MercoPress. South Atlantic News Agency

Kirchner promises fiscal and monetary prudence

Argentine president Nestor Kirchner confirmed that next January 2 Argentina will repay the whole pending debt with the International Monetary Fund, which amounts to 9.810 billion US dollars.

A week ago Argentina officially announced that it would invest a third of the Central Bank international reserves to cancel the IMF debt. The operation, currently under discussion in Congress, is expected to help save 842 million US dollars in interest.

Argentina was scheduled to pay 5.08 billion next year; 4.635 billion in 2007 and 432 million US dollars in 2008. Argentina's Central Bank international reserves should total 28 billion US dollars by the end of 2005.

However Argentine markets didn't react entirely convinced and Economy Minister Felisa Miceli had to publicly reiterate President Kirchner's administration determination to uphold prudent fiscal and monetary policies, plus insist with the accumulation of international reserves in the Central Bank.

"We're going to work hard to sustain the budget surplus and build an anti-cycle fund, as was planned by the previous minister, which will act as an anti-inflationary anchor. This will be the public sector's contribution to price stability which we are so committed to uphold".

Ms. Miceli also emphasized that Argentina needs to accumulate international reserves "given the complicated financial situation the country faces".

But Ms Miceli, who only a couple of weeks ago replaced Roberto Lavagna, the architect of Argentina's economic recovery, admitted the big challenge in 2006 is inflation.

"The main challenge is the increase in consumer prices. Argentina has deep scars from the time of hyperinflation and big devaluations, and when prices begin moving the situation becomes highly sensitive and more dangerous than in other countries where seasonal variations are accepted".

M. Miceli revealed that GDP is forecasted to expand 8,5% this year, and slightly less in 2006, although inflation targets are similar 8 to 10.5%. Inflation in 2005 is expected to be above 11%.

"Recall that the inflation target this year was 10.5% and is now at 11.1%, but because the overall growth of the economy was stronger than expected. Next year we'll grow less but prices will be in the same range of variation".

As to investment which seems to be the bottle neck of the Argentine economy, Ms. Miceli promised that the country's main bank and government owned, Banco Nacion "will support you with development funds, similarly to what happens in Brazil".

But the Economy minister insisted that working jointly with the Central Bank "we're going to continue with a prudent monetary policy which will not obstruct growth, grant credit at a reasonable interest rate, reflecting the costs of the financial system".

Nevertheless she promised a competitive exchange rate with "an expensive US dollar that will help exports to keep growing and protect the emerging regional economies".

As to taxes, basically on checks and agriculture exports, Ms Miceli promised to review the situation but recalled that the 2006 budget was drafted on the assumption of the same fiscal base.