811973 69,943 18,259 3,392 21,6511974 51,684 14,743 2,482 17,2251975 36,941 13,556 1,713 15,2691976 23,385 9,452 1,072 10,524

1977 13,933 7,,044 603 7,647

1978 6,889 5,924 275 6,1991979 965 965 24 989


Table 24: ARGENTINA - ESTlkATED CONTRACTUAL SERVICE PAY-INITS ON EXTERNIALMEDIUM- AND LONG-TERN PUBLIC DEBT OUTSTANDING IMCLUDING UNDISBTRSED AS OF

DEC14BER 31, 1966 /1 (CWTo.)



Page 6U. S. GOVERN4ENT - OTHER /3

DEBT OUTST(BEGIN OF PERIOD) PAYMWTS DURING PERIOD

INCLUDING AMORTI-YEAR UNDISBURSED ZATION INTEREST TOTAL

1967 124,902 7,710 2,689 10,3991968 117,192 6,484 2,572 9,0551969 110,708 5,957 2,494 8,4521970 104,751 5,959 2,269 8,2281971 98,792 5,960 2,013 7,9731972 92,833 6,101 1,754 7,8551973 86,731 5,402 1,498 6,9011974 81,329 4,447 1,290 5,7371975 76,882 5,091 1,132 6,2231976 71,790 5,914 969 6,8831977 65,876 5,916 802 6,7181978 59,960 4,013 654 4,6661979 55,947 3,062 557 3,6181980 52,886 2,111 509 2,6201981 50,774 2,087 479 2,566

TOTAL LOANS FROM GOVERNM\UITS OF OTHER IBRD MEMBERS AND SI.TZERLAIDDEBT OUTST



1967 140,638 20,256 8,613 28,8681968 120,382 28,862 7,391 36,2531969 91,520 31,936 5,503 37,4401970 59,584 31,924 3,461 35,3841971 27,660 12,296 1,651 13,9461972 15,364 15,364 774 16,138


Table 2LI: ARGENTINA - ESTIfLATED CONTRACTUAL SERVICE PAYMEN\TS ON EXTERNALMEDTUM- AND LONG-TERN PUBLIC DEBT OUTSTANDING INCLUDING UNDISBURSED AS OF

DECPBBER 31, 1966 /1 (CONT.)



Page 7LOANS FROM FRANCE

DEBT OUTST(BBGIN OF PERIOD) PAYME;NS DURING PERIOD


1967 19,985 3,047 958 14,0051968 16,938 4,217 794 5,0111969 12,722 4,606 579 5,1851970 8,115 4,606 348 4,9551971 3,509 1,560 156 1,7161972 1,949 1,949 73 2,022

LOANS FROM GENANYMDEBT OUTST

(BEGIN OF PERIOD) PAYMENTS DURING PERIODINCLUDING AI4ORTI -

YEAR UDDISBURSED ZATION INTEREST TOTAL

1967 36,834 5,874 2,1146 8,0201968 30,959 7,874 1,868 9,7421969 23,085 8,5142 1,3614 9,9061970 14,5143 8,542 8214 9,3671971 6,001 2,668 373 3,0411972 3,333 3,333 175 3,508


Table 24: ARGENTINA - ESTIMATED CONTRACTUAL SER.VICE PAMIENTS ON EXTERNALMEDIUM- AND LONG-TERM PUBLIC DEBT OUTSTANDING INCLUDINIG UNDISBURSED AS OF

DECEMBER 31, 1966 /1 (COMT.)



Page 8LOANS FROM ITALY


INCLUDING AMORTI-YEAR UNDISBURSED ZATION INT7EREST TOTAL

1967 40,364 5,489 3,107 8,5961968 34,875 8,316 2,633 10,9501969 26,559 9,219 1,963 11,1821970 17,304 9,219 1,236 10,4541971 8,122 3,610 61h 4,2231972 4,512 4t,512 288 4,800

LOANS FROM JAPANDEBT OUTST



1967 10,226 - 588 5881968 10,226 1,534 566 2,1001969 8,692 2,045 h70 2,5161970 6,647 2,045 353 2,3981971 4,602 2,045 235 2,2801972 2,556 2,556 110 2,667

See footnotes at end of tab'Le.

Table 24: ARGENTINA - ESTIMATED CONTRACTUAL SERVICE PAYMEITS ON EXTERNAIMEDIUM- AIM LONG-TERM PUBLIC DEBT OUTSTANDING INCLUDIING UImDISBURSED AS OF

DECEMBER 31, 1966 /1 (coNT.)



Page 9LOANS FROM NETHERLANDS



1967 2,502 456 102 5581968 2,046 558 99 6571969 1,488 592 72 6641970 896 592 44 6361971 304 136 16 1521972 168 168 7 175

LOANS FROM S1,1ITZERLANDDEBT OUTST

(BEGIN OF PERIOD) PAYMENTS DURING PERIODINCLUDING AYiORTI-


1967 3,852 567 181 7481968 3,285 805 153 9581969 2,480 884 114 9981970 1,596 884 73 9571971 712 317 32 3491972 395 395 15 410


Table 24: ARGENTINA - ESTIMATED CONTRACTUAL SERVICE PAYMENTS ON EXTERNALHEDIUM- AND IONG-TERM PUBLIC DEBT OUTSTANDING INCLUDING UNDISBURSED AS OF




Page 10LOANS FROM UNITED KINGDOM



1967 26,533 4.,54 4 1,495 6,0391968 21,988 5,533 1,274 6,8071969 16,456 6,023 938 6,9611970 10,h33 6,023 582 6,6051971 4,410 1,960 225 2,1851972 2,450 2,450 106 2,556

LOANS FROM YUGOSLAVIADEBT OUTST

(BEGIN OF PERIOD) PA9MENTS DURING PERIODINCIUDING AMORTI-


1967 343 279 37 3161968 6h 26 4 301969 39 26 2 281970 13 13 - 13


Table 24: ARGENTINA - ESTIIAT.ED CONTRACTUAL SERVICE PAY1f=2TS ON EXTERNALMEDIUM- AND LONG-TERM PUBLIC DEBT OUTSTANDING INCLUDING UNDISBURSED AS OF

DECEMBER 31, 1966 /1 (CON1T.)



Page 11LOANS FROM OTHER GOVERNMENTS - TOTALDEBT OUTST



1967 23,890 6,017 260 6,2781968 17,873 6,502 227 6,7291969 11,371 h,571 136 4,7071970 6,800 4,082 72 4,1541971 2,719 2,028 12 2,0391972 691 691 - 691

LOANS FROM CZECHOSLOVAKIADEBT OUTST

(BEGIN OF PERIOD) PA=MT'ITS DURING PERIODINCLUDIING AtMORTI-


1967 1,733 821 86 9071968 912 781 41 8221969 131 73 5 781970 58 44 2 471971 14 13 - 131972 1 1 - 1


Table 24: LEGEI'TINA - ESTIMATED CONTJ"RACTUAL SERVICE PAWI\ITS ON EXTERNALMEDIUW- AND LONG-TERM PUBTIC DEBT OUTSTANDING INCLUDING UNDISBURSED AS OF




____ ____ ____ ____ ____ ___ _-_- Page 12IOANS FROM HUNGARY

DEBT OUTST(BEGIN OF PERIOD) PAYMVENTS DURING PERIOD


1967 2,543 1,272 1II 1,3831968 1,272 1,272 48 1,319

LOANS FROM RUMANIADEBT OUTST



1967 2,096 278 41 3191968 1,818 318 71 3891969 1,500 620 83 7031970 879 6146 46 6921971 233 233 7 240


Table 24: ARGENTINA - ESTIMATED CONTRACTUAL SERVICE PAYMENTS ON EXTERNAILIViEDIUN- AND IONG-TERE PUBLIC DEBT OUTSTANDING INCLUDING UNDISBURSED AS OF




Page 13IOANS FROM U.S.S.R.



1967 17,518 3,647 22 3,6691968 13,871 4,131 68 4,1991969 9,7b1 3,878 48 3,9261970 5,863 3,391 24 3,4151971 2,472 1,782 4 1,7861972 690 690 - 690

COMPENSATION FOR ANN\JULLED OIL CONTRACTSDEBT OUTST


YEAR UNDISBTRSED ZATION INTEREST TOTAL

1967 116,008 14,025 7,368 21,3931968 101,983 12,280 6,522 18,8021969 89,704 11,158 5,807 16,9651970 78,546 11,158 5,128 16,2861971 67,388 11,157 4,448 15,6051972 56,232 10,930 3,719 14,6491973 45,302 8,690 2,890 11,5801974 36,612 7,129 2,363 9,4921975 29,483 1,8 43 1,886 3,7291976 27,641 1,843 1,767 3,6091977 25,798 1,843 1,647 3,4901978 23,955 1,843 1,527 3,3701979 22,112 1,843 1,407 3,2501980 20,270 1,843 1,288 3,1301981 18,427 1,843 1,168 3,011


Table 24: ARGENTINA - ESTfI4AT1'ED CONTRACTUAL SERVICE PAYMENTS ON EXTERNALMEDIUM- AND LOING-TERM PUBLIC DEBT OUTSTANDING INCLUDING UNDISBURSED AS OF


Page_14/1 Includes service on all debt listed in Table23 prepared

October 3, 1967, with the except-ion of the following forwhich the terms are not available:

Total $1 861 000Suppliers' credit 1,3 ,000IDB 555,000

/2 Interest payments include 3/4 of 1% service charge on loansfrom Social Progress Trust Fund of IDB.


October 4, 1967

Table 24a: ARGENTINA - ESTIMPJED CONTRACTUAL SERVICE PAYMENTS OK REPORTEDADDITIONS JANUARY 1, 1966 TO JUNE 30, 1967 TO EXTERUAL MEDIUM- AlD

LONG-TER= PUBLIC DEBT /1


(In thousands of U.S, dollar equivalents)

Page 1TOTAL


INCLUDING AMORTI-YEAR U1NDISBIURSED ZATION INITEREST TOTAL

1967 - - 166 166

1968 239,592 58,286 13,858 72,1441969 181,306 58,527 10,499 69,0271970 122,779 58,699 7,079 65,7781971 64,080 32,047 3,h22 35,4691972 32,033 2,904 2,215 5,1201973 29,128 2,904 2,011 4,9161974 26,224 2,90o 1,807 4,7111975 23,319 2,663 1,606 4,2691976 20,657 2,663 1,417 4,0791977 17,994 2,663 1,227 3,8901978 15,331 2,663 1,037 3,7001979 12,668 2,663 847 3,5101980 10005 2,663 658 3,3211981 7,343 2,663 468 3,131

PRIVATELY-PLACED DEBT - TOTAL


INCLUDING Ai4ORTI-YEAR UNDISBURSED ZATION INTEREST TOTAL

1967 - 2 21968 204,217 58,286 13,036 71,3221969 145,931 58,322 9,031 67,3531970 87,610 58,322 5,021 63,33431971 29,288 29,179 1,010 30,1891972 108 36 6 361973 72 36 4 361974 36 36 2 36


Table 24a: ARGENTINA - ESTIMATED CO01TRACTUAL SERVICE PAYMENTS ON REPORTEDADDITIONS JANJUARY 1, 1966 TO JUNE 30, 1967 TO EXTERUAL iEDIUM- AND

LONG-TEFIM1 PIBLIC DEBT /1 (CONTe)


(In thousands of U,SO, dollar equivalents)

Page 2SUPPLIERS' CREDITS

DEBT OUTST(BEGIN OF PERIOD) PAYMENTS DURIIG PERIOD

INCLUDING AMORTI-YE.kR UNDISBURSED ZATION INTEREST TOTAL

1967 - 2 21968 217 - 8 81969 217 36 12 491970 181 36 10 461971 145 36 8 41972 108 36 6 421973 72 36 4 40197h 36 36 2 38

PRIVATE BA.IK C1UEDITS

DEBT OUTST(BEGIN OF PiEIOD) PA1YMENTS DURIINIG PERIOD

INCLUDITG AMORTI-YEAR. UHDISB JRSED ZATION ID:ITEREST TOTAL

1967 -1968 o0h,ooo 58,286 13,028 71,3141969 145,714 58,286 9,019 67,3051970 87,429 58,286 590l1 63,2961971 29,143 29,143 1,002 30,145

See footnote at end of table.

Table 24a: ARGENTINA - ESTIMATED CONTRACTUAL SERVICE PAYMENTS ON REFPORTEDADDITIONS JANIUAR 1, 1966 TO JUNE 30, 1967 TO EXTERNAL MEDIU1- AMD

LOIN-TERM PUBLIC DBT /1 (C OI\rr . )


(In thousands of U.S, dollar equivalents)

Page 3IDB LOANS

DEBT OUTST(BEGIN OF PERIOD) PAYMINTS DURING PERIOD


1967 - 155 1551968 34,142 - 776 7761969 34,142 - 1,397 1,3971970 34,142 171 2,000 2,1711971 33,971 2,663 2,365 5,0281972 31,308 2,663 2,175 4,8381973 28,645 2,663 1,986 4,6491974 25,982 2,663 1,796 4,4591975 23,319 2,663 1,606 4,2691976 20,657 2,663 1,417 4,0791977 17,994 2,663 1,227 3,8901978 15,331 2,663 1,037 3,7001979 12,668 2,663 847 3,5101980 10,005 2,663 658 3,3211981 7,343 2,663 468 3,131

EXPO ..T-hiPORT BANK LOANSDi3T OUTST

(BEGIN OF PERTOD) PAYIENTS DURINTG PERIODINCLUDING AIORTII-

YEAR UADISBURSED ZATION INTEREST TOTAL

1967 -. 9 91968 1,233 - 46 461969 1,233 206 71 2761970 1,028 206 59 2641971 822 206 46 2521972 617 206 34 2391973 411 206 22 2271974 206 206 9 215

/1 Includes service on all debt listed in Table 23a preparedOctober 3, 1967.


October 3, 1967

Table 24b:ARGENTINA - ESTIMATED CONTRACTUAL SERVICE PAYHEITS ON EXTERNAL IEDIUM- AND

LOiNG-TER1I PUBLTIC TDEBT OUTSTAIqDIG IUICLUDING UNJDISBURSED AS OFDECE1BER 31, 1966 WITH ADDITIONS JAi'AUARY 1, 1967 -

JUN 30, 1967 A


(In thousands of U,S. dollar equivalents)

GRAND TOTAL

DEBT OUTST(BMDm OF PERIOD) PAYIUNITS DURING PERIOD

INCLUDING A PORTI -

YEAR IJNDISBURSED ZATIONT I11TEREST TOTAL

1967 1,886,557 321,Sh4 117,h31 h39,2751968 1,804,304 356,787 118,232 475,0191969 1,447,518 327,892 92,863 420,7551970 1,119,626 250,73h 68,286 319,0201971 868,892 168,684 53,170 221,8541972 700,208 133,968 L2,926 17689h41973 566,240 119,467 34,638 154,io61974 44 6,773 95,831 27,311 123,11431975 350,942 72,735 22,100 94,8351976 278,207 68,381 17,963 86,34h1977 209,826 34.,274 10,631 44h,9o51978 175,552 23,026 7,317 30,3431979 152,5;26 16,627 6,179 22,8061980 135,899 13,930 5,339 19,2691981 121,969 12,961 4,597 17,558

/1 Includes all service listed on Tables 23 and 23a prepared -

October 3, 1967 with the exception of a total of $1,861,000outstanding as of December 31, 1966 for which the terms are notavailable.


October 3, 1967

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