MercoPress. South Atlantic News Agency

IMF concern with Argentine inflation.

The IMF delegation currently in Buenos Aires for the third review of the stand-by agreement with Argentina said they were concerned with the retail prices index which is expected to reach 7,2% in 2004, far above the IMF forecasted 3% for the whole year.

During the first five months of 2004 inflation in Argentina has already reached 2,7%.

According to Argentine Finance Ministry sources IMF representatives John Dodsworth and John Thornton expressed their concern but Argentine officials said they were confident "inflation will finally be closer to 7 than 11%", the target area established by the Argentine Central Bank last December.

However other indexes are proving most encouraging: Argentine officials informed IMF delegates that the economy in the first quarter of this year had expanded 10,5% compared to the same period a year ago and unemployment has dropped six points from the record 20,4% of a year ago.

Similarly strong recovery and tax revenue will enable the budget primary surplus for 2004, equivalent to ten billions pesos, to be achieved in the first half of the year.

This week also President Nestor Kirchner sent to Congress a bill that would force provincial and national governments to limit indebtedness and control public spending, one of the key issues demanded by the IMF.

The bill which faces strong Congressional discussion would fulfil Argentina's promise to the IMF in its three year agreement last September to place government spending at all levels on a firm footing. The bill aims to allow future spending increases at national and provincial level only when there is an increase in the GDP.

However some local analysts believe the timing this week was announced to coincide with the IMF review visit and an appeasement attempt for the failure of certain pledges made last year.

Argentina has met fiscal and monetary targets with ease but is still lagging on the structural criteria of the accord with the IMF. This is particularly true of the mechanism to share funds between national and provincial governments which face fierce resistance from the 24 provincial governors.

The co-participation bill as it's known needs not only Congressional approval but from Congress and Governors of the 24 provinces.

Ministry of Finance Economics Policy Director Jose Luis Maia also took time to address another irritating issue given the latest remarks from the IMF Deputy Managing Director Anne Krueger who anticipated no more investments, "unless Argentina reaches some kind of agreement with private creditors, mostly holders of defaulted Argentine sovereign bonds".

Mr. Maia said investment in Argentina in the last twelve months shows a 50% expansion equivalent to 18,5% of GDP compared to the 19,9% of 1998, the last year of growth before the almost five years recession.

Mr. Maia argues that investment reappeared in Argentina following the original Dubai proposal to private bondholders of last year, because "investors began to understand the economic horizon of the country.