CONFIDENTIAL
xi
31 Industrial production in Hl was 4% below that a year earlier. The Plan
Primavera (involving price and wage controls, and a variety of revenue raising
measures) has had some initial success in reducing the monthly inflation rate
(consumer prices rose 15.7% in November as against 27.6% in August) and the 12 month
rate has fallen back to 372%. However, the Plan's success may be short-lived given
its apparent reliance on administrative measures rather than substantive fiscal and
monetary adjustment, and the lack of involvement by private sector unions.
32 Although figures since Q1 are unavailable, it appears that Argentina has been
using its stronger trade position, together with a build-up in arrears to the banks
(now over $1.3 bn), to bolster its reserves. New bank loans of $3.5bn are being
sought for 1988-9, but the banks are only contemplating $25n. Clear linkage with
an IMF programme, a wide range of "menu" options and IBRD credit enhancement are
likely to be needed to make the package at all attractive to a wide range of
banks.
The response so far has been distinctly lukewarm given Argentina's poor
debt service record and weak economic programme.
33 The first tranche of the official bridge loan of $500 mn (no UK participation)
became available from 15 November. The bridge will mature at end-February. On 27
October the World Bank Board approved four loans totalling $1.25bn: the UK voted
against the two fast-disbursing loans that take out the bridge because there was no
explicit linkage with a Fund programme. Several other EDS expressed concern about
the adequacy of the economic programme but none voted against. The President
agreed to supply an oral report on the macro-economic situation prior to
disbursement of the second Trade Policy loan, which will not, however, require Board
approval. The Fund is concerned about the IBRD's approach, the Bank's weak fiscal
targets coming in for particular criticism. These include a PSBR of 4.6% for 1988
and 2.4% for 1989 compared with an original Fund target of 2.0% for 1988 and the
elimination of the deficit in 1989. The deficit is likely to cause further
problems as Argentina's draft Budget for 1989 reportedly envisages a deficit some
2.5 percentage points higher than that agreed with the World Bank. Moreover, tax
measures needed to reduce the deficit in 1989 have to be approved by Congress and
are unlikely to be implemented until 1989 H2.
34
Notwithstanding these IBRD credits (and the IADB is also to make 3 project loans
totalling $459 mn), Argentina faces a large financing gap next year, and it is
unclear how the remainder will be filled.
Much will depend on agreement on a Fund