MercoPress. South Atlantic News Agency

World Bank puts pressure on Argentina.

The World Bank estimates the Argentine economy this year will expand 5% and to sustain that rate of growth will need new investments and consequently increase public utility rates and further advance in pending structural reforms.

In the annual presentation of Latin America's Economic Prospects the World Bank, following the IMF line insisted Argentina must obtain a solid long term primary budget surplus to ensure it can repay creditors as well as recover trust from international financial markets.

"The viability of a quick accord with the IMF will depend on what Argentina can show in this field", said World Bank Chief Economist for Latinamerica and the Caribbean Guillermo Perry during a video conference.

According to the World Bank Argentina must restructure its banking system to reactivate credit still contracted; replace inefficient taxes such as those on exports and savings with new taxes; draft a strong regulatory and institutional framework to ensure private property, contracts and other efficient governance elements; de-freeze public utility rates that remain well below inflation and eventually restructure its defaulted sovereign debt.

The World Bank estimates that Latinamerica will grow 1,8% this year, 3,7% in 2004 and 3,8% in 2005, particularly after the return of investors confidence in Brazil and the beginning of a strong recovery in Argentina and Uruguay. In this context Argentina "will probably manage an over 5% expansion in 2003 and 4% next year".

From then onwards much will depend on how fast Argentina begins solving structural problems. "To keep growing strongly in the coming years Argentina will need investments and additional financing, and that will depend on progress in addressing structural challenges, therefore the mid-term prospects of the country are in Argentina's own hands", said Mr. Perry.

For a sustainable recovery "the whole Argentine economy will need strong investments including fro public utilities and it's hard to see an advance in this area if the rates issue is not solved before hand", explained the World Bank economist suggesting that a mid term adjustment system is needed to "make things clear for investors".

Following the 2001/02 crisis and devaluation of its currency, the World Bank estimated Argentina's Gross Domestic Product for 2002 in 103 billion US dollars with a per capita income of 2,694 US dollars.

Mr. Perry underlined that a prudent fiscal policy is essential as well as "a stronger primary fiscal surplus in coming years to recover access to international private financing".

"The arithmetic is quiet evident, if you have a good situation when not honouring your defaulted debt, it seems normal to have a higher primary surplus when you start paying what was agreed with creditors, no matter whatever is agreed with the IMF". Mr. Perry added that even when there must be an influx of returning Argentine capitals that fled when the crisis, "a normalization involving foreign investments will need a successful negotiation with creditors holders of the defaulted debt, and this will only follow an agreement with the IMF".

The primary budget surplus for the coming three years until 2006 plus solving the problem of the frozen public utilities rates are the two main issues pending of discussions between Argentina and the IMF.