World Bank Document

RESTRICTED Report No.WH-182a

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 The report may not be published nor may it be quoted as representing their views.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL DEVELOPMENT ASSOCIATION Public Disclosure Authorized

ECONOMIC POSITION AND PROSPECTS

OF ARGENTINA Public Disclosure Authorized

July 16, 1968 Public Disclosure Authorized

Western Hemisphere Department CURRENCY EQUIVALENTS

U.S. $1 = 350 pesos 1 peso (M$N) = U.S. $0. 00285 1 billion pesos = U.S. $2, 850, 000 TABLE OF COTENTS Page Number

Basic Data

Summary & Conclusions i

I. Economic Policy and Performance, 1967-68 1

Performance in 1967 1 - The 1968 Program 3

II. The 1968 Public Investment Program 9

III. Development Problems and Prospects in the Major Sectors 12

Agriculture 12 Industry 23 Transport 29 Electric Power 37 Petroleum 40 Telephones 43

IV. Outlook for Public Investment and Finance 45

Investment Needs and Savings Requirements 45 Tax Structure and Adninistration 47 The Rationalization Program 51 Public Sector Borrowing 53 V. Development Prospects and the Balance of Payments Outlook 55 Growth Potential 55 Balance of Payments and Credit- worthiness 56 Statistical Appendix

This report is based on the findings of a mission to Argentina in January-- February 1968 composed of Messrs. E. P. Wright (Chief), R. S. Dosik, J. de Weille, and Nathan Koenig (Consultant). BASIC DATA 2 Area: 2.8 million km (1.1 million sq. miles)

FPkulation (1967): 23,248,000

Growth Rate (1950/51-1965/66) 1.8 percent

Gross Domestic Product (1966): M$N 5,231.2 million Real GrowTth Rate (1950/51-1965/66) 3.0 percent Per Cepita GDP $750

Origins of Gross Domestic Product (1967): Percent of GDP

Industry 31% Agriculture 16% Commerce 15% Transport and Communication 6% Expenditure on Gross Domestic Product (1967): Percent of GDP Gross Fixed Investment 18.6% Private Consumption 67.5% Public Consumption 11.9% Current Account Balance 2.0%

Cost of Living: Annual Average Percent Change 1964 21 1965 28.6% 1966 31.9% 1967 29.2 1968 (Jan.- Iiiy, seasonally adj.) 3.lv Mbney Supply: M$N, End of Period Percent Change L964 395 39.6% 1965 498 26.1% 1966 672 34.9% 1967 872 30.0% 1968 (March) 886 2.0% National Public Sector Finances: Percent of GDP

1966 1967 National Government Current Revenue 10.2 13.8 Current Expenditure 10.0 10.3

Total Public Revenue (incl. social security) 16.2 20.1

Public Saving - 0.5 3.7

Public Investment 4.0 4.8 Belance of Payments ($million): 1965 1966 1967

Exports 1,493 1,593 1,465 Imports -1,198 -1,124 -1,096 Trade Balance 295 h69 369 Invisibles -111 -216 .189 Current Account Balance 184 253 180

Foreign Exchange Reserves ($ million): December A ril 1966 1967 1968 Assets, Central Bank 231 759 746

Net Position, Incl. Treasury Liabilities -154 279 293

Public Foreign Debt (June 30, 1967): $ million

Outstanding, as reported by IBRD (excluding undisbursed) 1,851.9

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JUNE 1968 IBRD 332R2 SUMMARY AND CONCLUSIONS

1. At the end of last year it was clear that the Goverment had been singularly successful in carrying out the far-reaching fiscal, monetary, incomes and foreign exchange policies which formed the core of its 1967 stabilization program. The rehabilitation of public finances through the sharp reduction of the budgetary deficit and the achievement of an even greater than planned increase in public savings was perhaps the most impressive of the year's accomplishments. The Treasury was able to keep borrowing from the Central Bank well below the ceiling fixed in the monetary program agreed with the IMF, and under the Government's incomes policy wages were effectively frozen following a round of increases granted early in the year. The danger that stabilization might seriously aggravate the business recession which had begun in 1966 was averted, and GDP last year rose by some 2 percent, mainly reflecting advances in agricultural production and a rapid expansion of construction activity. How- ever, with consumer demand far from buoyant and businesses liquidating inventories, industrial production showed no improvement over the 1966 level, and unemployment rose moderately. The cost of living increased over the year by 27 percent, or only a bit less than in 1966, but price trends in the later months indicated that the cost increases stemming from the devaluation, the increases in public services tariffs and the wage adjustment, had been largely absorbed. Despite a drop in exports, gross foreign exchange reserves increased by more than $500 million last year to about $750 million as a result of a massive inflow of foreign exchange reflecting the repatriation of Argentine funds held abroad and an inflow of foreign short-term funds following the devaluation.

2. The program the Government has laid out for 1968 reflects a continuation of the major lines of policy pursued last year, but with a distinct shift in emphasis toward growth objectives which gives this year's program a new dimension. The strategy adopted stems from certain key assumptions: (a) that the decisive battle in the war against inflation was won in 1967, making price stability attainable this year; (b) that with wage and other costs stable, excess capacity in industry and ample foreign exchange reserves, demand can be stimulated to promote growth without generating inflationary pressures and (c) that with the private sector still maintaining a "wait and see" attitude, the increase in investment needed for sustained growth would have to be initiated by the public sector. The growth target for 1968 is a 5 percent rise in real GDP based on projected output increases in the major sectors which, except for agriculture, would be sharp improvements over last year's performance.

3. The 1968 public investment program calls for an increase of about 30 percent in real terms, with the bulk of the added expenditure to be in the transport and energy sectors, although investments in communications and water and sewerage works are also to be boosted - ii - sharply. Fiscal policy aims at increasing public savings by 45 percent in real terms and, at the target level, public savings would cover 85 percent of planned investments compared with 80 percent in 1967. The budget freezes current expenditures throughout the public sector at the 1967 level; increased yields from existing taxes are expected to be the major factor on the revenue side, the principal new measure taken having been a sharp increase in gasoline prices and taxes. Large-scale borrowing from private sources at home and abroad, building on the initiatives taken in 1967 to revive the domestic capital market and to reopen foreign markets to Argentine public securities, is another major element in the Government's fiscal program. As regards incomes policy, the wage freeze was maintained, but employee social security contributions were reduced by 6 percent on January 1, thus augmenting workers' incomes without increasing business costs.

h. In deciding to focus its 1968 program on economic expansion and an increase in public investment, the Government was accepting the risk that this might prejudice the stabilization effort, and the course being followed clearly puts a high premium on the careful management of fiscal and monetary policy. Whether the budget deficit can be held to the planned level will depend not only on the success of the Government's economy efforts, but on its ability to keep the revenue system performing at last year's high level, something which appears very much open to question given the past ups and downs in tax collections and the deficiencies in tax administration. The trend of prices over th-e next several months will be crucial to the success of the progran. Aetna1 pdice movements through IMay were encauraging, and if the prospects for a marked reduction in the rate of inflation this year are borne out, it should be possible to carry out the 1968 program with relatively minor adjustments. If not, it will be necessary to tighten up the program substantially, especially on the fiscal side. Balance of payments prospects appear less favorable than in recent years owing to the rather unpromising export outlook, but it should be possible to maintain foreign exchange reserves at the high level reached last year.

5. Argentina has a quite exceptionally favorable resource endowment in relation to its population, and there is no reason why the country should not in time succeed in caning close to European levels of economic efficiency and therefore greatly increase its present national output. The basic preconditions for achieving this are a sufficient degree of political stability to avoid the continual changes in government administration and policies which have been one of the most serious obstacles to effective economic management during the past two decades; and a sufficient degree of internal financial stability to enable the price mechanism to function efficiently. Apart from these general pre- ccnditions, there are many structural problems in the various sectors of the economy that require attention if the prospects for greatly improved economic performance in the years ahead are to be realized. - iii -

6. Agriculture has been the most laggard sector of the economy, and stimulating a more rapid and sustained growth in production is first and foremost a matter of providing farmers with the economic incentives, and the confidence in their maintenance over time, which they need to change their practices and invest in long-term improvements. Given the necessary incentives, much can be done to increase livestock production through pasture improvement and better herd management and to increase crop production by the wider use of fertilizers, introduction of new grain varieties and improved farm practices. If the Government adjusts its foreign exchange, tax and price policies to the need to increase agricultural output - particularly by eschewing export taxes (retentions) as a major source of revenue - the rate of expansion could be stepped up progressively from the present 2-3 percent a year to 4-5 percent a year by the middle 1970s.

7. The promotion of industry through import substitution at almost any cost, and in an inflatioDary environment which has dulled incentives to improved efficiency, has resulted in high cost production reflecting excessive product diversification and mirnimum opportunities for taking advantage of economies of scale. Much the most important immediate contribution which the Government can make to industrial efficiency is to bring inflation under control. Apart from this, an entirely different policy of industrial promotion is required for the future, oriented towards export expansion and with domestic producers increasingly exposed to competition from imports. That the present Government recognizes this to a greater extent than its predecessors is reflected in the tariff reductions it has made and in the various incentives it has offered to private investors, but much remains to be done in the way of a selective further lowering of protective barriers and the development of more effective, efficiency-oriented industrial promotion policies.

8. Transport is one of the weakest sectors of the economy. The railways' need for huge Treasury subsidies is one of the principal obstacles to the further strengthening of public finances, while the inadequacy of the road system is perhaps the major gap in the country's economic infrastructure. Although great improvements have been made in the operation of the railways under the present management, there is little likelihood of anything like the present rail network being profitably employed in the future. The restructuring of the railways in the light of their real economic possibilities is, of course, a long- run task, but the need to reduce the financial deficit of the railways is so pressing from the overall economic point of view that measures to step up the rate of reduction in the labor force, and to accelerate the closing of uneconomic lines, are clearly required on an urgent basis. Highway construction is being stepped up sharply in an effort tc) make good the long neglect of the roads, but if the massive investments required for this purpose are to be efficiently carried out, it will be necessary to strengthen the planning, project preparation and executive capabilities of the National Highway Department. - iv -

9. High priority has been given to investment in the power sector, the major new departures being the Govermnent's decisions to rely mainly on hydroelectric power to meet Buenos Aires' needs in the 1970s through the construction of the El Chocon project, and to build a nuclear plant to meet interim requirements. The heavy investments being made to assure an adequate power supply underscore the need to attack the other major problem in this sector - high operating costs, mainly reflecting loss of management control over the size and utilization of the labor force, which have undermined the financial position of the electric utilities and put constant upward pressure on tariffs. The Government is looking to the private sector for the bulk of the investment necessary to increase petroleum production; the initial response of investors to the Hydrocarbons Law enacted last year to clear the way for private parti- cipation in exploration and production on a large scale appears to have been favorable.

lO. A continuing large-scale public investment effort will be necessary in the coming years if Argentina's hopes for achieving more rapid and sustained economic growth are not to run afoul of worsening infrastructure bottlenecks. For a public investment effort of the magnitude indicated by estimated requirements in the major sectors over the next five years to be financially feasible, public savings will have to be raised sufficiently to cover 90-95 percent of investment. To achieve this target, it will be necessary to (a) reinforce tax revenues; (b) substantially improve the financial performance of the State enterprises; (c) hold the increase in government current expenditures to 3-4 percent per year, and (d) restore savings generation by the social security system to at least the levels attained in past years. The most pressing tax problem is to develop a permanent source of increased revenues from the agricultural sector to help replace the present high export retentions, but income tax reform is also essential if the revenue structure is to have the long-run elasticity needed to meet public savings requirements. And, whatever structural changes are made, greatly improved tax administration will be a crucial ingredient in maximizing the growth of revenues. The emphasis in improving the savings performance of the State enterprises should be on raising operating efficiency through the vigorous implementation of the Govermne-ntls "rationalization'I program. Progress so far in implementing the rationalization program seems to have been slow and uneven, and the pace will clearly have to be stepped up on an urgent basis if rationalization is to make a significant contribution to public sector savings in the years immediately ahead.

11. With a modicum of good management, and in reasonably favorable circunstances (e.g., as regards the weather and world commodity market trends), Argentina should be able to attain a 5 percent average growth rate over the next 5 years. Underlying world demand for Argentina's traditional exports may be expected to grow rapidly, and the country's competitive position in world markets is fundamentally strong, so that there should be firm support for accelerated growth on the balance of - v - payments side. With realistic exchange rate policies and a substantial reduction of export taxes, it should be possible to raise exports by more than 30 percent to the $2 billion level by 1973. nllustrative projections prepared by the mission suggest that, over the 1969-1973-period as a whole, a gross external capital inflow totaling something like $1.1 billion, or an - average of about $220 million per year, will be required to maintain equilibrium in the balance of payments. Taking loans presently in the pipeline into account, and allowing for only a modest expansion of private direct investment, some $850 million in new loans will probably have to be obtained to meet the gross capital inflow requirements. Reducing the burden of servicing the external debt will need to be a cardinal objective of policy, since amortization and interest payments are currently absorbing-an estimated 27 percent of total foreign exchange earnings on current account. Prudent debt management requires that in the future as large a portion of public sector borrowiing as possible be shifted from medium-term suppliers' credits and commercial bank loans to loans from international development institutions and other sources of long-term credit. If this is done, the mission's projections indicate that Argentina should be able to undertake the foreign borrowing necessary to its development efforts while reducing the ratio of debt service payments to foreign exchange earnings to some 15 percent by 1973. I. ECONOMIC POLICY AND PERFORMANCE, 1967-1968

PERFORMANCE IN 1967

1. At the end of last year it was clear that the Government had been singularly successful in carrying out the far reaching fiscal, monetary, incomes and foreign exchange policies which formed the core of its 1967 stabilization program. The rehabilitation of public finances through the sharp reduction of the budgetary deficit, and the achievement of an even greater than planned increase in public savings, was perhaps the most impressive of the year's accomplishments. Budgetary revenues rose by nearly 70 percent, or just about in line with the Government's ambitious target, largely thanks to better than expected receipts from the stiff export taxes imposed at the time of the March devaluation and from the emergency property tax and, in general, to a high level of taxpayer compliance with the Government's efforts to improve collections on current and past due taxes. Measured in real terms, revenues rose by 30 percent and far exceeded the former peak level attained in 1961. Current expenditures were somewhat higher than had been budgeted (although they increased by less than 2 percent in real terms), but the railway deficit was reduced to the targeted level and the Government was able to hold the line on budgetary transfers to the rest of the public sector. Indeed, the financial performance of the Decentralized Agencies, State enterprises and the social security system was substantially better than anticipated, and total public saving, which had been negative in 1966, last year reached M$N 187 billion, actually some 20 percent higher than planned. Public savings covered nearly 80 percent of public investment last year, despite the sharp increase in the latter, the announced 1967 investment program having been realized with a relatively minor overall shortfall attributable almost entirely to the trimming of the capital expenditure plans of the State petroleum and gas companies and the railways. 2. With the improvement in public finance, the Treasury was able to keep borrowing from the Central Bank well below the ceiling fixed in the monetary program agreed with IKF, and the overall expansion of Central Baik credit to the public and private sectors was held to M$N 83 billion - only about three-fourths of the permissible maximum. It was especially important that the authorities minimize the expansion of Central Bank credit last year in view of the massive inflow of foreign exchange following the devaluation, which pumped an additional M$N 117 billion into the economy. Fbrtunately for the stabilization program, much of this liquidity was absorbed by the public sector, whose deposits with the banking system rose sharply, and by an increase in the commercial bank's reserves. Although adequate credit was generally available to business, domestic credit as a whole rose by 20 percent, compared with the more than 30 percent expansion in 1966, and the increase in the money supply of about 30 percent only slightly exceeded the rise in prices. As regards the third major component of the stabilization program - incomes policy - the Govern- ment's program, allowing a limited round of wage increases in the private sector in April and May followed by a total wage freeze, seems to have been fully effective. Money wages in industry rose 25 percent over the -2- year, compared with a 35 percent increase in 1966; real wages were boosted substantially by the increases granted in the first half of the year, but with money wages frozen and prices rising they came down sharply after June and were down some 3 percent over the year as a whole.

3. Given the magnitude of the adjustments in the economy required by the stabilization program, the trend of output, employment and prices was not unsatisfactory. The danger that stabilization might seriously aggravate the business recession which had begun in 1966 was averted, and GDP last year rose by some 2 percent, mainly reflecting advances in agricultural production and a rapid expansion of construction activity, How- ever, with consumer demand far from buoyant and businesses liquidating inventories, industrial production showed no sign of improvement over the 1966 level. In the last half of the year, moreover, there were signs of weakness in certain sectors, particularly the automobile industry, where output had been holding up relatively well. Unemployment continued to rise, apparently largely as a result of a further decline in manufacturing jobs, but the reported 6.8 percent overall unemployment rate in July was still well below that reached in the 1962-63 recession, and it appeared that unemployment had not assumed serious proportions, except in one or two localities where there are special structural problems (e.g. the sugar industry in Tucuman). The fact that retail and wholesale prices increased over the year by 27 percent and 21 percent, respectively, or only a little less in each case than in 1966 was, in itself, disappointing. However, no marked slowing of inflation could have been realistically expected last year owing to the need for prices to adjust to the cost increases stemming from the devaluation, the sharp increases in public service tariffs and the wage adjustment. In addition, the increase in the cost of living in the last half of the year was undoubtedly exacerbated when food prices soared in response to temporary scarcities resulting from bad weather. On the other hand, the stability of wholesale prices of manufactured goods after June provided an encouraging indication that cost increases had been absorbed.

4. The impact of the Government's policies was nowhere more striking than in the success of its efforts to attract capital from abroad and boost foreign exchange reserves. The Central Bank's gross reserves increased by more than $500 million to exceed $750 million, by far the highest level in twenty years. The great improvement in the reserve position took place despite an unexpected drop in exports which reduced the current account surplus to $180 million from the $250 million level that had been reached in 1966 and was anticipated for 1967. Wheat exports fell even more sharply than had been anticipated; corn shipments failed to reach the level prom- ised by the year's bumper crop; and meat exports posted only a modest overall gain owing principally to lower prices and a reduced volume of the traditional chilled and frozen beef. Shipments of the latter were adversely affected by the U.K. port strike and by the ban that country im- posted in December on imports from countries where foot and mouth disease is endemic. The reserve increase thus stemmed from a massive inflow on capital account reflecting in large part the repatriation of Argentine funds held abroad and an inflow of foreign short-term funds following the devaluation. In addition, some $200 million in short-term stand-by credits was obtained from foreign banks in support of the stabilization program. A Tnore significant demonstration of the revival of foreign confidence came at the end of the year with the floating of a $25 million, 12-year bond issue in Germany, marking the first time since 1961 that Argentina has been able to borrow abroad at long-term in the open market.

THE 1968 PROGRAM Objectives

5. The program the Government has laid out for 1968 reflects a continuation of the major lines of policy pursued last year, but with a distinct shift in emphasis toward growth objectives which gives this year's program a new dimension. The strategy adopted stems from certain key assumptions: (a) that the decisive battle in the war against inflation was won in 1967, making price stability attainable this year; (b) that with wage and other costs stable, excess capacity in industry and ample foreign exchange reserves, demand can be stimulated to promote growth without generating inflationary pressures, and (c) that with the private sector still maintaining a "wait and see" attitude, the increase in investment needed for sustained growth would have to be initiated by the public sector. Implicit in these assumptions were formidable policy problems. Fiscal policy would have to provide adequate financing for the expansion of public investment but without recourse, as in 1967, to measures which would raise costs appreciably. Monetary policy would need to ensure adequate liquidity for expansion without endangering internal financial stability, and incomes policy would have to maintain the wage freeze essential to the stability of the cost structure, while at the same time guarding against a reduction in disposable income which would undercut expansion by depressing consumer demand.

6. The Government's growth target for 1968 is a 5 percent rise in real GDP based on projected output increases in the major sectors which, except for agriculture, would be sharp improvements over last year's performance. While the planned public works programs should ensure a rapid expansion of construction activity, the more than 5 percent increase in agricultural production the Government projected appears optimistic on the basis of later crop estimates, and the substantial rise in industrial output also anticipated would require a strong revival of final demand and the ending of the process of inventory reduction. On the demand side of the 1968 outlook, public investment could, as discussed below, come close to the programmed level. However, a 5 percent increase in aggregate demand would also require a revival of private investment this year of a magnitude for which there seems to be little incentive, in view of the under-utilization of existing capacity in most lines of industry, and for which there is little evidence at present. Weakness in consumer demand may also be a factor limiting growth since, under the Government's incomes policy, real wages are, at best, likely to remain constant, so that the increase in consumption would have to come very largely from a rise in employment. Fiscal Policy

7. As indicated in Table A, fiscal policy in 1968 aims at increasing public savings by approximately M$N 100 billion, or 60 percent, an amount about equal to the planned increase in public investment. The bulk of the anticipated increase in total public savings would take place through the central administration budget, whose revenues are expected to rise by some 22 percent while current expenditures increase by only about 11 percent. (Assuming, as the Government does, a 15 percent increase in the average price level over the 1966 average, this would mean a 7 percent real increase in revenues coupled with an actual decline in current expenditures in real terms). The centerpiece of the fiscal program is the Government's decision to try to freeze expenditures on wages and salaries and other current goods and services throughout the public sector at the 1967 level in money terms. If effective, this measure would actually require deep cuts in personnel and other operating expenses. For example, to implement the freeze, economies will have to be found to offset most of the probable increase of at least 10 percent in wage rates this year, taking into account the increases granted last year and the likelihood of a 1968 adjustment that will be similar to that permitted in the private sector. The budgeted increase in current expenditures is accounted for principally by increases in ccrtain subsidies and othor parcnonts and by a I4N 23 billion ?cinOrgency credit" to be used to meet unforeseen expenditures. l/ Functionally, the major increases in expenditure budgeted are in economic activities and in the fields of health and social welfare; defense expenditures are to be held at the 1967 level and account for about 12 percent of the total budget, and less than 2 percent of estimated GDP, this year.

8. On the revenue side, the budget is founded largely on the Govern- ment's hopes for increased receipts from export taxes, substantial "vege- tative increases" in other tax revenues in an expanding economy, and a continued improvement in tax administration. While export tax rates have been cut by about one-third, they are expected to bring in considerably more this year than in 1967, when they were in effect for only eight months, on the assumption that the present rates can be maintained until the year-end. Increased yields from import duties and the sales tax are also expected to contribute importantly to the expansion of revenues. On the other hand, income tax collections are projected to remain at about the 1967 level owing to revenue losses stemming from the investment and other tax credits granted last year (estimated to cost the Treasury some M$N 15 billion in 1968), the increases in exemptions and rate adjustments also granted last year, and the recent reduction in the surtax from 15 percent to 7 percent. The Treasury is also foregoing this year the M$N 35 billion in revenue obtained in 1967 from the property tax and other emergency taxes, which have been allowed to lapse.

9. The principal measure taken to increase public revenues this year was a sharp increase in gasoline taxes and prices, the need for which had been pointed out by several Bank missions. Gasoline prices were raised by 65 percent as a result of a 125 percent increase in taxes and a 25 percent rise in the portion of the sales price retained by YPF and the private

1/ The emergency credit is to be used, in part, to cover some of the cost of the wage increases, although the Government intends to make funds nvAilTbhT fnr this nurnose onlv where it is convinced this is unavoidable. SAVINGS AND INVESTMENT OF THE NATIONAL GOVERNMENT, 1964-68 (in billions of pesos)

1967 1964 1965 1966 1968 Actual Actual Actual Planned Actual Planned

SAVINGS I. Central Administration (Budget) -30.0 25.2 2.9 136.0 110.6 170.0 Revenues 123.4 223.8 283.9 478.0 479.2 580.9 Current Expenditures -153.41/ -198.61. -281.0 -342.0 -368.6 -410.9

II. Decentralized Agencies - Special Accounts 18.1 8.6 - 7.8 - 2.4 12.6 43.1 Revenues 80.2 106.4, 116.2W/ 198.0 220.8 248.0 Current Expenditures - 62.11/ - 97.8_ -124.0 -200. 4 -208.2 -204.9

III. Energy FAnd 8.0 10.0 11.4 18.5 21.4 21.9

IV. Social Security System 12.2 11.4 - 6.6 n.a. 22.3 - 10.8 Collections 98.4 135.6 168.3 n.a. 305.4 339.4 Payments - 86.2 -124.2 -174.9 n.a. -283.1 -350.2

V. State Economic Enterprises - 19.0 - 7.8 - 21.0 5.4 20.0 66.2 State Railways n.a. - 40.6 - 57.7 - 52.0 - 52.0 - 34-75/ State Petroleum (YPF) n.a. 23.7 30.6 32.5 45.7 62.3

VI. Total Public Savings (I-V) - 10.7 47.4 - 20.9 157.0 186.9 290.4

INVESTMENT VII. Central Adninistration n.a. ( 14.0 31.03/ 21.01/ 3 2 .7V

VIII. Decentralized Agencies - Special Accounts n.a. ( 36.1 64.7 80.2 127.9

IX. State Economic Enterprises n.a. 74.0 99.2 158.9 134.9 181.0 X. Total Public Investment (VII-IX) 99.0 120.8 149.3 254.6 236.1 341.6

SAVINGS/INVSTMTENT "UAP" XI. Total Public Sector (X minus VI) -109.7 -73.4 -170.2 -97.6 -49.2 -51.1

XII. Savings as per cent of Investment - 39.2% - 61.6% 79.1% 85.0%

Note: Columns may not add to totals because of rounding

1/ Mission estimates 2/ Excludes M$N 20.6 billion of revenues assumed to have been utilized in "financial investment." 3/ Includes M$N 14 billion of unallocated funds. :/ Includes estimated economies of M$N 14 billion in 1967 and M$N 6 billion in 1968 Not comparable with previous years owirg to change in definitions of zurrent and capital expenditures. On a comparable basis, the planned 1968 operatirg deficit would be M$N 42.4 billion.

Source: Ministry of Economy oil companies; prices of other petroleum products were not raised, increases in oil company retentions being offset by tax reductions in these cases. The net result of the adjustments made will be to increase gasoline tax revenues by an estimated M$N 33 billion, and to raise YPF's income by a roughly equal amount. About M$N 15 billion of the tax increase will go to the budget and the remainder to the Road and Energy Funds. Just as prices of diesel fuel and fuel oil were not increased along with gasoline prices, in order to avoid increasing industrial costs, increases in electricity and gas tariffs amounting to 6-7 percent, which were the only other tariff increases this year, were entirely in rates charged residential consumers. The only other major revenue measures this year was a 50 percent increase in the sales tax on tires, expected to produce an additional M$N 10 billion for the Road Fund.

10. Despite the substantial increase in savings, the overall budgetary deficit this year is estimated at M$N 69 billion, or only slightly less than in 1967, owing to an increase in budgetary investments and to larger transfers to the rest of the public sector. Because of their greatly increased investment programs, the Decentralized Agencies and State enterprises will need increased support from the Treasury, although sizeable increases in savings are planned in these sectors, too. The savings increase foreseen in the State enterprise sector reflects mainly the improved financial position of YPF resulting from the gasoline price increase and from a further cut planned in the railway operating deficit, as discussed in paragraph 78 below. However, even with the indicated reduction in the current deficit, the railways will require some M$N 83 billion from the budget this year, M$N 9 billion more than in 1967, principally because of higher debt service obligations. The social security system, which turned in a handsome surplus in 1967 as a result of the Government's vigorous efforts to clean up arrears in contributions, is expected to swing into deficit this year because of increased benefits granted in 1967, the beginning of a program to make good certain contingent liabilities owed beneficiaries, and the recent reduction in employee contributions.

11. Although the gap between public savings and investment at the planned levels would be only about M$N 50 billion, when debt amortization and other financial obligations are taken into account on the one hand, and the credits already available on the other, the fiscal program will require some M$N 115 billion of additional Treasury borrowing. In order to avoid undue recourse to the banking system, the Government hopes to limit borrowing from the Central Bank to M$N 50 billion and to borrow some M$N 65 billion from private sources at home and abroad through a major effort to enlarge on the initiatives it took in 1967 to revive the domestic capital market and to reopen foreign markets to Argentine public securities. TentaUive plans call for M$N 25 billion to be borrowed on the domestic market through the sale of medium-term (probably 3-5 year) Govern- ment bonds, although it is realized that it will be a difficult tasl to ral;e such an issue attractilje to the lrgentine investor who, because of inflation, long ago lost interest in this type of security. The Government's budgetary plans also call for some M$N 32 billion in financing from foreign bond issues, including the $25 million equivalent German issue floated at the end of last year and $75 million of new issues to be sold in 1968. -6-

Jages, Prices and Monetary Policy

12. While the continuation of a firm incomes policy in 1968 was clearly essential, the Government also had to consider the implications of the swift decline in real wages in the second half of last year for its declared intention of maintaining the level of real wages, for its efforts to stimulate the economy, and for the political and social via- bility of its whole program. The solution arrived at was to maintain the wage freeze, but to reduce social security contributions on January 1 by 6 percent, thus raising workerst incomes without increasing business costs and restoring real wages to about the level of the first quarter of 1967. An additional measure to boost incomes was to advance payment of one-half of the traditional year-end bonus to July 1. These limited adjustments will, of course, suffice to enable the Government to hold the line on incomes policy only if the crucial assumption of a sharp reduction in inflation this year proves realistic. While the Government has announced no specific price target, an increase of 10 percent or less over the year (i.e., in the twelve months ending December 1968) seems to be implicit in its incomes policy and other aspects of the program. Price stability, the Government believes, will come about as a result of the stabilization of costs that had been achieved by the end of 1967 and the pursuit this year of fiscal, incomes and foreign exchange policies having only a minor incidence on costs. However, direct action to restrain price increases, where necessary, is also an important part of the Government's anti- inflationary efforts, and it is actively pursuing the "voluntary restraint" program under which businessmen have been pledged to give advance notice of price rises and to justify them to the authorities in terms of actual cost increases. kAother facet of the Governmentts price policy is to fix maximum prices or profit margins for limited periods when special factors appear to be causing sharp rises in retail food prices.

13. The monetary program submitted to the flAF limits Treasury borrowing from the Central Bank to I$N 50 billion, or somewhat less than the amount actually utilized in 1967, but permits an overall expansion in the Central Bankts credit operations of about 14 percent, in contrast with last year's 10 percent increase. This credit expansion, together with a projected $115 million increase in the Central Bankts net foreign exchange reserves would, it is envisaged in the monetary program, provide the basis for an increase of about 20 percent in total bank credit and in the money supply. A monetary expansion of this magnitude would not, the authorities believe, be inconsistent with the anticipated slowing of inflation in view of the projected groTwth of the economy, and of the sharp increases in liquidity preference-which have occurred in the past in periods of relative price stability. Another important objective of monetary policy this year is the reduction of bank interest rates, which is regarded as a necessary corollary of the slowing of inflation and a measure which could contribute importantly to the lowering of costs. In Nay, the commercial baiks' reserve requirements were simplified and lowered, a measure intended, in part, to enable the banks to maintain their earnings with lower-interest rates and to give them greater incentives to compete for funds. The authorities have indicated that it was not their intention in - 7 - lowering reserving requirements to open the way for a larger overall expansion of bank credit than that envisaged in the monetary program, and that the banks-use of the reserves that have been freed will be carefully monitored.

Balance of Payments Prospects

14. Balance of payments prospects appear less favorable than in recent years owing to the rather unpromising export outlook. The grain harvest, particularly corn, seems to have suffered considerably from adverse weather in the growing season and, while the amount of wheat available for export may exceed last year's very low figure by as much as a million-tons, corn exports can be expected to decline by a roughly equal amount. In addition, with taxes on the major traditional exports at the present level of 18 percent, there may be marketing problems for wheat (since the effective return on export sales was beneath the domestic support price) and meat. Allowing for the impact of the ban on shipments to the U.K., which was not lifted until April 15 (and was still maintained on lamb), meat exports will probably be somewhat lower than in 1967. Thus, even with the expected gains in exports of coarse grains, fruits and vegetables and certain other items, export performance on the whole is likely to be little improved, if at all, over 1967. While the low level at which imports were running in the first quarter indicated that no appreciable increase was likely over the year as a whole, a substantially higher outflow of interest payments and profit remittances is expected this year, especially in the light of the effect on American companies of the measures taken to bolster the U.S. balance of payments. All told, a current account surplus of no more than $50-75 million seems in prospect this year or, only about one-third the average surplus in the past three years. In the capital account, substantial increases are expected in the inflow from foreign direct investment, suppliers' credits, and long-term loans from international agencies, the latter reflecting the fact that in the year ended January 1968 Argentina secured new commitments totalling $180 million from the IBRD and Inter-American Development Bank. The inflow on capital account from these sources, together with the expected current account surplus, would just suffice- to cover the approximate $400 million of debt amortization due in 1968. However, taking into account the Government's planned foreign bond issues, a-further increase in foreign exchange reserves appears likely this year.

Outlook for the Program

15. In deciding to focus its 1968 program on economic expansion and an increase in public investment, the Government was accepting the risk that this might prejudice the stabilization effort. WIhile Argentine experience indicates that expansion pe se need not be detrimental to the slowing of inflation,, the course being followed clearly puts a high premium on the careful management of fiscal and monetary policy so as to avoid any renewued pressure on prices. The budget would appear to be the major problem here. Whether the deficit can be held to the planned - 8 -

level will depend not only on the success of the Government's economy efforts, but on its ability to keep the revenue system performing at last year's high level, something which, given the past ups and downs in tax collections and the deficiencies in tax administration, may well depend more on taxpayer psychology than anything else. Even at the present rates, the export tax will bring in less than budgeted, owing to the deterioration in the export outlook, ard a much more serious shortfall could develop if it proves necessary to reduce retentions in order to keep exports moving. Actual tax collections through May were belowf expectations owing to a shortfall in-revenues from import duties and the sales tax, as well as the export tax. The fiscal outcome will also depend heavily on the Government's ability to carry out its plans for extensive borrowing at home and abroad. Preparations for the foreign bond issues were reportedly well-advanced at mid-year, but trends on world capital markets indicates that selling Argentine bonds abroad this year will certainly be a more difficult ani costly process than originally envisaged. A need for heavier Treasury borrowing from the Central Bank would, of course, greatly complicate the task of avoiding an excessive monetary expansion, although there will probably be some help on this score from the fact that the monetary program was constructed on the basis of an increase in foreign exchange reserves that now appears unlikely. The Governmentts price restraint program could also encounter greater difficulties with a revival of economic activity, since businessmen may well take the opportunity of a strengthening of demand for their products to raise prices in order to restore profit margins, which were apparently sharply reduced in 1966-67

16. The trend of prices wrill be crucial to the success of the 1968 program. Price movements in the first few months of this year were encouraging; the seasonally adjusted cost of living index rose by only a bit-more than 3 percent, and the wholesale price index less, through May. If the prospects for a marked reduction in the rate of inflation are borne out, it should be possible to carry out the 1968 program with only minor adjustments; if not, it will be necessary to substantially tighten up the program, especially on the fiscal side. However, having foreswiorn any further tax or tariff adjustments this year, the Governmentts room for maneuver is limited and the initial brunt of any tightening would have to fall on the investment program, although how quickly investment might be slowed, and how adequate a safety valve this would prove, are open questions. More far-reaching adjustments in the program would be called for if inflation should continue at a substantially higher rate than foreseen, since this would render unrealistic the limited increases in wages and State enterprise tariffs granted at the beginning of the year and require a reconsideration of the level of export taxes, which would have serious implications for the budget. -9 -

II. THE 1968 PUBLIC INVESTMENT PROGRA-I

17. While the increase in the public investment program this year was planned primarily in the context of the Governmentts desire to re- activate the economy, it also responds to the need to begin to make up for the long neglect of some of the country's basic economic infrastructure. The last great era of public works construction in Argentina was in the 1930s. Over the 1950-65 period, there was virtually no increase in public investment in real terms, although private investment rose quite substantially, and the slow growth of power, transport, comiunications and other facilities has been a major bottleneck to more rapid economic development. To cite, for exanple, the case of the roads, only about 600 kms. of national highways were constructed and reconstructed annually over the past 15 years, compared with about 2,,400 kms. in the 30s; while the number of trucks on the road grew by about 50 percent between 1960 and 1965, expenditures on highway construction actually declined somewhat in real terms during the same period. The lag in the provision of basic economic overheads has taken place despite the fact that the bulk of the Government's capital spending has been devoted to infrastructure3 only a small portion of public investment has gone to industry and agriculture, and spending on health, education and other social overheads has been minumal.

18. As noted above, a very substantial increase in public investment, amoumting to about 23 percent in real terms, took place in 1967. This yearts program calls for a further increase in capital expenditures of more than ION 100 billion, or about 45 percent, which would be equivalent to a real increase of about 30 percent on the Governmentts price assumptions. The bulc of this yearts increase would be in the transport and energy sectors, but investment in comm3nications, health and education would also be boosted sharply. In general, the 1968 program breaks little new ground, but rather reflects the acceleration in many fields of projects which had been proceeding slowqly, or lying on the shelf, pending the availability of financing. Uhile the mission did not have the opportunity to delve deeply into the investment program, its inquiries indicated that the program was, by and large, a reasonable and realistic one comprising, with relatively minor exceptions, activities Twhich appeared-to be well justified economically and of high priority in the various sectors. Despite the magnitude of the planned investment increase, its realization in large measure seems physically and administratively feasible.

19. The energy sector will, as in the past, have the largest share, nearly 40 percent, in the investment program, with YPF alone accounting for about half of the sector total. The planned increase of more than 35 percent in YPF's capital expenditures reflects mainly increased investment in refining and distribution facilities and, in particular, the beginning of four large new projects costing a total of some $140 million. These consist of two major refinery expansions and the construction of twro new pipelines connecting the rapidly expanding producing zones -around Mendoza and Neuquen with Cordoba and Bahia Blanca, respectively. While more - 10 -

new,i wells are scheduled to be drilled this year in established producing zones, the total drilling program will be considerably smaller than in 1967, owing to a reduction in exploratory drilling pending the results of further geologic investigations. Gas del Estado, the enterprise which transports and distributes gas, plans to invest less than in 1967, a decline in pipeline construction more than offsetting substantial planned increases in spending on storage and distribution facilities, including a major program to expand and renovate the distribution network in Buenos Aires. Agua y Energia, the third major enterprise in the energy sector, provides electric power in most of the country outside of Buenos Aires and is responsible for constructing and operating irrigation works. It plans to increase its investments by more than 50 percent in real terms, mainly in connection with the initiation of works included in two Inter-American Development Bank loans totalling $43 million which it received last year. One loan covers approximately 70 percent of the cost of extensive irrigation works on the Rio Dulce; the other will mainly help to finance the expansion of generating and distribution facilities in NIar del Plata and Mendoza. In its overall composition, Agua y Energla's 1968 program indicates a shift in emphasis from dam construction to irrigation works and power development.

20. Investment in the transport sector is to be increased by about 55 percent in real terms, owing mainly to the near doubling of highway expenditures. W4ith the planned increase, the highway program becomes the second largest item, after the YPF program, in the investment budget. Nearly two-thirds of this yearts planned highway expenditures, or about IE$ 25 billion, will be on works to be begun under the new three-year plan of Vialidad Nacional, the National highway department, which is discussed in detail below. While a great many projects are to be initiated throughout the country, a sizeable share of the increase in highway spending this year wji-Ll go to access roads to the Federal Capital and roads in Duenos Aires provinc At the end of January some 85-90 percent of the new contracts to be let in 1968 had reportedly already been put out for bid. While for the railways the investment program shows an increase from M$N 15 billion to ION 23 billion, no rise in capital spending is actually contenplated since the increase stems from a change in the railways accounting for current and capital expenditures to accord with definitions used elsewhere in the public sector. A sizeable increase in airport construction is planned - under an ambitious program for upgrading airports in provincial centers, many of them to "international" standards. On the other hand, Aerolineas Argentinas' investments will decline sharply from the M$N 5 billion level of the last two years as a result of the completion of major purchases of jet aircraft for its domestic and international services.

21. Communications and public health are the other major areas in which public investment is to be stepped up sharply, real increases of 40-50 percent being planned in each case. ENTEL, the State telephone cormpany, hopes to install more than 50,000 new lines this year, compared with an average of about 1,000 in previous years, as the first step in a major expansion program aimed at overcoming the present huge deficit in telephone service. Obras Sanitarias, the agency responsible for water and sewer works, also has an ambitious long-term program under way, having already more than doubled its investments last year. Under this program, some M$N 25 billion of works are to be put out to bid this year, an amount equivalent to the agency's total investments during the 1962-1966 period. In Buenos Aires, where about 40 percent of the program is concentrated, the principal projects this year include the modernization and expansion of the cityts existing water purification plant, the construction of a new one, and the installation of several principal water mains. In order to provide quick relief to the most critically water-short zones in the capital, wells are being dug and a major effort is being made to improve the distribution network by building new water mains and reconstructing or rehabilitating existing ones.

22. It should be noted that "the" public investment program discussed here actually includes only about 60 percent of total public inv-estment in Argentina, since it omits certain important investments at the national level, as well as the investment programs of the provinces and municipalities. SEGBA, the Buenos Aires porer company, and SO01ISA, the State steel company, are not considered part of the public sector because of their distinctive corporate legal structure, although they are wholly owned by the National Government. These agencies plan to invest M$N 37 billion and I¢N 5 billion, respectively, this year and taking their programs into account raises total national public investment to M$N 384 billion, and more than doubles the amounts devoted to electric power and industry. TWhile there is little up- to-date information available on the provincial and municipal investment programs, they have in the past been equivalent to 40 percent of the National Government's program and seem to have been increasing pari passu with the latter. If this proves the case in 1968, provincial and municipal investments will probably amount to around M$N 150 billion, giving a total of around ION 535 billion, or upwards of 8.5 percent of GDP, for Argentine public investment at all levels. Although the provinces do more, proportion- ately, than the National Government in the way of investment in social overheads, the major item by far in their investment budgets, accounting for 40 percent or more of the total, has been highway expenditures. Indeed, in most recent years, provincial highway investments have been double those of the National Government. This year the provinces are planning to invest some M$N 60 billion in road construction, indicating that total public investment on the roads is likely to be running at the DON 100 billion level, equivalent to more than 15 percent of all public investment. - 12 -

III. DEVELOPME14T PROBLEMS AND PROSPECTS IN THE I4AJOR SECTORS.

AGRICULTURE

Past Performance

23. Agricultural output in Argentina, which had been increasing steadily during the inter-war period, reached a peak at the beginning of the l9h0s and then went into decline, falling by about 10 percent (in the Pampas alone, by 20 percent), particularly in crops, during the following decade. A low point was reached in 1952 after several years of bad weather, and since that time output has gradually recovered. The level reached, however, over the past four years is only 20-25 percent above that of thirty years ago, which indicates an average rate of growth over this period of well under 1 percent a year. During the past ten years, production has been increasing somewhat faster, at an average of around 2 percent a year, with crop production doing rather better than the average and livestock production worse (for livestock alone the rate of gronwth during this period has been about 1 percent a year, or less than the increase in population). In the last few years there have been signs of an acceleration in the rate of expansion, and it appears that agriculture is again beginning to make some progress. But year-to-year figures are much affected by the weather, and it is too soon to draw firm conclusions.

2b. There has been a marked difference between the trend of production in the Pampas, where agriculture has been traditionally oriented towards exports (principally meat, grains and vegetable oils), and production in other areas in Argentina, which is oriented more towards the domestic market (including wine, fruit, vegetables, rice, tea, sugar, cotton and tobacco). Comparing the last few years with the late 1930s, production in the Pampas has increased by 10-15 percent, with a decline in crop production rather more than offset by a 40-50 percent increase in livestock; outside the Pampas on the other hand, production has risen by well over 50 percent during the same period, with little or no increase in livestock, but a large increase in crops. Taking Argentina as a whole, crops produced mainly for domestic consumption have fared very much better than crops which are largely exported. There is in fact strong evidence to support the view that, since the Government started to intervene in the market in a big way during and after the Second World War, exchange rate and export tax (retentions) policies have discriminated sharply against exports, and that this - together with the added uncertainty created by such intervention - hans been a major factor in holding production back, particularly in the Pampas.-1 Argentina's share of the world markets

V This thesis has been most recently developed in an unpublished dissertation prepared by Lucio Graciano Reca for the University of Chicago: "The Price and Production Duality within Argentine Agriculture, 1923-65", Chicago, December 1967. 200 / 3900600 \4 ¢0g)Xt1' P A R A G U A Y

> .- 4 ,...... Z: I500 - I...

'C~~~~~~~~~~~~~~~~~~~ 0 00

f --

Busnos Aires

NATURAL REGIONS OF ARGENTINA

=b2O3E,-J REGIONS

rst (3 ~Pampa

6 (2) ~~~~~Ch aco Mesopotamia 7 jl 19~~~~~~~~~~Northwest = r ~~~~~~~~~~~03Cuyo | i---i---- t (!) ~~Patagonia

International boundary ...... Provincialboundary Rainfall in mm.

-o 00 200 300 400 500

JUNE 1968 IBRD 2292R - 13 -

for its major exports has declined precipitously from pre-World Wdar II levels - from 55 percent to 30 percent in the case of meat and from 20 percent to 10 percent for wheat - and the stagnation of exports in the 1950s made the balance of payments a major constraint on economic growth.

Possibilities of Improvement

25. There is wAdespread agreement among the experts that actual output in the Pampas, which today accounts for over two thirds of total production, is still far below the potential created by the rich soil and generally favorable climate. Apart from wheat, there has been little increase in the yields of major crops over the past twenty or thirty years. Wheat yields have shown a distinct upward trend and in recent years have averaged about 50 percent above the pre-war level. The disparity between average yields and those achieved on the best farms indlicates the great potential for improving productivity. The Ford Foumdation made a survey of crop yields on the basis of production in 1965-66 and showed that, whereas the country's average wheat yield was 1,300 kilograms per hectare, yields achieved by some farmers (and by an agricultural experimental station) were as high as 4,500 kilograms per hectare.!/ For maize, yields achieved by the best farmers were nearly four times the national average and yields achieved at an experimental station were nearly six times the national average.

26. Livestock farming in Argentina has also suffered from the lag in application of modern technology. Calving rates, for instance, do not appear to have shown any significant improvement over the years. Experience has demonstrated that, with good management, the carrying capacity of improved pasture in the Pampas is more than double that of natural pasture. Yet of the 42 million hectares of land used for pasture in the Pampas in 1960-63, about 70 percent was in natural pasture which can be greatly improved through the introduction of better grasses and legumes, fertilization and improved management.

27. Many things have to be done to bridge the technological gaps that exist in Argentina agriculture, but first and foremost it is a matter of providing farmers with the economic incentives and the assurances of their continuation over time which they need to change their practices and invest in long-term improvements. Given the necessary incentives, much can be done to increase livestock production by the extension of improved pastures and better herd management and to increase crop production by the wider use of fertilizers (and the introduction of varieties of grains which are more responsive to fertilizers), by the substitution of machinery for animal power, by better methods of ploughing and in many other ways. Argentina ranks at the bottom of the list of the top twenty agricultural producing countries in the world in its consumption of fertilizers in terms both of the total amount used and the quantity applied per unit of cultivated land (more fertilizer is used in Uruguay

1/ "Argentina: The Sleeping Giant", D.F. Fienup, R.H. Brannon, F. Fender, The Ford Foundation, 1967. - 14 - than in the whole of Argentina). About half the work done on Argentine farms is still being done with animal power. In preparing land for growing crops, farmers commonly resort to shallow ploughing using either horse- drawn equipment or small or medium-sized tractors, although experience in other countries indicates that the moisture-holding capacity of the soil - very inportant in an area dependent on rainfall - can often be considerably increased by deep ploughing. The farming community in Argentina is quite sophisticated enough, by and large, to modernize its practices if it is convinced that this will pay, and if it commands the financial resources required. Neither of these conditions is fully satisfied at present.

Risks and Uncertainty

28. Uncertainty about future cost-price relationships has probably - been the biggest single obstacle to the orderly development of agriculture. All farming is risky, and farming in Argentina is especially so. Agricultural production in the Pampas is particularly susceptible to variations in rainfall, not to mention flooding, and output of the traditional crops in this area has not infrequently risen or fallen by 20 percent or more from one year to the next (in 1952 it fell by more than one half and then increased by over 150 percent in the following year, but this was exceptional). To these natural uncertainties have been added during the past 25 years the uncertainties created by inflation and by frequent abrupt changes in producer prices resulting from exchange rate movements and changes in export retentions. The Government has often relied heavily on the taxation of agricultural exports to finance its budget, and retentions have also been used to keep domestic food prices (and the urban cost of living)- down, thus subsidizing domestic consumption at the expense of exports. In consequence, the producer has never known when his profit margin might be suddenly wiped out by a change in official policy,-ard long-term irnvestment decisions have been something of a lottery.

29. Farmers in the Pampas have in any case been inclined to feel that they are helpless victims of external circumstances. The collapse of export markets during the Great Depression and further setbacks to exports during the Second World War have helped to create a rather defeatist outlook which has been aggravated by the measures taken by the Government-since the days of Peron to promote industry at the expense of agriculture. Restrictions on entry to foreign markets, and stiff competition from other exporters (often subsidized), have also served to stymie the expansion of Argentine agriculture. All this has to be taken into account in explaining the poor past performance of the agricultural sector and in devising policies for stimulating more rapid expansion in future.

Prices, Costs and Profits

3(. It is difficult to know just how profitable or unprofitable farming in Argentina is. Very little work has been done officially on production economics, and few producers are in a position to evaluate the costs and benefits of new investments or changes in techniques. Fe-u farmers apparently pay income tax, and farm accounts are rarely - 15 -

checked by the revenue authorities. Typically, the larger producers TwJill tell you that they are earning about 6 percent on their capital, but it is not clear what this means. Most farmers in the Pampas appear to make a reasonably comfortable living, and some obviously do quite well, but it is difficult to find axnone who considers his investment in agriculture to be really remunerative. The purchase of agricultural land has been popular as a hedge against inflation but, especially in view of the low level of land taxes, there has been little incentive to try to maximize the productivity of the land.

Table B

EVOLUTION OF AGRICULTURAL AIMD NON-AGRICUITURAL PRICES, 1939-6721

Agricultural Prices Crop Prices Livestock Prices Non-agricultural Prices Non-agricultural Prices lon-Agricultural Prices

1939 100 100 100 1940-44 69 60 82 1945 86 91 87 1950-54 75 69 87 1955-59 84 83 85 1960-64 99 97 100 965 92 78 113 1966 86 79 97 1967 82 87 95

1/ Based on wholesale price indices, 1939=100 Source: CONADE

31. As Table B shows, crop prices fell sharply during the war in relation to the general price level as measured by the wholesale price index, and only about half this loss had been recovered by the mid-1950s. During the past ten years prices have improved considerably, and the pre-war relationship appears to have been more or less restored. Beef prices fell less sharply during the war, and through the mid-50s were less depressed in relation to the general price level than grain prices, making livestock raising increasingly attractive in relation to crops, a factor wihich was reflected in a marked shift in land use in the Pampas. Before the war crops accounted for over 60 percent of agricultural production in the Pampas and livestock for under 40 percent; during the 1940s the proportions shifted to about half and half, and this ratio has been roughly maintained since, wtith livestock at present slightly in the lead. Even so, prices paid for live cattle in Argentina converted at the official exchange rate (around 10-11 U.S. cents per pound live weight) are only one third of the-average European price (32-34 U.S. cents per pound) and wiell under half the U.S. price (around 27 U.S. cents per pound). If nothing else, this shows what an enormous comparative advantage Argentina enjoys in the production of beef. - 16 -

32. The favorable trend in cattle prices relative to prices generally appears to have been reversed quite sharply since 1965. Between 1965 and 1967, for example, average live slaughter prices for cattle increased by 2C) percent, while the cost of living index rose by 70 percent. This is in part a reflection of the high export retentions imposed on meat after the last devaluation of the peso in March 1967. Originally set at 25 percent (calculated on the basis of an index price which represents in effect a minimum export price), these retentions were reduced to 18 percent late last year. There are some types of "non-traditional" beef exports to which the retentions do not apply (e.g. frozen cooked beef), and this has apparently already had the effect of increasing their role in the export trade.

33. Uost corcals and oil seeds aro ccvcrod by officicl pricc sga-port c,adnrorrams, tlie ac-tual p-riccs receivod b-r farr.ers for wheat have increased more than the general price level during the past tw7o years. In the case of wheat the support price for this year's harvest was above the export price adjusted for retentions, with the result that farmers found it more profitable to sell to the Grain Board than to private exporters. By the middle of February 1968 the Grain Board had acquired 1.5 million tons of wheat and had to refuse to accept any more for lack of storage at ports. The export trade was meanwhile more or less in suspense, and some export markets may have been lost as a result. Agreements for the sale of wheat have subsequently been concluded with a number of countries, including Brazil, and the Grain Board should be able to dispose of most of its stocks, though only at a loss (which from a budgetary point of view will offset part of the revenue from retentions), at least until the International Grains Arrangement becomes effective in July and provides an anticipated lift to prevailing low international wheat prices.

3b. The effects of government intervention on agricultural costs and prices are extremely complex. Retentions have been applied on and off, and at varying rates, to au the principal export items. Index prices are also set for exports, these being the prices on which the retentions are based and thus, in effect, minimum export prices. Some crops have benefitted from price supports, while others have not. Levies are imposed on grain and livestock producers to finance the operations of the Grain and Meat Boards which regulate exports, negotiate bulk agreements with importing countries and perform various other functions (the Grain Board, for exarnple, owns and operates terminal storage facilities and administers the official price support programs). All sorts of tax concessions and subsidies have been introduced at various times to encourage mechanization, the build-up of cattle herds, the utilization of technical assistance, and to help finance purchases of fertilizers and pesticides. On the other hand, the high cost of farm machinery (a tractor costs over 50 percent more than in the United States) reflects the protection accorded to domestic industry by means of high import duties. - 17 -

The Problem of Export Retentions

35. The most important single change needed in government policies affecting agriculture is to do away with export retentions, at least in their present form. This cannot be done all at once because of the consequences for the budget and the cost of living, but the Government should keep retentions under continuous reviewJ in line with its declared policy-of progressively reducing them as necessary to keep exports moving. There can be no possible justification for retaining high taxes which discriminate against exports as a permanent feature of the Argentine fiscal system. The need to maximize exports and thereby to remove the balance of payments constraint which has persistently acted as a drag on the development of the econony is so obvious that it hardly needs to be argued. Export retentions are a particularly poor and inequitable method of taxing agricultural income, since they bear very unevenly on different sections of the farming cormmunity and on different types of production. Only about one fifth of Argentinats agricultural production is exported, and the products most affected by retentions are wool (three quarters exported), maize (about half), wheat (two fifths), meat (between one fifth and one quearter) and vegetable oils. Producers of most other crops are scarcely affected at all. As already noted, export retentions have strongly encouraged domestic meat consumption at the expense of exports, and while the three other principal meat exporting countries (Australia, New Zealand and Denmark) have all greatly increased their exports since before the war, Argentinats meat exports have sharply declined, with the share of exports in total production of beef dropping from 37 percent in the late 1930s to 24 percent in the early 1960s. Above all, the system of retentions, and index prices, and the way in which these are continually changed, led to the arbitrary distortion of trade in agricultural products and-has introduced an added element of uncertainty into farming decisions.

36. The elimination of retentions should be considered not only in the context of removing the disincentives to production and exports just discussed, but also of the need to adopt new means of taxing agriculture which will provide strong positive incentives for farmers to make the most productive use of their lands. A possible new approach to agricultural taxation is suggested elsewhere in this report (see paragraph 117). The elimination of retentions will not, of course, be sufficient by itself to bring about the needed expansion of exports. A flexible exchange rate policy is particularly necessary from this point of view. Under inflationary conditions, the exchange rate tended to lag behind the rise in domestic prices, and agriculture usually sufferod from measures taken to hold doim the cost of living.

Agricultural Credit

37. Total agricultural credit outstanding in Argentina has increased rather rapidly in recent years, from the equivalent of $290 million at the end of 1962 to nearly $550 million at the end of 1966. This supports the view that activity in the agricultural sector has been quickening. The principal source of agricultural credit is the Banco de la Nacion, which supplies over half the credit extended by banking institutions to farmers. The bulk of its lending is short-term, but special long-term lending programs for the acquisition of farm machinery and livestock development have been initiated during the past two years with the help of $40 million in loans from the Inter-American Development Bank, and a $15 million loan from the IBRD.

38. As to be expected in an inflationary economy, farmers have considerable difficulty in obtaining credit for long periods, particularly over five years. There is a tradition in Argentina against making loan repayments adjustable for price changes, and interest rates in most recent years have been negative. The Banco de la Nacion has recently reduced its lending rate for agricultural development loans from 15 percent to 12 percent in accordance with the Government's general policy of trying to bring interest rates down. The lower rate may be justified if inflation can be brought under control, but if not, it will simply accentuate the tendency for the supply of agricultural credit to be eroded by rising prices. In the event of inflation continuing, serious consideration should be given to the indexing of medium and long-term loans to farmers as a means of maintaining the supply of credit of this kind. More medium and long-term credit will certainly be necessary if agricultural producers are to make the investments required to take full advantage of modern technology.

Fertilizers

39. To the limited extent that fertilizer is used in Argentina, it is applied primarily to intensive crops which are mostly grown under irrigation - for example, citrus and other fruits, potatoes and other vegetables, rice and sugarcane. Very little fertilizer is used on rain- fed agriculture in the Pampas. Total fertilizer consumption in Argentina in 1966/67 was about 1h0,000 tons, of which over one third was used in the Cuyo region where grapes, fruit and vegetable are grown on irrigated land, almost entirely for the domestic market. A joint study by the Economic Commission for Latin America, FAO and the IDB estimates that by 1975 it would be technically feasible for Argentina to consume 117,000 tons of nitrogen, 66,000 tons of phosphate and 22,000 tons of potash. In the case of nitrogen, this would be more than four times present consumption. The desirability of a large increase in the use of fertilizers is supported by evidence that, even in the most fertile areas of the Pampas, the soil is becoming depleted, and a major effort should be made by the Government to encourage such a development.

hC. There is, nevertheless, a good deal of scepticism among farmers in the Pampas about the value of using fertilizer. This is partly because the varieties of wheat and corn traditionally grown there are not well adapted to the application of fertilizer, and may even be adversely affected by it. Government research work on seeds has tended to concentrate on inbred varietieS that will grow under natural conditions of soil fertility without the use of fertilizer, and not enough attention has been given to the requirements of intensified production. - 19 -

Lti. There is also the problem of high fertilizer costs. Supplies are mainly imported, and the relatively small tonnage involved affords litt'le scope for bulk purchases or for econom;es in transport and distribution. Inadequate bank credit has resulted in dealers extending credit to farmers on onerous terms which are refelcted in the prices charged. Farmers have as a rule been poorly organized, but there are cases where they have managed to get much better prices by pooling their requirements and buying in bulk; two citrus cooperatives in Concordia, for example, were able last year to obtain delivery for 32,000 pesos per ton, against the regular price of 42,000 pesos per ton. l42. Hitherto the only significant producer of fertilizers in Argentina has been a military factory in the Province of Cordoba which has a capacity of 18,000 tons of ammonium sulphate a year. Recently a new private plant has been established at Campana, near Buenos Aires, to produce 55,000 tons of nitrogen a year, of which 39,000 tons will be available for the manufacture of fertilizers. This is considerably in excess of the present use of nitrogen in Argentina (estimated at around 25,000 tons in 1966/67), and the plant may have difficulty in competing against imports, which at present are allowed in duty free (there used to be a 10 percent tax on fertilizer sales, but this was removed oy the present Government in order to encourage consumption). There will obviously be pressure in these circumstances for imports to be restricted, but the Government should be very cautious about taking such a step. liechanization

L3. The degree of agricultural mechanization is best indicated by the number of tractors in the country. This was estimated in 1966 at 170,000, of which one quarter were over-age. The ratio of tractors -to cultivated land works out at one for every 165 hectares, or one for every 220 hectares if the over-age tractors are disregarded. By comparison, the United States has one tractor for every 39 hectares. However, it is difficult to estimate the extent of mechanization that would be economically justifiable over the long run in Argentine conditions, given irmiproved cost price relationships.

41. Nevertheless, agricultural development is clearly handicapped by the high cost of domestically produced farm machinery, which constitutes one of the many vicious circles created by a misguided policy of industrialization through import substitution at almost any cost. Most of the firms producing tractors and other farm equipment in Argentina are working well below capacity, and in some cases production has been declining. In 1960, for instance, over 20,000 tractors were manufactured in Argentina, but in 1966 the number was down to about 11,000, and sales last year were below 10,000. The price of a 60 horsepower unit is over $7,000 or about 50 percent higher than in the United States. The price differential for some other types of equipment is considerably higher. For instance, even after paying a 90 percent import duty, an imported hay baler is competitive with the domestic product. - 20 -

45. The demand for farm equipment should be increased by any measures taken to make farming mcre profitable and to extend the supply of medium and long-term credit. This is one sector of industry in which the Government could well consider further reductions in protective tariffs as means of bringing domestic prices dowm and encouraging local manufacturers to increase their productive efficiency and to embark on an aggressive sales campaign. There is special need in Argentina for more use of heavier equipment for deep ploughing and sub-soiling. However, far from encouraging this,the Government has tended to discriminate against imports of such equipment, although heavy tractors for agricultural use are not produced in the country, in order to protect the local manufacturers of less powerful equipment. Thus heavy tractors were recently removed from the list of goods qualifying for special tax deductions and credit facilities, and a company that previously sold 30 a month is now able to seLl only 10.

Research and Extension

46. The principal agency ccr.cerned with the application of science and technology to the problems of agriculture in Argentina is the Instituto Nacional de Tecnologia Agropecuaria (DITA) which w-ras founded in 1956. It hias nearly 5,000 employees, of whom just over 1,000 are technical personnel engaged in extension and research. IIost of the latter have university training. The main limits to PITA's work at present are set not so much by shortage of finance, but by difficulties in finding qualified staff. The educational system in Argentina is not meeting the demand for trained agricultural technicians. Over the whole period from 1942 through 1966, only about 3,200 Ingenieros Agronomos graduated from universities and colleges in the country, whereas the demand for professionals of this kind is estimated at 15,000-20,000. DNTA pays salaries broadly comparable with those offered by private employers, and the shortage of trained research and extension workers is not confined to the public sector.

47. Some of the most advanced research work carried out by INTA has been on citrus fruit at the experimerntal station at Concordia in the province of Entre Rios. This covers a wide spectrum of activities including disease and insect control, irrigation, mechanization, fertilization and fruit processing. Excellent work has also been done on potatoes at Balcarce. Livestock research and extension activities at Balcarce have made some progress, but have been handicapped by lack of trained personnel and still have a long way to go.

48. Valuable extension work is also being done by a private organization known as CREA (Federacion Argentina de los Consorcios Re- gionales de Experimentacion Agricola) which functions on a group basis and provides services to its members for which they pay. At present there are 80 organized groups with a membership of about 900 livestock and crop producers (mainly large farmers, cultivating between them about 3 million hectare). Typical costs for a group, which are shared by the members, run around one million pesos a year and consist mainly of fees paid for technical assistance. - 21 -

49. The work of INTA and CREA provides a good basis on which to build up research and extension activities, and there is scope for widening it in various directions. 11ore work should be done on the economics of crop and livestock production to determine the profitability of introducing new techniques and particularly of making greater use of improved pastures, machinery and fertilizers. Greater attention should be paid to research into new varieties of wheat which would be more responsive to fertilizers. Mlore extensive research is required into the management and conservation of soil and water; much damage has been caused in some parts of the country (e.g. the Rio Negro valley) by misuse of water leading to water-logging and salinity. Additional information could usefully be provided to farmers about overseas market developments affecting their products. All this will call for a substantial increase over time in budgetary aLlocations to INTTA, which is at present receiving about li$N 7 billion a year, mainly to cover current expenditures.

(Government Excpenditure on Agriculture

!)0. The total provision for agriculture in the Budget of the National Government for 1968 is about M$N 37 billion or 0.6 percent of GDP. All but about M'$N 5 billion of this is for current expenditures. The principal item in the current account is the allocation of M$N 12 billion for the operating expenses and trading losses of the Grain Board (actual trading losses may turn out to be higher for reasons already mentioned). Another crop which receives substantial support from the Budget (14$N 5 billion in 1968) is tobacco. Most of the remaining expenditures are attributable to general government administration and the operations of INTA; there is, however, special provision of about M$N 3.5 billion to cover measures for dealing with crop diseases and animal health.

51. Budgeted expenditures for investment in 1968 are less than M$N 5 billion and, in addition to the expenditures of INTA and the Grain 13oard, include about MU$N 2 billion for the Consejo Agrario Nacional. This is the institution primarily responsible for land settlement in lrgentina, but at present very little is going on in the way of organized colonization of new land, and indeed - properly enough - this has never been a major function of govermnient in a country where there is no shortage of land. The Consejo Agrario will, however, be charged with special responsibility for assisting tenant farmers who may be displaced as a result of the legislation enacted in 1967 for unfreezing farm leases in the Pampas. This freeze, which had been in force since the days of Peron and had resulted in rents being reduced by inflation to nominal Levels, had proved a serious disincentive to efficient farming, and its removal was one of the important measures taken by the present Government. Most tenants will be able either to buy the land they have been farming or to work out new rental arrangements, and the number of families likely to require relocation is not expected to amount to more than about 4,000.

52. The main responsibility for irrigation at the national level rests with Agua y Energia Electrica, which is this year planning to invest about 1$N 5 billion in irrigation works (including some multi- purpose dams). These expenditures are mostly related to various irrigation _ 22 - systems in the north - notably the Cabra Corral project in the province o' Salta and the Rio Dulce scheme in Santiago del Estero. Other dams are due to be started next year, of which the most important are El Horcajo in the province of San Juan and Las i4aderas in Jujuy. Sich schemes play a very minor role in the total agricultural picture; and the economic justification for some of them appears questionable. The further development of irrigated agriculture in the middle and lower Rio Negro valley in the South would appear at first sight to be an attractive proposition because water is already available for additional irrigation, the climate is favorable, there is already a flourishing agriculture in the upper valley, the El Chocon project will provide important flood control benefits, amd the area is well located for exports. The Inter-American Development B3ank is engaged here also in a scheme for the colonization of newly irrigated land in the Viedma area, close to the mouth of the river, but this project has been held up by delays in pre-investment studies and by opposition from landowners higher up the v-alley and is only just getting under way. The Rio Negro valley may be an area in which the Government would be justified in investing substantial sums in irrigation and land development, but further research needs to be done, particuarly on soils - and market prospects, before the possibilities can be reliably established.

',3. In general, the further expansion of agricultural production does not- appear to call for rauch in the -rr of increased public investment in the sector. Nor docs tr.-sport appear to be a major obstccle to agricultural dav elopment except in 1soopotamia and some other parts of the North. Here farmers are seriously handicapped by poor conmmnications with their main market in Buenos Aires, and new investmenits are planned for the next few years to take care of this situation. The construction of a proposed bridge across the Parana river and road improvements in the provinces of Entre Rios, Corrientes and Misiones could all make an important contribution to increasing agricultural production.

Production Prospects

54. Given likely trends in world demand and the considerable scope that exists for increasing the competitiveness of Argentine agriculture, supply rather than demannd should be the dominant factor influencing-the course of agricultural production and exports over the coming years. This assumes that the present restrictions on the entry of major traditional products, particularly meat, into the industrialized countries will be eased, or at least not raised, and that Argentina will be- successful in opening up new markets, for example in the Far East. Among crops produced mainly for domestic consumption, idne and sugar have been running into difficulties caused essentially by excess supply, and these may not be easily overcome, since export possibilities are restricted by quality and trade connections in the first case, and by high costs in the second. If the Government adjusts its foreign exchange, tax and price policies to the need to increase agricultural output along - 23 -

the lines that have been suggested here, the rate of agricultural expansion could be stepped up progressively from the present 2-3 percent a year to 4-5 percent a year by the middle 1970s. Production of beef, grains and oil seeds should increase particularly rapidly, and practical initial targets to be reached in the mid-1970s would be to have cattle numbers up to at least 60 million head, wheat production at about 9 million tons, maize output at 10 million tons, and grain sorghum production at 5 million tons. After allowring for domestic consumption requirements that might prevail at the time, such levels of production would permit exports of up to 1.3 million tons of beef, about 5 million tons of wheat, 5.5 to 6 million tons of maize, and 3.5 million tons of grain sorghum.

LIDUSTRY

Past Developments

55. The problems of manufacturing industry in Argentina and ways in which the Government might help in overcoming them were outlined in the rqport of the Bank economic mission which visited the country in 196h. -'Neither the structure of industry nor the environment in which it operates has changed much since that time. There is still a large excess of capacity in many branches of manufacturing - a hangover from the wave of industrial investment which descended on Argentina eight or nine years ago during the Frondizi administration. The process of industrial development through import substitution at almost any cost, in an environment that offers almost complete protection against imports, has led to high-cost production, which in large part reflects excessive product diversification and minimal opportunities for taking advantage of economies of scale. Because of high costs, few industries have succeeded in selling much abroad, and exports have not therefore served as an important means of extending the market. Inflation has discouraged competition within Argentina and largely removed any incentive which firms might otherwise have had to increase their efficiency and reduce their costs. It has also greatly complicated the business of industrial financing and helps to explain the extemely prominent place which subsidiaries of foreign firms occupy in the Argentine economy through having access to external sources of capital. There is indeed a certain irony in the fact that a policy of industrialization, which was inspired by a desire to make the country more self-sufficient and independent of foreign markets, has had the effect of increasing its dependence on foreign capital.

56. A study of the automotive industries in developing countries recently made by IBRD staff illustrates some of these points very well.

1/ WH-lh4a, "Economic Position and Prospects of Argentina", Annex IV: Industry. - 2t4 -

All the principal automobile firms in Argentina are subsidiaries of well- known foreign companies - Fiat, Kaiser (taken over by Renault in 1967), Ford,General Motors and Chrysler. The corabined annual output of all types of motor vehicles in Argentina has never been more than 200,000 (a peak nearly reached in 1965) and in the last two years has dropped to 180,000. The industry is protected by a virtual prohibition of imports, and manufacturers have been required to increase progressively the "domestic content" of the vehicles they produce, to the point where it Js now over 80 percent for trucks and over 90 percent for passenger cars.l Prior to devaluation in March 1967, production costs on average were about 2½ times the price of a comparable duty-free import from an American or European plant. As the IBRD study points out, "the basic reason for high costs is a market structure about one sixth the size of Italy, and plants that produce at about one tenth the scale of most European plants. The proliferation of plants is further compounded by the wide range of models and makes, which throws a heavy burden on supplier industries to furnish an extremely wide range of components and parts for a market of this size." It is hardly surprising in these cirrumstances that exports of motor vehicles and parts from Argentina are minimal (equivalent in 1967 to less than one percent of the industry's gross output). One of the original objectives of the Government's policy was, of course, to save foreign Exchange by reducing imports. But whereas it was hoped that production could be expanded from 33,000 vehicles in 1959 to 200,000 in 1965 without greatly increasing the foreign exchange costs, these costs are estimated to have risen in fact from under $50 million in 1959 to about $250 million in 1965 (including in this latter year $50 million for remittances of profits). The Bank's study was unable to obtain reliable information about corporate earnings; it would appear that most of the companies made good profits in the earlier years, but they have not been doing well recently since demand has fallen and production has been cut back.

57. A similar study made of the heavy electrical industry shows that in this case, too,the cost of import substitution for Argentina has been high. Inport duties and surcharges effectively protect domestic producers in this industry from competition. The cost disadvantage, however, is not as extreme as in the automobile industry, with average ex-factory prices of domestically produced equipment (mainly heavy transformers and switchgear) about 50 percent above the landed prices of comparable imports. The industry has been ha,capped by excessive product diversification, limited design capability, shortage of finance, the need to hold large inventories and poor planning of procurement by government agencies which are the industry's most important customers. In this case, too, exports are negligible.

l/ Domestic content is, of course, measured in terms of the sources from which the automobile manufacturers buy their components and ignores the import content of these components, which is frequently high. - 25 -

58. The automobile and heavy electrical industries are not necessarily typical. Other industries established in Argentina since the second WVorld UJar have proved to be much better adapted to the comparative advantages which the country has to offer and one or two of them have managed to compete successfully in export markets, office machinery being the outstanding example, with exports arising from a negligible figure in 1962 to nearly $10 million in 1967. The fact remains that an indiscriminate policy of import substitution, which has paid little attention to comparative advantages, has saddled the country with a lot of high-cost industries, some of which should-never have been established in Argentina at this stage of its development.

New Orientation Required

59. An entirely different policy is needed for the future, oriented towards export expansion and with domestic producers increasingly exposed to competition from imports. The process obviously has to be a gradual one designed to encourage the expansion of-"suitable" industries and the rationalization of lunsuitableIr ones. Industries which can be expected to do best in competition with foreign products are those which have one or more of the following characteristics among others: dependence on local raw materials, such as foodstuffs, leathers timber, gas and petroleum; a substantial need for skilled and for semi- skilled labor; and, at least initially, comparatively simple requirements in terms of such things as management, marketing skills (for exports), basic research and design capability. Some existing industries, which do not have any of these characteristics, will continue to require a fairly high level of protection for years to come, but they should be put under constant pressure, so that the less efficient firms are gradually eliminated and production increasingly concentrated on the more efficient ones. This has already begun to happen in the automobile industry.

60. The present Government, to a greater extent than its predecessors, has recognized the importance of increasing efficiency and reducing costs in industry if Argentina is to achieve a level of income comparable with the European countries with which it has so much in common. Substantial and wide ranging cuts were made in import tariffs at the time of the 1967 devaluation, but the duties and surcharges were previously so high that there was little trade in many of the products concerned,-and domestic manufacturers have not as yet been significantly affected. However, as domestic costs catch up with the change in the exchange rate, the possibility of foreign competition may begin to act as a restraint on prices in some industries. While further across-the-board tariff cuts are probably not called for at present, high priority should be given t;o selective reductions based on careful studies of individual industries. T'he louering of tariffs on gteel products announced earlier this year is an-example of such action which should be followed up in other acireas. - 26 -

61. A systematic and well publicized approach is essential if the policy of exposing domestic industry to foreign competition is to be carried through against the opposition of the many particular interests involved. The objective should be a phased reduction of effective tariffs2/ over time, based on objective and recognizable criteria and linked with the understandings already reached in ALALC on the elimination of tariffs on selected products by 1974. An examination-of company profits will help in determining where reductions can be made. All import prohibitions should be abolished as soon as possible and replaced, where necessary, by new-tariffs, unless they can be justified by non-economic considerations (e.g. health regulations). In revising tariffs, existing industries will have to be treated more leniently than newq ones, at any rate during the initial period of the new-i regime. But there are limits to which such leniency can be-carried if the policy is to succeed in increasing industrial efficiency. Ihevitably many firms will have to be merged or driven out of business altogether and many employees will have to find new jobs. The Government should consider means by which it may help to facilitate the necessary adjustments - for example, by providing fiscal incentives and financial support for mergers and other forms of business reorganization and by establishing programs for the re-employment and/or retraining of displaced workers.

62. While the responsible authorities in Argentina (principally the Secretariat of Industry and Commerce) would probably agree in principle with the approach outlined above, actual decisions are often influenced by other considerations. Recently, for example, an agreement was reached with two of the principal motor manufacturers for the production of heavy trucks in Argentina. One of the conditions of this agreement is understood to be the outright prohibition of competing imports, something which could be immediately detrimental to the construction industry and other users of this type of equipment. While the mission was told that the import prohibition is intended as an interim measure to prevent excessive stockbuilding of imported vehicles while the new manufacturing facilities are being constructed and put into operation, the fact the Argentine manufacturers of other types of vehicles have been protected by the permanent barring of all imports makes it difficult to be sanguine about the prospects that the ban on imports will, in fact, prove to be only temporary in this case.

:I/ The effective tariff corresponds to the relationship between-the nominal tariff and the value added in the industry concerned. Thus if the landed price of an imported product is 100,-the nominal tariff 100 and thc im,port content of the competing domestic product 50, the effective tariff is 200 percent. - 27 -

63. Apart from tariff policy, the Government has a variety of instruments at its disposal for encouraging efficiency in industry and promoting the re- deployment of industrial manpower and capital towards more productive uses. Tax policy is obviously of cardinal importanue. In general, what is most needed here is that policies should be more selective and consistent than in the past, when all sorts of special regimes were established for particular industries. The Government recognizes this and intends to adapt the tax system to the requirements of efficient industrial expansion. For example,tax incentives for non-traditional exports have been reintroduced, and these can be increased if necessary. Another recent measure was to reduce duties on imported capital equipment to 20 percent (from the 50-80 percent level established last year) for firms in specified industries which can demonstrate that the equipment is required as part of an overall effort to reduce costs. However, the reduced duties will only be available on capital goods not produced in Argentina, a provision which limits the value of the measure as a means of encouraging the right sorts of industrial investment, and means that it will do little or nothing to put greater competitive pressures on the domestic capital goods industry. The key to success in all these directions lies in the steady application of coherent policies over a long enough period of time. If industrial promotion policies and the people who administer them are continually changing, as in the past, industrialists can have no reliable basis for planning their operations.

64. The Industrial Bank is the only important domestic source of long- term loan capital for industry and it can help to guide domestic and foreign investment into industries which have a good prospect of becoming reasonably competitive. Important changes in the Bank's policies and operations were introduced last year, and it seems headed for an expanded role in industrial development both through its own credit program and by assisting in the implementation of the Governmentts industrial promotion policies generally. The Bank is planning to make some MUN 60 billion in new credits available over the 1968-69 period, something which would represent a 35-40 percent expansion in its lending activities. About half of the projected credit expansion would be in import financing, the Bank's foreign exchange resources having been bolstered for this purpose by lines of credit totaling some $70 million arranged with six European countries last year. In distributing these credits, the Bank wfill be required to appraise the general economic merits of the projects for which the imports are to be made, a task in which it will also be engaged as one of the principal agencies responsible for evaluating requests for duty reductions for imports of capital goods under the program described above. While the Industrial Bank probably can bring more technical expertise to bear on such matters than any other Government agency, its staff will have to be strengthened, particularly on the economic side, if it is to adequately meet its growing responsibilities. - 28 - Public and Private Sectors

65. The Government, too, must practice what it preaches. A small, but important,sector of manufacturing industry in Argentina is directly managed by State enterprises, principally through the agency of Fabricaciones IMili- tares wqhich controls the Somisa steel conpany, the pig iron plant at Zapla and a number of other factories. The thinking of Fabricaciones Militares still appears to be oriented towards making the fullest possible use of Argentinals own natural resources and reducing the country's dependence on imports, even where this may not be strictly economic. An example of this approach is to be found in the project for developing iron ore deposits at Sierra Grande close to the coast of Patagonia. Efforts have been made, apparently without much success, to interest private investors in this venture. But the mission was informed that, if need be, Fabricaciones Iilitares would go ahead with the investment on its own, notwithstanding the probability that the deposits will be very expensive to develop because of difficult mining conditions. The mission is in no position to judge the economic merits of this project, but if-private investors are not interested, it is probably for good reasons. It is highly desirable therefore that, before a final decision is taken, careful consideration should be given to the cost that wsill be involved in securing a given net saving of imports in this way.

66. The present Government has indicated its interest in encouraging private enterprise in industry wherever possible and restricting state ownership and control to a minimum. As noted elsewhere in this report, it is giving concrete effect to this policy in the petroleum sector. However, government policy with respect to private enterprise is less clear in some other branches of industry. In the steel industry, for instance, the expansion of Somisa has apparently been given priority over private under- takings. The first stage of the Propulsora project involving the investment of about $77 million in a cold rolling mill at La Plata has been allowed to go ahead, but the mission was told that Propulsorals expansion backwards into basic steelmaking would only be considered after Somisa had gone ahead with its present expansion program. Meanwihile, the project formlated by Acindar for the construction of an integrated steel plant has been turned down. There are obvious dangers in this situation, since wiithout effective private competition SOIESA is unlikely to be under sufficient pressure to improve its efficiency. It is, therefore, encouraging to note that the Government intends to make a thorough review of the future development of the steel industry, for which purpose it has already commissioned a long-range study by a private consulting firm.

Prospects for Expansion

67. Mh.ich the most important contribution which the Government can make towards industrial efficiency is to bring inflation under control. Unless and until this is done, there is little prospect that industry in Argentina can develop on a more rational basis. Already the mere threat of more s-table prices has brought about significant changes in the industrial climate and there are incipient signs of a new interest in efficiency-and a growing cost-consciousness on the part of some leading industrialists. The principal firms in the motor industry, together with their major suppliers, are currently engaged in a detailed study of costs designed to focus attention on the areas where the best possibilities exist for cost reductions. A - 29 - return to stability could also be expected to have very beneficial effects on the supply of risk capital. The stock market in Buenos Aires has long ceased to function as a significant channel of finance for industrial investment, and one of the main reasons why induistry in Argentina is so heavily dependent on foreign capital is that local funds are not forthcoming.

68. Given the inevitable uncertainty over the outcome of the stabilization program, and given also the fact that few sections of Argentine industry are at present working at anywhere close to their full capacity, there are - not many major newi investments in hand. There are, however, some exceptions. Early this year Dow Chemical announced proposals for a large petrochemical complex at Bahia Blanca and two firms presently operating in this field subsequently proposed to build plants which would produce some of the same products. Ford has indicated that it intends to increase its stake in the motor business in Argentina over the next few years. Various plans for enlarging capacity exist in the cement industry, including a major expansion (from 600,000 to 1 million tons), with possible assistance from IFC, at Cordoba. Some important firms in the meat packing industry are engaged in a major, and long overdue, program of modernization. The mission has no basis for estimating wJhat all this adds up to in terms of industrial investment as compared with previous years (official data on this subject are incomplete), but if there is a general revival of demand for industrial products this year, there is every-prospect that private industrial investment will pick up in 1969 and 1970.

TRANSPORT

The Railways

69. A great improvement has taken place in the operations of the Argen- tine Railways since a group of armr officers took over the management in 1966. Trains now run on schedule, timetables have been speeded up, the passenger coaches are clean, and labor discipline is good. These changes have been welcomed by the general public, and the railways are beginning to take on a newi image in the public eye. The management recognizes, however, that it still has a long way to go before it can accomplish its objective of turning the railways into a modern and efficient means of providing rapid and reliable transport of goods and passengers at low cost.

70. A realistic assessment of the future role of the railways in the Argentine economy has to take into account the fact that road traffic has been increasing very rapidly and the virtual certainty, to judge by experience in other countries, that the share of road transport in total traffic will continue to increase. The Argentine railways were mostly built in the late nineteenth and early twentieth centuries when a rapid expansion of agricultural production was taking place on the Pampas, and when there were no other means of transporting the large quantities of grain and livestock to the market. In today's conditions, however, the economic geography of the country tends to be rather unfavorable to the railways. The heavy concentration of population in Buenos Aires and its thin distribution over the rest of the country; the fact that most of the country's heavy industry is located close to the sea or navigable waters; the fact that most cereals S S. d. J4.j

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iNNS JUNE IBOS 23000R - 30 - are grown in the Pampas within a fairly short distance (less than 200 miles) of deep water ports; the use of pipelines to move petroleum and natural gas from the oil fields in the north and south to Buenos Aires, Rosario and Bahia Blanca; the relatively small quantities of minerals and other bulk commodities, apart from low-value building materials, which have to be transported internally - all these factors help to explain why there is little possibility of anything like the present ra-lwiay network being profitably employed in the future.

71. Indeed, even without the various detailed studies that have been made of transport in Argentina, it would be fairly obvious from experience il other countries that the railways have two main roles to perform: the transport of suburban passengers, particularly in and around Buenos Aires, and long-distance movement of freight. There will be some room for express inter-city passenger services, particularly during the holiday season; the excellent air-conditioned train introduced last summer between Mar del Plata and Buenos Aires is an example of what can be done to increase the - appeal of this type of service in competition with road and air transport. But, in general, regular demand for long-distance passenger trains will be very limited, even if the quality of the service is greatly improved (most trains are still using out-of-date rolling stock and average speeds are low). Suburban trains, however, must continue to handle a substantial part of the Buenos Aires commuter traffic if road congestion is to be kept within reasonable bounds, and here attention should be focussed on-providing fast, pmetual and more comfortable services and on raising fares. Wqhile the latter are ridiculously low in comparison with what cormmters have to pay in other countries, so too are fares for competing bus services and the need for an increase in fares for suburban services will have to be considered in the broader context.

72. An analysis of rail freight movements in recent years suggests that, no matter how efficient the railways become, the amount of such traffic which can be more economically handled by the railways than by other modes of transport may be considerably smaller than the Larkin Coomittee envisaged six years ago. Only on the San Martin system has there been a significant increase in ton-kilometers of freight since 1960, and this is due mainly to petroleum from the oilfields near Merdoza (quantities of wine handled on this railway have also risen substantially). YPF has now started work on the construction of an oil products pipeline from 1Nendoza to Cordoba and San Iorenzo, and when this project is finished, the San MIartin will presumably lose a considerable part of the two million tons of oil which it now carries. Without this oil, total freight traffic handled by the railways in 1966 would only have been about 12 million ton-kilometers, as compared with 15 million ton-kilometers in 1960 and the 16 million ton-- kilometers projected in the Larkin Report (also wfithout this oil) for 1965. Ihere was a big further drop in traffic in 1967, partly no doubt as a result of the increase of over 70 percent in tariffs introduced at the beginning of the year. Even, however, if all or most of this loss is recovered in 1968 through improvements in service, as the railwfays hope, the total freight handled, apart from oil, wrould still be well below what was projec.- ted on comparable assumptions about the overall level of economic activity. - 31 -

73. The principal commodity groups for which rail freight has declined since 1960 (and is below the levels projected for 1965) are fruit and vegetables and livestock. Traffic in ccreals and building materials has also failed to come up to e:pectations. The railway systems which have suffered the biggest losses of traffic are the Roca (a 25 percent decline between 1960 and 1966) and the Belgrano (down 23 percent). Traffic on the Urquiza railway on the other hand has kept up relatively well, presumably because of the poor conditions of roads in Mesopotamia. However, with construction of a bridge over the lower Parana river and the improvenent of Routes 12 and 14, which are supposed to be carried out during the next few years, the Urquiza will be exposed to much keener competition from road transport.

74. The railway management is presently engaged on working out a long-term program for the restructuring of the railway system. An immediate s-tart can be made with eliminating services and closing down lines and stations for which there is obviously not going to be enough demand to make them pay. This does not require any further study, since about 14,000 kiloreter-s CIE linc out of the 43,000 kilometers than in operation, were recom--- mendcd for closing in the earlyr sixtic-s, including 7,535 kilometers on the Bel- grsno and 2,760 kilomreters on tlie Roca, and less +)an2,000 h:iloi-3cters have in fact been closed, all of them under the Frondizi Government.-hile unremunerative branch lines are probably the most obvious candidates for closure, the major contribution to putting the railways on a sounder financial footing will have to come from the restructuring of the main lines, which account for the bulk of operating expenditures ald where the concentrations of personnel are heaviest.

75. From a budgetary point of viewi, it is particularly important that everything possible should be done to accelerate the reduction in the labor force, since wages and salaries account for 75 percent of total operating costs. In 1967 employment on the railways was cut back by 6,000 to 165,500, and the mission was informed that a further reduction of 6,000 was planned for 1968. This would still be a long way short of the target set in the 1965 railway plan which suggested that the labor force should be reduced to about 130,000. So large a reduction obviously cannot be brought about all at once, and it will be necessary for careful plans to be made, in consultation with the Ministries of Labor and Public Works and the provincial authorities, for the absorp- tion of redundant workers into other occupations.

76. It is important that specific plans should be adopted for cutting down the size of the railway system within a stated period, and the efforts of management focussed on modernizing and improving the efficiency of operations on the lines that are to remain. The railway investment program and the program for rehabilitating locomotives and rolling stock should be concentrated during 1969-70 on step by step improvements in suburban passenger and. main line freight services and not dispersed over the whole system. The acquisition of ne%T and the rehabilitation of existing freight wagons, and improvements in the manor marshalling yards, would appear to have high priority in the railways investment needs in the immediate-future. Repairs and maintenance of equipment call for special attention. As yet, operating statistics indicate little improvement in the maintenance of - 32 - rolling stock, and the number of locomotives and wagons out of service at any given time is still rmch too high. At present there are 25 workshops in operation, employing 22,000 people. The management is considering closing a number of workshops down, but lefore this can be done, it will be necessary to reorganize the ones that are to remain. In addition, some of' the jobs that the workshops have been doing in the past can probably be handled more efficiently by private industry.

77. Apart from measures to increase efficiency, provide better services and reduce costs, the railwJays have to undertake an aggressive sales promotion campaign directed at indutstry and agriculture. Fixed costs constitute such a large proportion of total railway costs that considerable effort is justified to attract additional traffic. As much authority as possible should be delegated to local managers in seeking out business and establishing direct contact with important customers, and high priority should be given to improving the quality of the services offered by eliminating delays and losses in transit and introducing the latest methods of freight handling (e.g. container and piggy-back opera- t-ions, which are virtually unknown in Argentina at present).

78. In 1967 the operating deficit of the railways amoumted to TIN 52 billion (about $150 million), a reduction of nearly 20 percent in real terms compared with the previous year. On a comparable ba,sis the deficit for 1968 is officially estimated at M$N 42.5 billionV/. Tlais year's estimates are based on the assumption that the volume of freight traffic handled will recover to the 1966 level (22 million tons) after last yearts decline (to 17 million tons) TThich seems to have been due in substantial part to the increase in freight rates at the beginning of 1967. The 1968 budget also assumes that passenger traffic will be maintained at the 1967 level. The latter assumption seems reasonable, but it is rather unlikely that the whole of last year's drop in freight traffic will be made good, and the actual deficit in 1968 may conseqaently turn out to be close to that of last year in terms of current prices. Roads

79. The mission was not able to investigate the Th-ree-Year Highway Plan of Vialidad Nacional in any detail. The plan consists of a large number of projects distributed widely over the country. The total fixed investment proposed for 1968-70 is about N$N 150 billion, of which rather over half is attributed to "new works" and rather under half to reconstruction and miscellaneous works. One-quarter of the expenditure on netr works, completion of which extends beyond 1970, is in the Federal Capital and the province of Buenos Aires, and the two other provinces with the largest shares are Rio Negro and IMendoza. Reconstruction is heavily concentrated in the provinces of Buenos Aires and Santa Fe which is where existing traffic is highest and the highway system most developed.

1/ This involves putting back under operating expenses I$N 7.7 billion of maintenance expenditures which have been shown in 1968 as a capital item. - 33 -

80. The selection of projects has presumably been determined to a considerable extent by the availability of engineering studies ard the technical feasibility of getting the work moving qaickly, and while the pLan as a whole looks at first sight ouite sensible, the detailed work of project preparation underlying it would appear to be rather uneven. Mbreover, there may be some question wohether sufficient attention has been given to economic priorities. However, the mission has little doubt about the emphasis given in the plan to the improvement of access r)ads to Buienos Aires. It also attachcs great irportanco to the Government's plans to construct a bridgc ovor the lmoer Parana river and to improve roads in i-4sopotania, -- hich should mawe a miajor contribution to raising crop and livestock production in that area. 81. Planning is a weak point in Vialidad, which has only one economist on its staff and has difficulty in attracting good people from outside because of the low salaries it pays. Consideration is at present being given to setting up a new planning unit of 10-15 people, and special arrangements will need to be made to hire qualified staff, including possibly to begin with one or twJo advisers with experience of road planning in other countries. The first task of this unit, once established, should be to collect the data needed for the preparation of a longer-term highway program. The unit should also review the present procedures for collecting and analyzing traffic data, since the traffic counts used to provide data on average daily traffic on some 600 roads in Argentina do not take into account any seasonal pattern of traffic which may exist and are based on too small a sample to be reliable.

82. As to the capability of Vialidad to handle the rapid increases in road investment proposed for this year and next, there appears to have been a considerable improvement, during the past twelve months in the administration of Vialidad itself,!/in its procedures for awarding construction contracts and in its supervision of contract wiqrk. Delays i;n making payments to contractors, which were a serious problem in the past, have now been practically eliminated, and contractors are no longer permitted to stretch out their contracts and escalate prices, as they used to do. -As a result, construction delays and costs have been considerably reduced. It still seems likely, howJever, that Vialidad will be hard pressed to cope iwith all the additional work involved in organizing and supervising the large increase in highway expenditures proposed for this year. The program will also put a strain on the construction industry and the industries supplying building materials and may lead to some increase in unit costs. In physical terms therefore some shortfalls in the program are to be expected.

83. One problem to which the authorities should give special attention in connection with the road program is the availability of

1( There are nevertheless still serious deficiencies in administration to be made good. For example, Vialidad's present system of keeping records needs to be completely reorganized. - 34 -

heavy construction equipment and spare parts, most of which have to be imported. Various restrictions apply to such imports, and tariffs are high. Procedures for obtaining permission to import, or relief from import duties, are cumbersome and have resulted in costly delays. The mission would urge the Government to take whatever steps are necessary to insure that all equipment needed for road construction can be readily imported when it is not available in the country.

84. Road maintenance in Argentina appears to be fairly satisfactory, but there may be need for closer coordination between the activities of the national and provincial maintenance organizations. Some towns, for example, have both a national and provincial maintenance shop operated independently. Some provincial highway departments do road maintenance themselves and others work through contractors, and there is a wiae variation in average costs of maintenance between one province and another. This also calls for study.

85. The present system of earmarking Federal and provincial road user charges in Argentina is extremely ccaplicated and difficult to administer and might be simplified with advantage. The national and provincial road organizations at present obtain revenues from a national road fund, 65 percent of which goes to Vialidad Nacional and 35 percent to the provinces. In addition, there is a separate provincial road fund financed partly by the 35 percent of the national fund and partly by .special provincial taxes; this is divided between the provinces according to a formula which takes account of population, levels of road investment and consumption of petroleum products. Into the national road fund go amounts equal to specific shares of sales of gasoline and other petroleum products, the taxes on lubricating oils and tires, and part of the tax on the purchase and transfer of vehicles.

Ports, Waterways and Shipping

86. One of the most remarkable changes that has taken place in the Argentine economy since the present Government took over has been the revolution in labor productivity in the ports and merchant marine under naval supervision. The labor force in the port of Buenos Aires has been reduced from about 15,000 to 5,000 by the elimination of roughly 10,000 casual workers, and labor discipline has been restored. From being among the most costly and inefficient ports in the world, Buenos Aires has come to be recognized by the shipping industry as one of the more efficient. The average turn-around times for ships have been cut dramatically. Similar improvements have taken place in other ports.

87. One consequence of the startling improvement in port operations is that the ports, by and large, now have capacity to handle all the traffic foreseen in the next few years, and estimates of new investment requirements have been considerably scaled down. Buenos Aires is nevertheless a rather unsatisfactory port because of severe draft limitations (under 30 foot maximum), and one project for which a feasibility study is to be undertaken is the construction of a deep water port for handling petroleum and trans-shipment of other bulk commodities (e.g. grain and iron ore) down the coast. It remains to be seen whether such a project can be justified economically, since the cost would be high (including road and rail connections, !zhich do not now exist) and the port would not be well located for handling general cargo. The only other major port project under active consideration is reconstruction and improvement of some of the existing facilities in the various ports of Bahia Blanca, for which there would appear to be good economic justification if this is to become a new center of regional development, as suggested elsewhere in this report.

88. Mention should also be made here of the project for the construction of a new canal at the entrance to the Parana river which would obviate the need for ships to pass around Martin Garcia island and could result in the river up to Rosario becoming accessible to ships of 30 foot draft, as against the present maximum of 25 feet. Laboratory studies have been in progress in the United Kingdom for two years, and results are expected shortly. If the project turns out to be feasible, it will bring benefits to Paraguay, and possibly also to Bolivia, by reducing the costs of ships using the river. Civil Aviation

8g. The principal issue facing the Government in civil aviation concerns the need to improve the management and operating efficiency of Aerolineas Argentinas and reduce its financial deficit. The enterprise is still in the red on its current operations to the tune of about M$N 3 billion a year. Various measures are under consideration, including the possibility of transferring some of the domestic services to private airlines. Transport Policy and Coordination

90. The Government has been giving increasing attention to transport problems and recognizes the need for a coherent transport policy, but it has not yet determined its overall objectives in this sector. As yet, there is no consensus as to the respective roles of each mode of transport, nor is there a central body with the corpetence and the necessary authority to ensure adequate coordination.

91. Various transport agencies are working largely independently of each other in respect of physical planning. The railways and Vialidad Nacional have little contact with each other and have so far made no attempt to coordinate their investments or the timing of them. The railways, for example, did not have a copy, nor were they aware of, the National Highway Plan. They are preparing a rail plan for the period to 1978, but Vialidad has as yet no plans beyond 1970. A similar lack of coordination-exists between Vialidad Nacional and the provincial highway authorities. In any case, the dividing line between national and provincial roads, which was drawm in the twenties,-bears little relation to present-day requirements and should be reviewed. In Buenos Aires the planning of transport facilities is divided between the railways, - 36 -

the separate subway enterprise, Vialidad Nacional, the city's highway department and the province of Buenos Aires. No comprehensive study has been made of the future development of the metropolitan area which could serve as a basis for the long-range planning of transport facilities (the mission would recommend that such a study be initiated in the near future, possibly under the auspices of the United Nations Development Program).

92. The transport sector in Argentina has generally been permitted to develop under competitive conditions without discriminatory regulations diverting traffic from one mode to another and without restrictions limiting entry into the field or preventing carriers from establishing rates in accordance with market conditions. This is on the whole a sound approach. It would be particularly undesirable in present circumstances for restrictions to be imposed on road transport simply in order to divert traffic back to the railways. Nevertheless, there are some mlatters which do call for stricter regulation (e.g., enforcement of vehicle weight regulations and safety requirements on the roads). Attention might also be given to ways in which the pricing of transport services, including road user changes, could be more closely related to the costs of providing these services, so as to promote the best use and allocation of resources within the transport sector.

93. The Government is rightly concerned with these questions, but has not yet devised effective administrative machinery for collecting and analyzing information on transport, formulating policy objectives, and ensuring regular consultation between the authorities responsible for taking decisions on policy. A commission was set up last year to study the problem of transport coordination and to prepare a draft law, but *the commission's terms of reference lacked focus, and it is not intended as a permanent body. Indeed, the only agency in Argentina at present attempting to obtain an overall view of the transport situation is CONADE. CONADE, however, does not have sufficient staff to make a thorough study of transport problems and is not well placed to translate its ideas into action. Some new agency is required, possibly as part of a remodelled Transport Ministry, to help the Government in drawing up and implementing an overall transport policy. One of the present obstacles to effective transport coordination is that roads and railways fall under separate idinistries, and some way should be found of bringing the two closer together. - 37 -

ELECTRIC POIWER

94. The production of electricity for public consumption has grown at an average annual rate of only about 6 percent over the past 20 years. This was a slower growth rate than in Latin America generally and one that compares particularly unfavorably with the trends in power consumption in the other major industrializing nations of the hemisphere, Brazil and Mexico. Compared with countries elsewhere in the world at a similar income level, electric power consumption per capita in Argentina is low. While the slow pace of power development has, of course, been in part a reflection of the sluggish overall performance of the Argentine economy, during much of the post-lWorld War II period the demand for power has clearly exceeded the supply, as evidenced by the widespread resort in industry to private production in high cost "captive" plants. There can be little doubt that power utilization would have grown more rapidly if generating and distribution facilities had been more adequate, and it is significant to note in this connection that the only time in recent years when the load growth in Buenos Aires has risen much above the long-term trend was in 1964, when the opening of the Costanera Plant, which the IBRD helped to finance, permitted the removal of restrictions on consumption. The Government is pro- jecting an increase in the annual growth of power consumption in the country as a whole to 7 percent in the 1968-76 period, with growth rates of 8-9 percent expected in the Buenos Aires area this year and next. While it is reasonable to look to such accelerated growth in the power sector, whether this will be realized in practice will depend both on the achievement of more rapid overall economic growth and the carrying out of the present plans for a major expansion of investment in the sector.

95. Buenos Aires accounts for more than half of the Argentine power market, and present plans call for the investment of M$N 183 billion ($523 million) to add some 2100 MW of generating plant, which would nearly double existing capacity, in order to meet the metropolitan areats power needs at least through 1976. Existing investment programs also call for the expenditure of M$N 81 billion ($231 million) to provide the additional transaission and distribution facilities that will be needed in the years immediately ahead.l/ Additional thermal plant presently under construction should provide sufficient power through 1971, although reserve capacity may be limited. SEGBA is installing 120 P1W of peaking capacity this year, and a new 250 IM base load unit is to be put in operation by ITAL0 in 1969, to be followed by a similar SEGBh unit in 1970. Depending on whether demand continues to grow at the past rate, or at the more rapid pace projected by the Government, a power "deficit" of 100-300 MW is indicated in 1972. To cover this period, the Government decided in January of this year to contract with a German firm for the construction of a 313 MW nuclear power

1/ This includes SEGBA's and ITALO's projected expenditures on transmission and distribution through 1970 and 1972, respectively. - 38 - plant at an estimated cost of about $70 million; the plant will have a reactor using natural uranium as a fuel, with heavy water as a moderator. 1/ All foreign exchange expenditures and a large part of the local currency cost of this plant will be covered by a long-term credit. The Govern- ment's decision to proceed now with the construction of what would be the first nuclear power plant in Latin America appears to have been based more on the desire to take a major step forward in bringing nuclear technology to Argentina for future use in power and other fields than on the immediate considerations of selecting the most economic and technically advantageous means of meeting Buenos Aires' power requirements. Nuclear power will in all likelihood cost considerably more than would power from a conventional thermal installation, and if it is to be ready in time to meet the purpose for which it was ordered, the nuclear plant will have to be constructed and put into full operation on what appears to be a very tight schedule, especially for a plant of the design that was selected.

96. During 1973-1977, the installation of 1200 14iW of additional generating capacity for Buenos Aires is presently planned through the construction of the El Chocon project, located in the province of Neuquen, some 1,100 km. south-west of the city, just above the point where the Neuquen and Limay rivers meet to form the Rio Negro. The cost, including f:Lood control works on the Neuquen as well as the El Chocon dam and power house on the Limay and the transmission line to Buenos Aires, is estimated by the consultants to be $365 million, of which the direct foreign exchange component will be about $188 million. IBRD is considering a loan of up to $70 million to finance the foreign exchange cost of the main civil works contract and a portion of the engineering expenses; the Government is seeking long-term supplierst credits to finance the remainder of the foreign exchange cost. Local currency costs will be financed by Argentina under the terms of a recent law which permits the Govermnent to impose taxes of up to 5 percent on electric power sales and petroleun refining for this purpose. The Government has indicated it intends to levy both taxes at the 5 percent rate beginning January 1, 1969.

97. Hidronor, S.A., a State-owned corporation, was established at the end of last year to build and operate the project; tenders for the main civil works contract were invited at the beginning of May and Hidronor hopes to award the contract in November, so that the construction may be bagun early in 1969. El Chocon has long been envisaged as much more than a power project and as opening the way for the greatly expanded development of the agricultural and industrial potential of the entire north Patagonia region, known as Comahue. The project will have important immediate flood control benefits and will provide the water that will be needed if irrigation in the Rio Negro Valley is to be expanded very substantially in the more distant future. While not enough is known at present about the technical and economic feasibility of a large-scale expansion of irrigation along the Rio Negro, it is hoped that the broad study

The cost of the plant does not include the cost of the moderator and first fuel charge, which might amount to an additional $25-30 million. - 39 -

of the economy of the Comahue region begun early this year under the auspices of the U-DP will throw additional light on this and related problems, so that the role of El Chocon in reaional development may be better evaluated.

98. Power needs outside of Buenos Aires over the next three to five years will be met by projects recently completed or now under construction. During 1968-1970, Agua y Energia plans to bring into operation some 425 MW of additional capacity, more than double the new capacity installed in the preceding three years, and to begin work on projects which will provide an additional 268 MI in 1971 and later years. About half of the additional capacity planned is hydroelectric. Investment in generating plant would total 1q$N 36 billion, while 1M$N 24 billion would be spent on transmission and distribution facilities, the latter taking a much larger share of the agency's power investments than in the past, reflecting a welcome new emphasis on making maximum use of available capacity. Agua y Energia also plans to invest during 1968-70 some M$N 15 billion in the construction of major dams which would be mainly for irrigation, and about M$N 13 billion directly on irrigation works, of which the IDB-financed Rio Dulce scheme, in the province of Santiago del Estero, is by far the most important.

99. The mission was told that Agua y Energials investment plans for 1969-70 are tentative, and that they will be subject to careful review this year. This is much to be recommended on both technical and financial grounds. Among the areas about which the mission received specific infor- 1iation, the capacity to be installed would appear to be far in excess of projected demand in Salta-Jujuy, Tucuman and Cuyo; in the latter area the prospect of surplus capacity appears particularly serious since 320 MW are scheduled to be put in operation during 1968-1971, including 170 DOI in 1970 alone. Every effort should obviously be made to defer the installation of capacity that would be excessive, and while the mission is in no position to make specific recommendations, it would appear that the planned hyrdro- electric investments for expanding the Nihuil project in the Cuyo region and at Cabra Corral, near Salta, particularly call for review. The major dams now under construction, Cabra Corral and A^,ua del Toro (in Niendoza) were begun last year after havingr been deleted from the 1965 investment program by CONADE. The economic justification of these projects in terms of the prospects for agricultural development seems uncertain, and as the sEme may be the case with certain other new dams being studied for possible construction beginning in 1969 and 1970, the mission recommends that decisions on the latter be deferred until there is in each case a convincing economic justification based on a full appraisal of agricultural development prospects and costs. So-io of the problems wivth A,ua y Energia's investment program appear to reflect the fact that it has been under pressure to undertake projects withl strong local appeal, some projects are, in fact, being carried out on belhalf of provincial -overnmients, Yevertheless, -he need for careful scrutiny of Aguay y Energia's future investment plans is underscored by their financial implications, since the approximately one- tlhrd increase in the enterprise's investments now tentatively planned for 1969-1970 would leave a financial gap of about M$N 28 billion. - 40 -

100. The heavy investments being made to assure an adequate power supply in the coming years underscore the need to attack the other major problem in this sector - high operating costs wlhich have undermined the financial position of the power enterprises and put constant upward pressure on tariffs. last year, SEGBA wfas finally able to half the rise in its labor force, which had been inflated to the point awhere it exceeded the Company's real requirements by about one-third, and much was done to restore management authority, but the existing labor contract barred more far- reaching measures to-increase labor productivity and raise operating efficiency generally. The Secretary of Labor who, under the terms of the new law is the final arbiter of contract revisions in the State enterprises and public utilities, handed down in May his decision on proposals that were made by SEGBA and ITALO, but objected to by the powerful Light and Power Union. This decision went far toward restoring management prerogatives in important matters including hiring, promDtion, the obligatory retirement of eligible workers, and overtime working. However, under the terms of the decision, SEGBA must consult the Union in advance of making changes in such key areas as the size and composition of work crews, job descriptions and working hours. If the Union objects to SEGBA1 s proposals it may, under certain conditions, .'ppeal tho icsuas to special arbitrators to bc; designated by the Secrctaries of Iabor nmd 7nergy. '%hile SEGBA rill be able to put the changes it desires into effect pending the arbitrator's decision, whether the appeal procedure will seriously limit management's freedom of action in rationalizing the enterprise remains to be seen in practice.

101. Agua y Energia does not appear to have so severe a problem of labor force redundancy as the Buenos Aires power companies, but its operations, too, would greatly benefit from a new labor contract which would permit the more efficient deployment of existing personnel. Looking farther ahead, the management of Agua y Energia believes that a basic change in institutional structure is necessary if fundamental improvements in the enterprisets operations and financial position are to be achieved. It has, accordingly, recommended to the Government that Agua y Energials st.atus be changed to that of a publicly-o,med corporation, like SEGBA, thus freeing it of the cumbersome restraints imposed on the management of the State enterprises, making it possible to pay the higher salaries necessary to attract competent professional staff-and, generally, enabling it to operate in the manner of a private firm. Agua y Energia also wishes to be relieved of the financial burden of constructing and operating irrigation works, an activity which involves a substantial element of subsidy, the costs of which it would like to see borne by a separate entity.

PEMROLEUM

102. Oil and gas today provide more than 85 percent of Argentina's energy requirements, and their share has been growing rapidly. Domestic oil production began to rise rapidly in the late fifties, especially after - 41 -

1958 when foreign firms were permitted to work in the country under contract to YPF. However, the Government annulled the foreign contracts at the end of 1963, and over the next three vears production increased only negligibly, with the result that the progress that had been made towards self-sufficiency was reversed and imports, which had been reduced to $57 million in 1963, averaged more than $100 million in 1963-66 and accounted for 25 percent of consumption in the latter year. Last year, however, production turned upward sharply as YPF began to reap the benefits of increased drilling in the previous year. Projections of output and consumption over the 1968-1972 period supplied to the mission call for a 25 percent increase in output by 1972. This would somewhat exceed the expected growth in consumption during the period, making possible a modest aecline in the volume of imports and reducing their share in the Argentine market to about 10 percent. The bulk of the projected increase in output over the period as a whole would be provided by YPF, mainly on the basis of a large secondary recovery program which, it is estimated, would be responsible for nearly one-third of the enterprise's production by 1972. However, beginning in 1971, the major contribution to the expansion of output would be made by private companies operating concessions under the terms of the new Hydrocarbons Law enacted last year. Adequate refining capacity at least until 1971 appears to be assured by projects scheduled to begin this year, including the expansion of the refineries of the two major private firms, as well as YPF's plans to triple the capacity of its Lujan de Cuyo refinery and to add a lubricants plant at the La Plata refinery.

103. To achieve the production target set, and to provide the necessary increases in refining and transport capacity, the Government estimates that annual investment in the petroleum sector will have to double to the $400 million level by 1972, with a total investment of some $1.7 billion being required over the five years 1968-1972. The enactment of the Hydro- carbons Law, opening the door to private investment in the sector, was a recognition of the fact that YPF could not undertake such a massive investment effort alone. Indeed, it is hoped that YPF's investment program can be maintained at about the 1968 level of $200 million, with virtually all of the needed expansion of investment coming from private companies. The response of private investors to the new Law is thuscrucial to Argentina's petroleum plans. So far, this response seems to have been favorable. Fourteen foreign companies, including several whose contracts had been annulled by the previous Government, bid last November for the first concessions to be put out for tender, despite the fact that these were mainly in little-known offshore areas. The concessions awarded, in March, require that a minimaum of $29 million be invested in exploration over thle next three years. Exploration concessions have since been offered in two other areas, and a concession for the construction of a pipeline from Cabo San Antonio to La Plata and Buenos Aires has also been put out to bid. YFTF is also contracting with private firms for secondary recovery and other work in the areas reserved to it. - 42 -

10O. If YPF's capital expenditures can, in fact, be maintained at the present level, it should in short order be able to cover its investment requirements completely from its own savings and to make an increasingly important contribution to the financing of development in the rest of thae public sector. YpF was able significantly to exceed its savings target last year, largely thanks to a rationalization program under which the enterprise was reorganized internally and accounting, inventory control and purchasing procedures were greatly improved. In addition, a program for eliminating redundant staff, aimed at reducing the labor force by more than 5,000 men, or about 12 percent, by December 1968 was begun and, through January of this year, a reduction of about 3,000 had already been achieved. Further substantial labor force reductions are expected to be possible next year as a result of the transfer to private contractors of certain functions now carried on by YFF, in- clLuding many of the special services it has provided for its personnel. Y?F's management, like that of Agua y Energia, believes that the greater fLexibility that would be gained from the conversion of the enterprise to a State corporation is essential to the improvement of operating efficiency ovrer the longer run, and it has so petitioned the Government.

105. Gas consumption has grown by more than 15 percent per annum in recent years, more rapidly than any other energy source, and previous Bank missions have concurred in the Argentine view that consumption may be expected to continue to expand at this rate in the foreseeable future. The principal problem to be solved in meeting the growth of consumption in the years immediately ahead may be viewed in terms of the need to obtain sufficient gas to fill the present pipelines connecting Buenos Aires and the other major consuming areas in the center of the country with the producing zones in the north and south. These pipelines are presently not being used to capacity owing to the decline in production in the older Campo Duran fields in the north, and to the fact that there is insufficient gas available from the Comodoro Rivadavia fields to fill the new southern pipeline, completed in 1965 at an estimated total cost of upwards of $300 million. The Government is negotiating for the purchase, beginning in 1970, of sufficient Bolivian gas to maintain the northern pipeline in full operation; plannea purchaseb would begin a; the h.0 nillion cubic meters per day level,rising to 5.5 million by the end of the 1970's. The southern pipeline would be extended by approximately 600 km. to reach new fields in the far south (Condor-Cerro Redondo), which reportedly have large proven reserves. The Government hopes that this entire development, estimated to cost about $80 million, including the pipeline, will be carried out by the private sector under a "service contract" which will be put out to bid this year. Other possibilities include expanded development of the gas reserves in the Neuquen region and construction of a new pipeline linking it with the southern pipeline and/or increasing the capacity of the northern pipeline and purchasing more Bolivian gas. - 43 -

106. The experience with the southern pipeline underscores the need rigorously to evaluate all alternatives so as to ensure that investments are chosen and scheduled so as to give the most economic result. This need is further emphasized by the difficult financial position of Gas del Estado which, because its own savings have sharply declined in real terms in recent years, has had to have increasing recourse to budgetary subsidies. Gas del Estado is generally regarded as one of the better run State enterprises and securing the needed improvement in its financial performance would appear to be less a matter of rationalizing operations than of making possi- b:le a maximum increase in sales through fuller utilization of pipeline capacity, and of revising pricing and marketing practices. A thorough review of the prices paid YPF for Gas also seems advisable.

TELEPHONES 107. Telephone service is grossly deficient in both quantity and quality. ENTEL, the State enterprise which operates more than 90 percent of the approximately 1,250,000 lines now installed, was forced by financial stringency sharply to curtail its investment program after 1962, and in the followfing five years it installed an average of only about 25,000 newl lines annually. This was insufficient even to keep pace with the annual increase in demand and by last year the national telephone "deficit," measured simply in terms of ENTEL's backlog of actual applications for netiT lines,-had risen to about 500,000, or nearly 50 percent of the existing supply. An expansion of investment planned for 1965 was still-born owing to lack of finance, but with the 75 percent increase in its tariffs granted last year, ENTEL began to step up its capital spending and to formulate a new long-term investment program. As discussed with the mission, the enterprise is tentatively thinking in terms of a ten-year program to eliminate the telephone deficit through the installation of one million newti lines. Investments over the period would total about $750 millicn, including the cost of modernizing existing equipment, as well as the new lines. Under this plan, the number of new lines to be installed annually would be sharply stepped up by 1972 to a long-term target level of 160,000, far exceeding the maximum number installed in any previous year. While expansion of the indicated magnitude inevitably raises questions about INTELNs administrative capabilities, there wJould appear to be no important physical obstacles to its realization, since the Argentine equipment manufacturers have been working well below capacity and reportedly could, with relatively little additional investment, put-themselves in a position to supply the maximum requirements of the program. 108. The major problem to be overcome in achieving adequate telephone service is the financial one. W4hile ENTEL has had a far better record than most State enterprises of being able to finance its own investments, it cannot be expected to shoulder the extraordinary burden of catching up on the accumulated telephone deficit from its own resources alone. Indeed, ENTEL's preliminary projections indicate that its owm savings would fall about $150 million short of the amount needed to finance the contemplated investments, and that, including estimated borrowing costs (on conservative assumptions), the program implies a financial "gap" of about $250 million over the next ten years. These projections also indicate that the enterprise would, subsequently, be able to generate sufficient savings to finance its new investments and service its debts. A telephone enterprise should not become a charge on the budget, and the aim should be to strengthen EITEL's financial position to the point where it may reasonably expect to borrow the additional funds it needs at long-term from domestic and foreign lenders. Adequate tariffs, and the avoidance of the frequent fluctuations in their real level experienced in the past, are a basic re-' quirement. Better organization, improved management practices and a reduction in labor costs could make an important contribution on the expenditure side. Progress is being made in the latter areas, the 40,000 man labor force having been cut by 1,300 in 1967. However, as in the case of the other State enterprises, a revision of the labor contract holds the key to the more basic changes needed to improve operating efficiency over the longer run.

109. An important part of the outside financing needed for the invest- mLent program should be obtainable domestically through subscriber financing, the possibility of which ENTEL has recently begun to explore, with considerable success, and through the sale of securities on the open market. The latter is a possibility which EMTEL should be in a better position to Exploit than most other State enterprises, if the necessary measures to izrrove its financial position are taken. However, even with a maximum effort to increase ENTEL's otn savings, and to mobilize outside domestic financing, there irould have to be heavy reliance on foreign borrowing if the investment program is to be carried out. The principal problems in the way of such borrowing are the present lack of specific projects, although it should be possible to prepare suitable onesin the not too distant future on the basis of the planning now being done, and the small direct foreign exchange component of the investment program. The Government has asked the IBRD to consider a loan to ENTEL. IV. OUTLOOK FOR PUBLIC INVESTAENT AND FINANCE

INVESTl4ENT NEEDS AND SAVINGS REQUIREMENTS

110. The need for a major increase in public investment following the long neglect of much of the country's basic infrastructure, and the specific medium and longer term investment requirements in the major sectors of the economy, have already been discussed. There can be no doubt that a continuing large-scale public investment effort will be necessary in the coming years if Argentina's hopes for achieving more rapid and sustained economic growth are not to run afoul of worsening infrastructure bottlenecks. The 1967 and 1968 public investment programs were largely compiled on a pragmatic, ad-hoc basis, with the size of the programs being roughly adjusted to the Government's current fiscal and economic policies and their composition largely determined by the projects and programs available for immediate implementation in the various sectors. While this approach was a reasonable one in the circumstances of the Government's first year in office, there is a need now to attempt to determine the size and shape of the public investment effort on a more systematic, longer-run basis. Overall planning for public investment in the years ahead is essential not only in order to make it possible to allocate resources on the basis of rational decisions about economic priorities, but perhaps even more important, to ensure that the build-up of public investment takes place in the context of a long-run fiscal program which will enable it to be financed in a manner compatible with the maintenance of internal financial stability and a strong balance of payments. Recognizing this, CONADE is presently preparing a public investment program for the 1969-1973 period, but only partial and preliminary results are available so far.

Ill. To illustrate the possible scale and composition of the public investment effort over the next five years, and as a bench mark for analysis for the fiscal outlook, the mission has attempted to estimate sectoral "requirements" on the basis of the tentative investment plans it obtained from several of the most important agencies, supplemented by its own rough estimates of what might be needed in the years beyond those covered by these plans, and in sectors for which no agency plans were available (e.g., the railways). On this basis, as Table C shows, public investment during 1969-1973 would average some M$N 545 billion yearly (in 1968 prices), about 40 percent above the record amount planned for this year, and more than double the average level in the preceding five years. Assuming a 5 percent annual growth rate over the period, national public investment at the indicated level would average about 7.5 percent cf GDP, compared with 6 percent in 1968 and an average of just over 4 percent during 1965-1967.1/ A rapid build-up of investment in 1969

1/ The estimates discussed are for real investments at the national level including the investments of the principal State-owned corporations (i.e., SEGBA, SOMISA, Hidronor). Provincial and municipal investments are not included. If the latter increase pari passu with national investment, total public investment would be at the 10 percent of GDP level in the 1969-1973 period. Table C

PUBLIC INVEST} IENT,2/ 1965-73 (In billions of pesos, 1965-67 at current prices and 1968 and projections at 1968 prices)

Average Annu ] Actual Program RequirementsU _1967 1966 1967 1968 1969-73

1. Transport 23.9 42.1 48.5 83 141 Road 11;O 15.2 19.1 40 69 Rail 6.8 14h3 14.9 23 40 Air o04 6;1 5.6 5) Ports and Fleets 3.1 5.7 6;7 11 )32 Other 2.6 0.8 2.2 4 )

2. Power 69.2 82.1 117.2 168 2o5 Petroleum 38;4 56.6 80;3 97 103 Electricity 29;0 23.0 24.O 67 98 Other 1.8 2.5 3.3 4 4

3. Teleconmunications 4.6 5.0 15.1 23 43 Telephone 4.1 4.5 12.7 20 37 Other 0.5 0.5 2.4 3 6 4. lwater and Sewer 3.1 4.9 13.6 20 38

5. Steel (Somisa) n.a. n.a. n.a. 5 13

6. Other 34.6 31.9 57.9 85 106/ Agriculture 0.9 i.4 5-0 9 Industry n.a. n.a. 12;8 12 Education 4;3 6.4 15;O 22 Health 0.6 0.9 2.5 3 Defense and Security n.a. n.a. 21.2 22 Unclassified 28.8 23.2 1.4 17

7. Total 132.3 161.1 252.3 __ 545

/ Real investment in national public sector. Provincial and municipal investments are not included.

2 Based on existing programs of principal agencies plus mission estimates.

3/ No agency estimates were available for investments in this sector, -bat the mission believes they will also need to be substantially increased. - 46 -

and 1970 is indicated, followed by smaller increases in the later years. The composition of public investment would differ from that in recent years principally in that the petroleum sector would be taking a significantly smaller share of the total, while proportionally more would be invested in electric power and transport. The telephone system and water and sewerage works would also be playing a more important role.

112. It should be emphasized that the projection was neither built up from a systematic study of individual agency programs and projects, nor derived from an analysis of aggregate input-output relationships, and that it is intended only to suggest, in terms of rough orders of magnitude, what would appear to be desirable targets for public investment subject to careful review of sectoral needs and priorities and the availability of suitable financing, as discussed below. High as it is in comparison with past performance, the overall public investment level indicated does not seem out of line with what would reasonably be required to meet basic infrastructure needs in an economy that, it is assumed, will be growing much more rapidly and steadily than in the past. Wdhile investment requirements are undoubtedly exaggerated in some of the individual agency programs, there is probably an important counterweight on the conservative side in the assumption that the private sector can be expected to provide virtually all of the necessary increase in investment in the petroleum sector. The latter is, indeed, a crucial assumption since, given the importance of the petroleum sector, any appreciable shortfall in private investment here would have to be made up with public funds, an eventuality which would necessitate a substantial increase in total public investment and/or significant reductions in investments in other sectors.

113. A public investment effort of the indicated magnitude would only be financially feasible if accompanied by the fiscal measures necessary to achieve and maintain a commensurate improvement in public savings. The inadequacy and instability of public savings have undercut past efforts to boost public investments, such as that proposed in the 1965 CONADE development program, and have been a major factor in iLrgentina t s chronic inflation and recurring balance of payments difficulties. Total public savings were actually negative in two of the past five years and over the 1963-1967 period as a whole averaged only about M$N 62 billion in 1968 prices. As previously discussed, public savings were sharply improved in 1967, and a further increase is planned this year with public savings expected to exceed the M$N 300 billion level, equivalent to some 85 percent of planned investments. Table D illustrates how public finances might be managed over the next five years to generate sufficient savings to make it possible to finance the projected level of investment without undue recourse to foreign borrowing or excessive pressure on the domestic banking system. For this purpose, public savings would have to be raised to cover 90-95 percent of public investment -- i.e., to average some M$N 500 billion over the period. This is an ambitious target, but it is a reasonable one for a country at Argentina's income level and, as the striking improvement in public finance achieved under the present Government demonstrates, it is not unrealistic given continued strong fiscal management. Table D

FITANCING OF PUBLIC ITVESTMNT (In billions of pesos at 1968 prices)

Average Program Average Annual 1963-67 1968 Requirements 1969-73

1. Public Investment 256 384 545 2. Public Savings 62 307 502 National Government 59 235 340 State Enterprises -18 -83 142 Social Security System 21 -11 15

3. Savings - Investment "Gap" -194 -77 -43

4. Net Foreign Financing 3 -14 -33

Amortization n.a. 77 -82 Drawings n.a. -91 49

5. Net Domestic Financing2/ 191 91 76

2J Residual. Includes errors and omissions in historical data. - 47 -

114. To achieve the suggested savings target, it will be necessary to (a) reinforce tax revenues; (b) substantially improve the financial performance of the State enterprises; (c) hold the increase in goverrment current expenditures to no more than 3-4 percent per year; and Td) restore savings generation by the social security system to at least the levels attained in past years. The first two requirements are the critical ones since, as previous Bank missions have emphasized, the inadequacy of budgetary revenues and the inability of the State enterprises consistently to generate adequate current surpluses have in the past been the major weak spots in the public savings effort. While it should not be necessary to boost revenues much (in relation to GDP) above the levels reached recently, basic improvements in tax structure and administration will, as discussed below, be required just to maintain the present level of performance. A doubling of State enterprise savings over the next five years would be the second major element in the fiscal program suggested here; this seems feasible, especially in view of the recent impressive improvement in State enterprise savings, but it is a goal which can only be achieved if the railway deficit is very substantially reduced over the period. In addition, while this year's gasoline price increase and the progress being made in improving YPF's operations promise to do much to bolster the overall savings picture in the State enterprise sector, findamental improvements will have to be made in the financial situation of other enterprises -- particularly Gas del Fstado, Agua y Energia and Aerolineas Argentinas -- if their heavy investment programs are not to be a serious drain on the Treasury. State enterprise tariffs are now, in most cases, set at realistic levels, and the emphasis in raising savings should be on improving operating efficiency through vigorous application of the Government's "rationalization" program, something which must also be done in the Central Administration and Decentralized Agencies if the increase in government current expenditures is to be contained as suggested.

TAX STRUCTURE AND ADMINISTRATION

115. The public savings problem has had its roots, mainly, in weakness on the revenue side. Argentina is not one of the many countries in which savings have been short owing to rapid increases in current expenditure offsetting the growth of revenues. Rather, while National Government current expenditures increased in real terms by a relatively modest 4.5 percent per year between 1961 and 1966, real revenues dropped off sharply during 1962-64 and, despite a recovery thereafter, were still in 1966 well short of the level reached five years earlier. Last year's remarkable performance, when revenues were increased by nearly one-third to 10 percent above the 1961 peak, was the result of the restoration of overall ratio of tax revenues to GDP to 19 percent (including the taxes shared with the provinces and social security taxes), approximately equal to the best results obtained in any post World War II year, from the average level of 14 percent of GD? to which collections had declined in the 1962-66 period. These recent ups and downs in real revenues are not a new experience, there having been similar sharp fluctuations in the fifties. - 18 -

116. The inelasticity and other structural weaknesses in the tax system and its administration, which have made it not only inefficient and unreliable as a source of revenue, but also regressive in practice despite high progressive rates and a burden on the most dynamic sectors of the economy, were analyzed in detail in the 1965 Economic Report./ Little has changed since that time, and fundamental tax reforms remain a basic prerequisite for an adequate public savings effort. However welcome, the recent recovery of revenues has been based to a large extent on heavy export retentions and other temporary measures, and on the psycho- logical impact on taxpayer attitudes of a new, firm Government. To obtain the budgetary savings projected in Table D, it will be necessary to put revenues in the range of 14 -14.5 percent of GDP in the 1969-73 period, compared with the 13.5-14 percent level reached in 1967 and planned for this year. However, even the modest increase in tax pressure this implies is unlikely to be achieved and sustained in practice without basic changes in the tax system which, indeed, appear to be essential if an actual deterioration in revenue performance in 1969 and later years is to be avoided. The reforms needed are, essentially, permanent measures which will give the tax structure the elasticity it has so badly lacked, and which will make it a more rational and effective tool of development, thereby obviating the need for frequent resort to extraordinary revenue measures, temporary fiscal incentives and other stop-gap devices which have in the past deprived the tax system of consistency and coherency, and made it so difficult to administer. The Government has indicated that it is studying tax reforms for introduction in the 1969 budget and that it is, in particular, considering the problem of agricultural taxation, revision of the income tax and the possible introduction of a value added tax.

117. The most pressing tax problem is to develop a permanent source of increased revenues from the agricultural sector to replace the present high export retentions, which were never intended as a permanent measure. It is the Government's policy progressively to reduce retentions as necessary to keep exports moving as domestic costs rise; since, even if inflation is slowed this year to the extent hoped, prices will have risen by nearly 40 percent since devaluation, retentions will presumably have to be reduced to a level at which they will yield relatively little revenue in 1969. The case against the use of retentions as a major source of revenue is that, at rates high enough for this purpose, they all too quickly become a serious deterrent to current exports as well as an undue burden and a major source of uncertainty for agriculture, as previously discussed. However, successive Governments, motivated both by their revenue needs and by income distribution considerations, have had recourse to retentions as the only available means of taxing agriculture effectively. The inadequacy of agricultural taxation has, in fact, been a major structural deficiency in the tax system; the income

1/ WH-144a, "Economic Position and Prospects of Argentina," Annex II: Public Finance. - 49 -

tax has been virtually inoperative in the agricultural sectorlY and land taxes have been left to the provinces, where rates have generally been low and assessment and administration practices poor. One possible new measure, which a government commission has been studying for smne time, is a tax based on the potential productivity of agricultural land, but such sophisticated measures are likely to prove even more difficult to administer than to conceive and enact. The establishment of a relatively simple national agricultural land tax, replacing or supplementing the present provincial taxes, would appear to be a more practical means of improving agricultural taxation now. Such a tax, together with greatly improved enforcement of the income tax in the agricultural sector, could help to replace on a long-term basis the revenues presently ccming from export retentions which might, then, be either eliminated or reduced to a relatively low level that could be maintained over time without burdening agriculture or the balance of payments.

118. Income tax reform is also essential to give the revenue structure the long-run elasticity needed to meet public savings requirements, and to make it more equitable. Despite high progressive rates, the income tax has been an anemic and uncertain revenue producer; even if receipts from this source reach the budgeted level this year, their contribution to government revenues would still be substantially lower than in 1961. The deterioration of the income tax has been due to the impact of inflation on a system in which most obligations are not collected on a current basis, to widespread evasion and ineffective administration, and to the erosion of the tax base through the proliferation of generous exemptions, credits and allowances, varying over time, and intended to serve a wide variety of social and economic ends. Many of the latter seem overly generous in -their cost to the Treasury and of doubtful effectiveness in achieving the ends for which they were established. A reduction in income tax rates, which the Government has indicated is a major objective of the tax reform it is considering, would appear to be compatible with revenue requirements only if the tax base is broadened by simultaneously scaling down existing exemptions and closing loopholes, and if accompanied by a major effort to improve enforcement. Increased withholdings, and other measures to place collections more nearly on a pay-as-you-go basis, would also be a major step forward.

319. The Government should also cast its net widely in looking for additional revenues from existing or new taxes. For example, the special taxes for the construction of the El Chocon project should be set at the maximum rates authorized. The possibility of replacing the present sales

1/ Treasury surveys reportedly indicate that ta-x liabilities in the agricultural sector have averaged only sorie 2-3 percent of declared incor'£c as a result of the rnltiplicity of e.ereptions, credits and allowances available to farmers. tax (a single point tax at the manufacturers' level) with a value added tax has been under study for some time, but while attractive for the potential it offers for expanding the tax base and increasing revenues over the longer run, this is a complex tax which presents formidable administrative problems, as reflected in the experience of countries in which it has already been adopted. To guard against the possibility that revenues might be lost, rather than increased, in the short run, the value added tax should be introduced only after extensive advance planning for its implementation, and when it is clear that the tax administration is fully prepared for the task. Introduction of the tax in stages or in selected sectors of the economy might be considered as a means of gaining the necessary experience.

120. Whatever structural changes are made, greatly improved tax administration will be a crucial ingredient in maximizing the long-run growth of revenue. While evasion, ineptitude and corruption have undoubtedly cost the Treasury dearly, a more important factor undermining revenue performance has probably been the progressive demoralization of both taxpayers and tax collectors as a result of frequent changes in leadership in the tax administration, sudden shifts in emphasis on tax collections in response to changes in the political and economic climate, the widespread resort to postponements, moratoria and related devices involving varying degrees of tax forgiveness, and the general emergence of an atmosphere in which taxes came to be regarded as less of a fixed liability than a subject for negotiation. The remarkable recovery of revenues last year was clearly attributable in a large measure to a radical improvement in voluntary taxpayer compliance in the face of a Strong Government evidently determined to clean up the fiscal situation. lNevertheless, Argentine experience indicates that taxpayer psychology is a fickle thing and, to maintain its credibility in this area, the Govermnent will have to be unwavering in its insistence on full and prompt compliance with tax obligations and willing to enforce the penalties for evasion, which were significantly raised last year. Ilighest priority should be given to a maximum effort to strengthen immediately the tax administration and, especially, the branches responsible for auditing tax returns and proceeding against delinquent taxpayers. A good beginning on this has been made recently through internal reorganization, the improvement of supervision, staffing and training practices, and the introduction of modern data processing techniques and related aids to collection. However, the build-up of an adequate enforcement mechanism appears to be lagging for lack of manpower and rmoney, and much remains to be done to improve the quantity and quality of the staff, including the provision of salaries, pensions and other benefits necessary to safeguard its integrity. THE RATIONALIZATION PROGRAM

121. Rationalization, in the sense of a top-to-bottom reform of public sector organization and operations in order drastically to improve efficiency, was one of the principal tasks to which the Government dedi- cated itself on taking power. Last year, there was a general improvement in the quantity and quality of public services in many areas, largely reflecting the restoration of labor discipline and reassertion of management prerogatives made possible by the firm line the Government took in dealing with labor generally and, in the case of the railways and ports, -where the improvements in operations were most swift and striking, from the direct intervention of the military authorities. The top management of many of the most important Govermnent agencies and State enterprises was put in the hands of executives, many from the private sector, selected for the purpose of instituting basic reforms; administrative reorganizaticn plans were prepared throughout the public sector; and legal measures were taken to facilitate the dismissal of redundant employees, to establish procedures for the revision of labor contracts, and to make it possible to change the legal status of State enterprises in order to give them greater freedom of action. In addition, the budgetary review process was tightened up and government supervision of the Decentralized Agencies and State enterprises was improved. But while a good deal was done to lay the foundations for rationalization, actual implementation seems to have been slow and spotty. The case of YPF where, as previously noted, basic reforms were carried through with important financial results in 1967, and where there are specific quantitative targets for further action this year, appears to be more the exception than the rule.

122. While the specific problems of rationalization vary considerably across the public sector, there is generally a great need for improving organization and management, raising pay scales for professional personnel and top management to levels more nearly comparable with those in private employment so that qualified staff can be attracted and held, and introducing modern techniques in areas ranging from inventory control and purchasing practices to rate-fixing and marketing. In the railways, the problem goes well beyond this, as already discussed, and the financial future of YPF and certain other enterprises also rests in large measure on what can be done to limit the scope of their operations and to work out an efficient division of labor with private industry. Rationalization is, of course, a long-term task and a very difficult one, involving as it does the overcoming of vested interests in the status quo built up over the years in the bureaucracy, the revision of long established work practices and changes in deeply ingrained patterns of operation. However, the lack of effective action in the past has been the result not so much of the inherent difficulties involved, but of the lack of a sustained effort to come to grips with the problem owing to political instability, weak and frequently changing top management in major agencies and State enterprises, and potent trade union opposition. In each of these respects, the present Government is much more favorably placed than its predecessors to carry out a rationalization program, although it will clearly have to make a major effort to accelerate the pace of the program in key areas. 123. The most critical aspect of the rationalization prograrn from the point of view of the contribution it can make to public sector savings in the years immediately ahead lies in the progress that can be made in dealing with the pervasive problem of feather-bedding and labor force redundancy. In mid-1966, when the present Government took power, there were more than 799,000 public employees, including some 312,000 in the State enterprises, of which more than half were in the railways. It has been estimated that the State enterprises may have as many as 100,000 employees in excess of their requirements and it does not seem unlikely that there are at least half again as many redundant workers in the Central administration and Decentralized Agencies. By the end of last year, some 5,000 workers had been dismissed from the Central Administration and about 10,000 from the State enterprises, where dismissals increased noticeably in the last half of the year. However, because of a large increase in employment in the Decentralized Agencies 1/, there was a net reduction of only about 3,000 in the total number of public employees. iMuch more substantial results should be possible this year, now that the new managements have had time to take firmer hold of their responsibilities and to prepare their rationalization plans, and under the pressure of the freeze on current expenditures in the Budget.

124. What is done in the railways will, of course, have a decisive impact on the overall employment trend, and labor force reduction will have to proceed at a more rapid rate than that achieved last year and planned for 1968 if the operating deficit in the years ahead is to be reduced to levels compatible with the needed public savings efforts. For many of the State enterprises, a decisive factor in their rationalization efforts will be whether the labor contract revisions emerging from this year's negotia- tions prove sufficient to permit management to move quickly to match the labor force to real requirements. Although contract revisions were agreed upon for several enterprises in the first quarter of this year, the Govern- mentts decision in the case of the Light and Power union's contract with the electric utilities was regarded as the critical one. While, as noted earlier, the decision actually handed down in May appears to go a good way toward restoring management prerogatives in important areas, management's ability to make rapid progress under the terms of the decision in dealing with certain key aspects of the labor force problem remains to be tested in practice. The progress of the rationalization program this year will also be linked importantly to the Government's success in reviving economic activity, since it has been loath to begin large-scale dismissals from the public service until such time as alternate private employment appears to be available in an expanding economy.

1/ Obras Sanitarias and Vialidad Nacional augmented their staffs somewhat, TEt most of the increase was accounted for by the schools and universities, which added some 8,000 jobs. - 53 -

PUBLIC SECTOR BORROWING

5. A public savings effort during 1969-73 of the magnitude indicated above would leave an average of about M4$N 43 billion per year of real public investment to be financed from other sources. With the amortization of the external public debt estimated to require the equivalent of some N$N 82 billion yearly, the public sector's gross borrowing requirements would total M$N 125 billion. How much of this is to be borrowed abroad, and how much domestically, will in practice undoubtedly vary widely over the period in response to changing circumstances ranging from the state of international capital markets to the condition of the Government budget and the domestic monetary situation. However, the urgent need to reduce the cost of servicing the foreign public debt argues for a policy of holding new foreign borrowing for the financing of public investment to a minimum over the period as a whole. Limiting public sector borrowing abroad to 40 percent of its gross borrowing requirements, or the equivalent of about 1$U 50 billion per year, would be compatible with an overall balance of payments policy of holding total foreign borrowing, public and private, to the amount needed to prevent any decline in reserves over the period, as discussed below, and would make possible maximum progress in easing the debt service burden. Of the average of approximately $140 million per year that the public sector would require from abroad in terms of actual disbursements under such a policy, $45 million or so could come from long- term loans already in the pipeline. To obtain the balance of the funds needed, the public sector would probably have to obtain some $650 million of new foreign loans over the next five years, allowing for the fact that not all new loans would be disbursed within the period. This will require a major effort at project preparation, which will have to be stepped up on an urgent basis since a large amount of new commitments will have to be arranged early in the period if the financing needed in later years is to be forthcoming.

126. The pattern of financing of public investment that has been suggested assumes that an average of some M$N 75 billion per year may be borrowed domestically without putting undue pressure on the banking system. This would be substantially less than the amount of domestic credit the public sector required in 1967, and which it is planning to use this year. Nevertheless, domestic borrowing of the indicated magnitude is suggested here only on the assumption that it will be possible to borrow substantial amounts at medium-and long-term from non-inflationary sources, thus limiting recourse to the Central Bank to, say, no more than half of the total required. A thriving private market for long-term government securities wras the financial mainstay of the public works program in the thirties and could, no doubt, come to play an important role once again if the inflation which destroyed it is brought under control. As previously noted, the Government hopes that the success of its stabilization program will enable it to revive the capital market in an important way; a first step was taken in this direction with the reopening of the Treasury Bill market last year - 54 - and the sale of M$N 25 billion in longer-term securities is planned for this year. Whatever initial success the Government may have, the revival of a capital market which will channel genuine private savings to the financing of public investment in substantial amounts and on a continuing basis wlill be a painstaking, long-term task that, in addition to the offering of Government securities on attractive terms, may require special measures to revive investor confidence. - 55 -

V. DEVEIOPMNT PROSPECTS AND THE BALANCE OF PP.Y1EITS OUTLOOK

GROIWTH POTENTIAL

127. Argentina has a quite exceptionally favorable resource endowment in relation to its population, and there is no obvious reason why the country should not in time succeed in coming close to European levels of economic efficiency and thereby greatly increase its present national output. The basic preconditions for achieving this are a sufficient degree of political stability to avoid the continual changes in government administration and policies which have been one of the most serious obstacles to efficient economic management during the past two decades; and a sufficient degree of internal financial stability to enable the price mechanism to function effectively. The fact that there have been seven presidents over the past fifteen years, and that Ministers of Economy have during this time remained in office, on the average, for only about ten months, does much to explain the failure consistently to maintain the policies necessary to control inflation and deal with recurring balance of payments crises which have imparted a stop-go character to economic growth. Consistency and continuity will be as important as content in determining the effectiveness of overall economic policies for promoting growth and of the measures taken to deal with the structural problems in specific sectors of the economy discussed above.

1.28. With the present rate of population growth under 2 percent a year, Argentina is a country which badly needs more people to open up new areas outside the capital. At present some additional labor is being provided for agriculture through migration, part seasonal, part permanent, from neighboring countries such as Chile, Paraguay and Bolivia, but there has been no significant net immigration into Argen- tina in recent years. There are strong resistances to admitting poorly educated unskilled workers from the more backward areas of Latin America, and it is probably unrealistic to expect Argentina to provide an outlet for the surplus population of other Latin American countries. But there is no similar prejudice with respect to European immigrants, and the Government should make a real effort to attract more immigrants from Europe (and possibly also from some parts of Asia). An active immigration policy would be consistent with the emphasis the Government has put on "integrating" the economy by stimulating poles of development in the interior of the country. The urban problems and other diseconomies stemming from the present extreme concentration of population and economic activity in the Greater Buenos Aires area, which contains one-third of Argentina's people and three-fourths of its manufacturing industry, argue for serious measures to decentralize the economy.

129. With a modicum of good management, and in reasonably favorable circumstances in areas beyond the Government's control (for - 56 -

example, world commodity market trends, the weather), it should be possible to maintain a 5 percent average growth rate over the next five years. Agricultural production, because of its overwhelming importance in the balance of payments, will have a decisive influence on growth trends during the period, as well as on year-to-year fluctuations in GDPe The extent to which production of livestock and the major grains might be expanded by 1973 with suitable exchange rate, tax and price policies was indicated in the analysis of the agricultural sector. Even assuming that actual trends will be less favorable than indicated there, agricultural production might well, on the same assumptions, grow by some 3½ -41 percent per year, compared with the average 2 percent growth rate experienced in the recent past. With agricultural production expanding at the indicated rate, an increase of some 7 percent per annum in industrial output, compared with the average 4 -5 percent rate of expansion in this sector in previous years, would be the other major element required for a 5 percent over- a.ll growth rate. Private investment would have to be substantially more buoyant than in the recent past, but it would be public investment, on the missionts estimate, that would be growing most rapidly, especially in the earlier years, and would be the dynamic factor in appreciably boosting the average annual increase in investment in the economy. This would leave a smaller share of resources for consumption than has been the case in the past, but the higher growth rate would make possible an appreciable advance in per capita consumption over the period.

BALANCE OF PAY1ENTS AND CREDITWORTHINESS 130. Underlying world demand for Argentina's traditional exports may be expected to grow rapidly, and the countryts competitive position in world markets is fundamentally strong, so that there should be firm support for accelerated growth on the balance of payments side. Real- istic exchange rate policies and a substantial reduction of export taxes are the basic prerequisites for the realization of the export potential, but much will also depend on whether the present trend toward increased restrictions on the entry of agricultural products (particularly meat) into markets in developed countries can be reversed, and on ArgentinaTs success in opening new markets for its exportso With production expanding at the rate envisioned above, it would be possible to raise the volume of agricultural exports by some 5 percent a year over the next five years which, allowing for some decline in the prices of major commodities, could mean that by 1973 agriculture would be bringing in some $350 million more in-foreign exchange than at the present. A $100 million increase in non-agricultural exports, which would require a 10 percent per year growth rate, would appear to be a realistic target over the period. As Table E shows, total exports in 1973 would, then, be - just over the $2 billion level, or some 30 percent higher than in 1966-67. While import requirements are difficult to estimate on a macro-economic basis owing to the wide fluctuations in the past, an average 6 percent per year increase would appear to be sufficient to permit the sizeable Table E - BAIANCE OF PAYMENTS AND CAPITAL REQUIRMENTS, ]1969-73 (in millions of US dollars)

1969 1970 1971 1972 1973

1. Current Account Balance 87 105 118 126 134

Exports 1,610 1,710 -1,810 1,910 2,015 Imports -1,293 -1,370 -1,3452 -1,539 -1,631 Invisibles, Net -230 -235 -240 -245 -250 2. Debt Amortization2/ -476 -376 -300 -258 -251

3. Gross Capital Inflow Assumed (1+2+6) 289 221 182 182 217

4, Capital Available 136 147 85 70 75 Direct Investment 45 50 55 60 65 Long-Term Loans2/ 91 97 30 10 10

5. Additional Capital Required (3-4) 153 74 97 112 142

6. Use of Reserves (plus=decrease)2/ 100 50 0 -50 -100

1,/ Includes for existing debt (a) IBRD Drojection of amortization of public debt outstanding as of 6/30/67 (see Table 2) plus ectimrkted anortization of debts incurred in remainder of 1967 and anounto due IIF, and (b) estimnated amortization of outstanding privatc dcbts incuirred for the financing of capital goods imports as of 12/31/67 based on the annual Central Bank survey(Encuesta). The latter is the only available source of information on the private debt, but its coverage and utility for this purpose are questionable and the average $40 million per annum of private debt amortization included in the table must be regarded as highly doubtful. The amortization of new debt to be incurred over the period wsas estimated on the assumptions stated in paragraph 132.

2/ Pipeline of IBRD, IDB, and 1ximbank loans as of 3/31/68.

3/ Assuming that reserves, now ample, will be drawn down to help cover foreign exchange requirements in earlier years while the pipeline of long-term loans is being built up, and that reserves will be reconstituted in later years when disbursements from these loans will be available. - 57 - expansion of capital goods imports and the growth in imports of raw materials and intermediate products that would be required for the maintenance of a 5 percent growth rate. Given these trends in its foreign trade, and assuming a modest increase in the net deficit on invisible transactions, Argentina should be able to maintain a comfortable current account surplus in its balance of payments, averaging some $115 million per year.

131. The cost of amortizing the existing public debt, as projected by IBRD, will fall off sharply during the period from $331 million in 1969 to only $126 million in 1973. While it is difficult to estimate what would be required to repay private debt, this may also be expected to decline rapidly over the coming years, since the very large amounts of private debt contracted in the early 19601s may by now be assumed to have been largely repaid, and private borrowing abroad has been relatively modest in recent years. The easing of the debt burden, together with the maintenance of substantial current account surpluses, means that Argentina's gross capital inflow requirements will be diminishing rapidly. Taking the period as a whole, something like $1.1 billion, or an average of about $220- million per year, will be required from abroad to maintain equilibrium in the balance of payments, Private direct investment, which can be expected to rise substantially over the present level, especially in light of the opening of the petroleum sector to foreign investment, could provide an average of some $55 million per year 1 while disbursements from the existing pipeline of long- term loans from international agencies, which was substantially augmented last year, might average some $45 million yearly. This would leave $120 million annually, or $600 million over the five-year period, of the required capital inflow to come from new loans. Allowing for undisbursed loan balances at the end of the period approximately equal to those at the beginning, Argentina would need to obtain approximately $850 million in new commitments over the period. Foreign exchange reserves, which are now ample, might be drawn down to help cover the heavy capital requirements in early years, when drawings on new loans will be relatively small; the reserves could be reconstituted in later years when disbursements from new loans would begin to flow in larger amounts.

132. The foregoing discussion on Argentina t s external capital requirements assumes that the need to reduce the burden of servicing the external debt will be a cardinal objective of policy. Amortization and interest payments on the public debt will this year take an estimated 27 percent of total foreign exchange earnings on current account, a level of debt service which reflects the fact that the terms on which the public sector has borrowed abroad in the past have been among the least favorable reported to the Bank by any Latin American country. Maximum progress in easing the debt service problem can be made only if, as assumed above, the amount of new debt incurred is limited to what is required to cover actual foreign exchange needs (i.e., to maintain the level of reserves over the period), and if new loans are obtained on much improved terms. To accomplish the latter it will be necessary to shift as large a proportion of public sector borrowing as possible from medium-term suppliers' credits and commercial bank loans to loans from international development

7/ hile mach above the level of recent years, this would probably be a minimal figure if the Government's petroleum plans go well, and if industrial expansion is significantly accelerated. - 58 - institutions and other sources of long-term credit. This will require not only a major effort at project preparation on the part of Argentina, but a.readiness on the part of the capital e-porting countries to make new credits available on better terms0 i-lorcover, if the role of project financing in meeting Argentinats external capital requirements is to be significantly expanded, it will be necessary to includde a substantial element of local cost financing, since only about 10-15 percent of gross domestic investment is accounted for by imports of capital goods. If the terms of IBRD and IDB lending remain as at present, and the terms of supplierst credits can be improved to an average of seven years maturity, including two years of grace, with interest at 8 percent, the total cost of servicing the external public debt in 1973 can be limited to the equivalent of 15 percent of projected external receipts on current account.

133. It should be emphasized that the picture sketched here of economic development possibilities over the next five years reflects an optimal level of performance which, while it would be well within the country's capabilities, will be difficult to achieve in practice and will in any case depend in part on circumstances beyond the Government's control, as well as on the basic changes in economic policy and administration that have been discussed. Levels of public investment and savings which fall somewhat short of the targets indicated above would still be a distinct improvement on past performance and reflect a satisfactory development effort. A wider gap between public savings and investment would require greater recourse to foreign borrowing. This would be feasible, if kept within reasonable bounds, but would mean less rapid progress toward reduction of the debt service burden. STATISTICAL APPE1TDIX

Table No.

I. PRODUCT AND POPULATION

1 Growth of Real National Output and Population, 1950-67 2 Gross National Expenditure and Product, 1958-67 3 Changes in Real Gross National Expenditure and Product, 1959-67 4 Change in Gross Domestic Product by Sectors, 1959-67 5 Manufacturing Production, 1962-67 6 Unemployment Rates, 1963-67 7 Agricultural Production

II. PUBLIC FINANCE

8 Central Administration Budget, 1966-68 9 National Government Revenues, 1961-68 10 National Government Expenditures by Function, 1967-68 11 Savings and Investments of State Economic Enterprises, 1965-68 12 Public Investment, 1965-68 13 Civilian Personnel Employed in National Public Administration.

III. PRICES, WAGES AND MONTEY

14 Cost of Living in Buenos Aires, 1963-68 15 'iholesale Prices, 1962-68 16 Industrial WJages, 1961-68 17 Monetary Situation, 1963-68 IV. BALANCE OF PAYMETS

18 Balance of Payments, 1965-68 19 Exports by Main Commodity Groups, 1960-68 20 Volume and Price of Major Exports: Average 1953-57 and 1960-68 21 Composition of Imports, 1962-68 22 Official Foreign Exchange Reserves, 1961-68 23 External MIdium- and Long-Term Public Debt Outstanding Including Undisbursed as of June 30, 1967 24 Estimated Contractual Service Payments due in Future on External Medium- and Long-Term Public Debt Outstanding Including Undisbursed as of June 30, 1967 Table 1 GROWTH OF REAL NATIONAL OUTPUT AND POPULATION, 1950-67 (GDP at 1960 prices)

Year Real GDP Index Annual Population Real GDP Index Annual 1960=100 Percent per capita 1960=100 Percent Charges Charges

1950 710,329 73.9 1.5 17,093 43,557 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 3.8 18,559 414,33 89.1 1.9

1955 821,829 85.5 6.9 18,900 43,483 93.5 4.9

1956 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 94h4,863 98.3 7.2 19,963 h7,331 1o0.8 5.3

1959 890,074 92.6 - 5.8 20,317 43,809 94.2 - 7.5 1960 961,203 100.0 8.0 20,666 46,511 100.0 6.2

1961 1028,487 107.0 7.0 21,020 48,929 105.2 5.2

1962 1009,263 105.0 - 1.9 21,377 47,213 101.5 - 3.5

1963 973,699 101.3 - 3.5 21,737 44,795 96.3 - 5.1 1964 1051,556 109.4 8.0 22,103 47,575 102.3 6.2 1965 1141,909 118.8 8.6 22,475 50,808 109.2 6.7

1966 1138,06h 118.4 - 0.3 22,858 49,788 106.8 _ 2.o

1967 1160,:721! 120.7 1.9 23,2J4 49,90i 107.3 0.3 COMPOUND GROWTH RATES 1950-55 1955-60 1960-65 1950/51-1965/66

Real GDP 2.9 3.2 3.5 3.0 Population 2.0 1.8 1.7 1.8 Real GDP per capita 0.9 1.4 1.8 1.2

Source: Central Bank !nPj- o-vis i onal Table 2

GROSS NATIONAL EXPENDITURE AND PRODUCT, 1958-67 (in billions of nesos at current pric-es)

1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 (

Consumotion 316.9 601.6 7 922.3 1,118.3 1,397.5 1 924.9 2 582.3 3,245.1 4 139.2 Private 279.0 537.6 o68.2 805.2 962.3 1,221.3 1,682.2 2,243.5 2,782.6 3:567.2 Public 37.9 64.0 86.3 117.1 156.0 176.2 242.7 338.8 462.5 572.0

Gross Fixed Investment 77.2 1 208.6 270.3 320.2 316.4 300.0 558.9 723.4 1,003.9 Private n.a. n.a. 17W.' 2 271.5 2 5 .324.B 463.1 620.4 .. 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 - 31.5

Foreign Balance - 6.8 4.2 -11.6 -38.8 -22.1 41.6 19.3 46.1 80.9 96.1

Gross Domestic Product 386.7 740.5 961.2 1 148.1 1 411.6 1 734.1 2,363.3 3.246,0 4,043.4 5 207.7 Net factor payments 1.6 --- 3.2 -T4.7 - 8. - 8-.2 -' 45 - 1"4. - 14.0 - 31.1 37.9

Gross National Product 385.1 737.3 956 1,139.7 1,403.4 1,724.6 2,348.9 3,232.1 4,012.3 5,169.8

PERCENT DISTRIBUTION Consumption 81.8 82.5 9 79.8 78.9 79.3 82.7 6 80.2 79.5 Private 72.1 72.5 TO .2 7 0. 71.2 -- T.5 Public 9.7 10.0 10.0 9.7 10.7 8.9 11.5 10.5 11.4 11.0

Gross Fixed Investment 20.0 16.9 21.7 23.5 22.7 18.3 16.5 2 17.9 19.3 Private n.a. n .a. -1 19.2 1 13.7 1 14.3 Public 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 2.0 1.8

Gross Domestic Product 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source: Central Bank

1/ Provisional Table 3

CHANGES IN REAL GROSS NATIONAL EXPDITM RE AND PRODUCT, 1959-67 (Indices: 1960=100)

1959 1960 1961 1962 1963 1964 1965 1966 19671/

Private consumption 97.7 100.0 110.7 106.3 104h0 114i4 123.2 '123.2 125,3 Piblic consumption 91.5 100.0 102.5 98.4 95.5 94.6 96.6 99.2 100.3

Gross fixed capital - - -- - formation 66.4 100.0 117.7 106.7 86.5 91.8 94.9 96.4 103.1 Exports of goods and - services 99.4 100.0 92.4 125.0 127.5 119.3 131.0 14o.6 139.0 Imports of goods and - - - services 81.1 loO. 118.9 114.2 88.9 103.2 102.1 9

_ at market prices 92.6 100.0 107.0 105.0 101.3 109.4 118.8 118.4 120.7

1/ First Provisional Estimates

Source.: Central Bank Table 4

CHANGE DI GROSS DDIMSTIC PRODUCT BY SECTORS, 1959-67 (Indices: 1960=100)

Average Percentage 1/ percent Distribution 1960 1961 1962 1963 1964 1965 1966 1967- Growth Rates of GDP in 1960 1959 1°60-1°67

115.0 112.5 119.1 2.5 Agriculture 17.4 98.4 100 99.2 101.0 101.2 108.4 154.4 162.2 178.5 8.6 M4ining 1.1 73.1 100 130.2 146.2 145.7 148.3 99.9 115.0 129.6 127.9 127.4 3.5 Manufacturing 32.3 91.4 100 109.7 104.7 91.4 97.0 105.4 o.8 Construction 4.2 83.7 100 105.8 97.1 89.5 90.0

Electricity, gas and 152.1 173.8 186.8 199.9 10.4 water 1.3 94.0 100 117.3 131.0 138.4

Transportation and 117.5 119.6 2.6 communications 7.6 94.0 100 106.8 101.7 98.5 108.1 111.7 102.0 106.6 116.9 114.8 115.9 2.1 Commerce 17.0 86.5 100 112.9 111.8 109.9 113.5 118.3 120.8 2.7 Financial services 4.1 98.4 100 103.1 106.o 108.3 103.7 104.3 104.3 o.6 Government Services 7.4 99.3 100 100.7 99.2 100.2 100.4 102.6 105.7 108.5 111.3 1.6 Other services 7.6 94.4 loo 104.5 103.0 99.4 GDP at factor 101.3 109.4 118.i 118.4 120.7 2.7 cost 100.0 92.6 100 107.0 105.0

1/ Provisiohal Source: Central Bank Table 5 1I>UWFACTURING PRODUCTION, 1962-67 (Indices: 1960=100)

1962 1963 1964 1965 1966 19672!

Food, beverages, and tobacco 112.4 115.2 108.6 117.2 124.3 126.9

Textiles, leather and clothing 82.8 79.6 96.9 111.3 105.5 101.3

Chemical products loo.4 lo4.9 131.0 144.2 14o.9 143.5

Stones, glass, and pottery 113.8 100.2 111.5 131.9 139.1 154.2 eLtals 101.6 102.8 141.4 157.2 135.6 132.7

Motor velhicles 151.4 127.9 183.3 219.9 212.7 214.6

Non electrical machinery 80.4 70.1 76.4 78.6 71.4 70.0 Electrical machinery 97.4 80.8 99.2 116.9 113.2 109.2

Other 108.7 104.3 113.2 127.6 132.0 129.0

Total 104.7 99.9 115.0 129.6 127.9 127.4

2/ Provisional

Source: Central Bank Table 6 UNEI'ITYMENT RATES, 1963-67 (Percent of Economically Active Population)

Total Buenos Aires Cordoba Rosario Tacumzan Mendoza

1963 July 8.8 8.8 n.a. n.a. n.a. n.a.

1964 April 7.5 7.5 n.a. n.a. n.a. n.a: July 7.4 7.4 n.a. n.a. n.a. n.a October 6.3 5.7 9.5 7.6 9.2 9.2 1965 April 6.0 5.5 8.6 8.9 5.5 6.0 July 6.1 6.1 n.a. n.a. n.a. n.a. October 4.6 4.4 6.3 5.5 6.4 4.7 1966 4pril 6.5 6.4 7.3 7.2 9.4 3.8 July 5.3 5.3 n.a. n.a. n.a. n.a. October 5.2 5.0 6.5 n.a. 7.4 n.a. 1967 April 6.4 6.1 8.9 6.8 10.0 2.4 JAly 6.8 6.8 n.a. n.a. n.a. n.a. October 6.3 6.3 7.2 6.1 9.8 2.5

Source: CONADE Table,,L ,.7 .7-? ... AGRICULTURAL PRCDUCTION A. Principal Crops

Average 1956-57 1960-61 1962-63 1963-64 1964-65 1965-66 1966-67 1967-6812

Production ('000 of metric tons) Wheat 5,885 5,700 8,940 11,260 5,400 6,380 7,400 Barley 1,063 345 1,020 826 404 438 588 Oats 962 487 906 805 480 540 590 Rye 778 163 538 652 245 270 352 Corn 4,279 4,360 5,350 5,140 7,040 8,510 6,600 linseed 651 839 771 815 570 577 388 Sunflower seed 620 462 460 757 782 1,120 900 Area sown (tOOO of hectares) Wheat 5,206 4,847 6,276 6,497 5,426 6,291 6,624 Barley2 874 361 695 553 384 409 496 Oats2 839 412 693 570 421 412 445 Rye2 1,045 287 655 773 331 420 565 Corn 2,956 3,420 3,778 3,693 3,921 4,156 4,473

B. Beef

Average 1955-58 1962 1963 1964 1965 1966 1967 Cattle population (million head)2/ 44.1 42.6 40.3 42.5 46.7 48.0 51.2 / Slaughtering (million head) 11.5 11.8 12.9 9.4 9.5 11.2 12.4 Beef production (thousand tons) 2,406 2,379 2,605 2,019 1,995 2,321 2,604

1j Estimated 2/ Area harvested 3/ At June 30, except 1964 at September 30 May not be comparable with previous years owing to charge in estimating procedures Sources: National Statistical Office and National Meat Board. Table 8

CENTRAL ADMINISTRATION BUDGET 1966-1968 (billions of pesos)

1966 1967 1968 (Actual) (Budget) (Actual) (Budget)

I. Total Receipts 284 478 479 580 Tax Revenue 253 441 423 514 Non-Tax Revenue 31 37 56 66

II. Current Expenditures 281 342 368 411 Wages and Salaries 163 210 215 216 Other Goods and 'Services 42 65 67 68 Interest on Public Debt 26 28 31 30 Social Security Contributions 23 28 32 33 Subsidies and o-ther 18 17 18 33 Transfers to Provinces 9 10 19 20 Economies - -16 -14 -12 Emergency Credit 23

III. Budgetary Savings (I - II) 3 136 111 169

UT. Transfers to Public Sector 155 180 183 197

To State Economic Enterprises 106 105 99 99

Railways 78 74 74 83 Other 28 31 25 16

To Decentralized Agencies/Special Accounts 49 75 84 98 V. Central Administration Investments 14 3112 24 / 412/ VI. Deficit (III - IV - V) 166 75 96 69

Adjustment2Y - 21

VII. Deficit, Adjusted 75

1/ Includes M$N 14 billion budgeted investment funds held in unallocated reserve. 2/ Includes M$N 14 billion of presumed economies in 1967 and ITN 6 billion in 1968. 3/ Presumed economies reflecting difference between actual cash expenditures and budgetary authorizations.

Source: Ministry of Econony Table 9

NATIONAL GOVERNIENT REVENUES, 1961-68 (billions of pesos)

t967 - 1961 1962 ~~196 1963 1964 1965 1966 (Budget) (Actual) BudLget

I. Central Administration (Budget) 108 97 IL9 123 224 284 478 a 580 a. Tax Revenues 97 87 100 110 196 253 441 423 514 Incame 21 17 21 26 47 65 95 98 98 Sales 15 15 15 20 34 46 87 67 103 Excise 8 10 11 14 20 29 41 40 51 Stamp 4 4 3 4 12 16 20 23 31 Foreign Trade 38 30 29 41 63 70 141 136 172 OtherY 11 11 20 5 19 27 57 59 59 b. Non-Tax Revenues 1i 10 19 13 28 31 37 56 66 II. Taxes Shared with Provinces . 28 36 55 99 130 n.a, 162 194 III. Eannarked Taxes/ 28 32 52 68 n,a. 98 1203/ IV. Tax Revemnes (Ia.+II+III) 157 138 168 213 347 451 n.e, 683 828 V. Social Security Contributions 42 41 60 98 136 168 n.a. 310 339 VI. Total Revenues (IV+V) ao 189 247 324 1 650 n.a. 1,049 1,233

Real Revenue, 1961=100

Total Revenue 100 70 74 79 98 95 n.a. 117 14/ Tax Revenue, including Social Security 100 70 1 81 97 94 u.s. 118 1204 Tax Revenue, excluding Social Security 100 68 67 70 88 87 J.|* 102 1084/

Revenue as Percent of GDP Total Revenue 18,3 13.4 14.2 13.7 15a7 16,2 u.a. 20.1 19.6 Tax Revenme, including Social Security 17.3 12.7 13.1 13.2 14.9 15,3 n.a.. 19.0 18.5 Tax Revenue, excluding Social Security 13.6 9.7 9.7 9.0 10.7 11.3 n.a. 13.1 13.2

~'"Other" tax revenue for 19614.66 adjusted to confomn to revised totals and niot be ccnsparab4e Including with earlier years. tax revenues of the Decentralized Agencies and Special Accounts :/ Mission estimate retimated for 1961 Assuming 15% price increase

Source: 144a, Annex II; IMF; Ministry of Economv Table 10

NATIONAL GOVERNMENT EXPENDITURES BY FUNCTION, 1967-68 (billions of pesos)

se-tral ~1 9 6 7 -jCnrl1 9 6 8j_ Adminis- Special Decentralized !Adminis- Special Decentralized Percent Change in tration Account Agencies Total tration Account Agencies Total Total Expenditures

1. General Administration 57,810.0 9,321.9 4,756.2 71,888.1 60,855.4 7,637.9 6,154.8 74,648.1 1 + 3.8

2. Defense 106,804.7 7,800.0 212.5 114,817.2 106,672.3 6,306.3 764.5 113,743.1 - 1.0

3. Security 34,405.8 1,633.5 - 36,039.3 35,o48.9 1,706.9 - 36,755.8 + 2.0

4. Health 15,396.4 1,524.7 37,420.6 54,341.7 16,170.6 1,724.7 43,802.9 61,698.2 +13.6

5. Culture and Education 69,644.5 3,194.2 54,508.9 127,347.6 70,024.8 5,217.7 57,784.8 133,027.3 + 4.7

6. Economic Development 162,167.6 28,645.1 L40,409.2 331,221.9 157,713.3 32,364.6 173,347.4 363,425.3 + 9.7

7. Social Welfare 42,284.2 5,o65.3 18,162.3 65,511.8 43,674.2 5,129.4 16,418.0 65,221.6 + 7.8

8. Service of Public Debt 64,233.4 - - 64,233.4 74,288.0 - 74,288.0 +15.7

9. Unclassified 1,645.1 - - 1,645.1 43,488.1 - - 43,488.1 n.a.

554,391.7 57,184.7 255,469.7 867,046.1 607,935.6 60,087.5 298,272.4 966,295.5 +11.4 idau.Le 11

SAVINGS AND INVESTMENTS OF STATE ECONOMIC ENTERPRISES, 1965-68 (billions of pesos)

1965 1966 1967 1968 Actual Actual Planned Actual Planned

I. Gross Investments 74 99 159 135 181

(a) State petroleum corporation 27 34 61 52 71 (b) Water and Power authority 18 11 17 17 30 (c) State Gas Corporation 12 23 34 28 26

(d) Port Administration * 1 1 1 2 (e) National Telephone Corporation 4 5 13 13 20 (f) State Coal Corporation 2 3 4 2 3

(g) State Maritime Fleet 2 2 2 3 2 (h) State River Fleet 1 0 * * 1 (i) Argentine Airways * 6 4 4 1

(j) Buenos Aires Subways 1 1 * * 1 (k) State Railway Corporation 7 14 20 14 23

II. Gross Savings (-Deficit) - 8 -21 5 20 66

(a) State Petroleum Corporation 24 31 33 46 62 (b) Water and Power Authority 1 3 10 11 14 (c) State Gas Corporation 6 7 5 9 9

(d) Port Administration * 2 1 2 2 (e) National Telephone Corporation 5 4 14: 13 17 (f) State Coal Corporation - 1 - 2 - 3 - 3 - 2

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

(j) Buenos Aires Subways - - 1 * * * Ck) State Railway Corporation -41 -58 -52 -52 -35

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

1. Enterprises -83 -120 -154 -115 -115 (a) State Petroleum Corporation 0 - 3 - - -69 (b) Water and Power Authority -15 - 8 - 7 - 6 -16 (c) State Gas Corporation -13 - 16 - 29 -19 -17

(d) Port Administration * 1 * 1 0 (e) National Telephone Corporation 1 - 1 1 0 - 3 (f) State Coal Corporation - 3 -5 - 7 - 5 - 4

(g) State Maritime Fleet - 2 -5 - 2 - 3 - 3 (h) State River Fleet - 2 -2 - 2 - 3 - 2 (i) Argentine Airways - 1 -7 - 5 - 7 - 1

(j) Buenos Aires Subways - 1 -2 - 1 *- 2 (k) State Railway Corporation -47 -72 - 72 -66 -58

* Less than M$N 1 billion

Source: CONADE and Minist-y of Economy Table 12 PUBLIC INVESTMENT, 1965-68 (billions of pesos)

1965 1966 19671t 1968 Planned Actual Planned Actual Planned Actual Planned

Transport 42.2 23.9 38.2 42.1 50.7 48.5 82.9 Highway Authority 10. 11.0 11.0 1T.2 17.2 19.1 7 State River Fleet 1.6 1.0 1.3 0.1 0.4 0.1 0.4 Ports and Waterways 1.5 1.7 1.7 2.9 4.3 4.3 5.9 Port Adninistration o.8 0.4 o.6 0.8 1.2 1.2 2.1 Maritime Fleet 4.0 1.8 2.2 1.9 1.9 1.1 2.3 A-gentine Airways, Airports 1.0 0.4 4.8 6.1 4.7 5.6 5.2 Subways 1.7 o.8 0.8 0.8 0.5 0.4 1.5 State Railways 21.2 6.8 15.8 14.3 20.5 14.9 23.2 Other n.a. n.a. n.a. n.a. n.a. 1.8 2.2

Energy and Fuel 9 58.2 84.7 70.4 115.9 100.2 130.7 tate Coal . 2. 2.5 . 2.0 2.6 State Gas 13.4 11.8 20.1 22.9 33.6 28.4 25.8 Water and Power Authority 9.1 18.0 18.0 11.3 17.4 16.6 30.0 State Petroleum 24.8 26.6 43.8 33.7 60.7 51.9 70.8 Other n.a. n.a. n.a. n.a. n.a. 1.3 1.5

Communications 4.61 9.3 5.0 13.8 15.1 23.0 National Telephone Corp. 4.7 4T.T74 13.1 12.7 20.0 Post Office and Telecommunications o.6 0.5 o.5 0.5 0.7 1.8 2.8 Other n.a. n.a. n.a. n.a. n.a. o.6 0.2

Health and Education 7.6 8.0 8.0 12.2 21.9 31.1 44.3 Water and Sewer Corp. 4.9 3.1 3.1 75.9 12.7 97 Public Health Service 0.7 o.6 o.6 0.9 1.1 2.5 3.0 Education 2.0 4.3 4.3 6.4 8.1 15.0 21.5

Other 20.0 26.6 26.9 19.4 52.3 54.4 66.6 Agriculture 2.3 .91.2 1.7 3.2-. 9.1 Industry ) ) ) ) ) 12.8 12.4 Defense and Security ) ) ) ) ) 21.2 22.3 General Acdmnistration ) 17.7 ) 25.7 ) 25.7 ) 18.0 ) 49.1 6.4 8.o Social Welfare ) ) ) ) ) 5.2 2.9 Unclassified ) ) ) ) ) 3.8 11.9

Economies n.a. n.a. n.a. n.a. n.a. -14 o2 / - 6.o2/

Total 124.2 121.3 167.1 149.1 254.6 235.3 341.5

1/ Functional classification of planned and actual investments not strictly comparable for some items. 2/ For 1967, global estimate based on preliminary budget data. For 1968, estimate of possible global shortfall. Table I-

CIVILIAN PERSONNEL EAPLOYED IN THE NATIONAL PUBLIC ADMINISTRATION

As of May 1 December 31 1961 1963 1966 1967 1967

200,064 I. Central Administration 244,436 202,217 205,280 201,172 36,139 II. Security and DefenseV/ 39,063 31,683 33,41h 3h.407 255,721 III. Decentralized Agencies 214,945 224,050 245,267 251,087 of which: National Education Council 51,291 53,770 53,707 National Technical Education Council 28,011 28,815 30,294 Universities 43,504 45,053 h7,302 Sanitary W1orks 22,113 22,061 23,556 National Highway Board 13,240 13,262 14,209 301,062 IV. State Enterprises 393,192 281,761 311,618 308,231 of which- Railways 213,341 149,421 172,220 170,171 166,629 State Petroleum Corporation 36,682 36,306 40,880 40,563 39,178 National Telephone Corporation 37,241 38,143 39,251 39,145 38,420 Viater and Power Authority 18,145 13,263 1,566 932 1,757

V. Total Employment 891,636 739,711 795,676 795,197 792,986

1/ Includes Maritime Police, Federal Police and civil personnel of Frontier Police.

Source: Fiinistry of Economy Table 14

COST OF LIVING IN BUENOS AIRES, 1963-1968

INDEX, 1960-100 Tbtal Seasonally Houaehold Adjusted Total ,.-eod Clothing General Goods Housing

1963 180.7 180.7 175.5 187.6 203.9 198.2 1b3.3 1964 220.7 220.7 222.6 224.6 235.7 220.4 146.7 1965 283.8 283.8 284.8 289.1 310.9 285.1 184.0 1966 374.1 374.3 356.8 387.4 430.3 364.3 393.2 1967 483.6 483.7 460.1 499.1 579.6 481.5 456.3 1967 January 423.5 426.5 397.8 443.6 503.9 483.8 456.3 February 434.7 435.6 408.7 451.4 511.8 487.6 456.3 March 444.8 445.2 41C.6 465.1 552.3 5m1.7 456.3 April 448.4 450.6 417.6 479.7 565.4 420.3 456.3 May 457.6 454.9 417.0 490.6 580.3 436.5 456.3 June 479.0 474.7 443.3 506.8 586.9 443.9 456.3 July 503.4 498.4 479.9 512.4 591.5 454.1 456.3 August 509.8 500.1 47S.2 519.1 597.4 458.5 456.3 September 513.2 502.4 478.1 524.3 611.4 461.4 456.3 October 523.1 516.8 500.2 529.0 614.3 463.8 456.3 November 530.3 528.7 510.6 532.8 618.1 581.1 456.3 December 535.1 569.9 578.5 534.6 621.4 585.o 456.3 1968 January 546.5 550 3 533.5 536.4 640.1 589.6 536.6 February 554.6 555.7 538.0 538.8 657.1 591.5 536.6 March 551.5 552.1 525.5 541.9 681.1 593.4 536.6 April 547.1 549.8 525.3 551.8 694.5 476.8 536.6 May 553.7 550.4 522,2 560.2 690.2 481.5 536.6

Pwrcent ChbDye

1963 +26.0 +24.0 +22.9 +25.0 +33.9 +15.6 + 9.5 1964 +22.1 +22.1 +2&8 +19.7 +15.6 +11.2 + 2.4 1965 +28.6 +28.6 +27.9 +28.7 +31.9 +29.4 +25.4 1966 +31.8 +31.9 +25.3 +34.o +38.4 +27.8 +113.7 1967 +29.2 +29.2 +28.9 +28.8 +34.7 +32.2 +16.0 1967 January + o.8 - 4.7 -10.1 + 2.0 + 2.6 + L.4 + 9.5 February +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 - Jane +4.7 +4.4 +6.3 +3.3 +1.1 +1.7 - July +5.1 +5.0 +8.3 +1.1 +0.8 +2.3 - August +1.3 +0.3 -0.1 +1.3 +1.0 +1.0 - September +0.7 +0.5 -0.2 +1.0 +2.3 +0.6 - October +1.9 +2.9 +4.6 +0.9 +0.5 +0.5 - November + 1.3 + 2.3 + 2.1 + 0.7 + 0.6 +25.3 - December +0.9 + 7.8 +13.3 + 0.3 + 0.5 + 0.7 - 1968 January + 2.1 -3.4 -7.8 +0.3 + 3.0 +0.8 +17.5 February + 1.0 +1.0 + 0.8 +o.4 +2.7 +0.3 - March - 0.5 -0.6 -2.3 +0.6 +3.7 +0.3 - April - 0.4 - .4- + 0.5 + 1.8 -19.7 - May + 1.2 +0.1 -o.6 +1.5 +A.8 + 1.0 -

Source: National Statistics and Census Office. WHOIESALE FRICES, 1962-68

1960=100 Non-Agricultural Commodities Agricultural General Commodities Domestic Imported

1962 141i1 144.9 1 4 0.4 128.7 1963 181.7 195-8 177.3 156.9 1964 229.3 251-1 223.3 178.6 1965 284i2 275.0 291.4 232-4 1966 340.9 333.8 348-2 278.1 1967 428.6 420,0 434 3 398.6

1967 I 388.1 371L6 398.2 342-4 II 416.2 392.h 426e8 klO.9 III 448i5 453.3 448 2 421.1 IV 461.7 462.7 464h1 420.0

L968 I 4633.a 447.8 472,9 414.6

Percent Changes

'1962 42.4 55.3 36.1 58-1 '1963 23e? 28.9 22.7 4.6 1964 17.8 7.h 22;8 19.3 1965 28.3 21.8 30.9 30.2 '1966 22.6 27.9 20.3 26.1 1967 20.6 20:5 20.2 31.*6

1967 I h43 -3.7 6.8 19.2 II 8.9 14-.1 6.8 10o4 III ;59 10.7 4- 3 0.3 IV 0.4 -0.9 1.0 -0.3 1968 I 1.5 -3.2 3.6 -0.9

Source: National Statistics and Census Office Table 16 - INDUSTRIAL WAGES-/, 1961-68

Money Wages Real Wage sZ Annual Averages 19 100 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

1967 601 124 -

December 1965 375 116 -1.5

December 1966 507 121 4.3

June 1967 628 131 8.2

December 1967 628 117 -11.7

March 19682/ 670 121 3.3

Source: National Statistics and Census Office

1/ Industrial Wages (average of skilled and unskiUed workers) in Buenos Aires based on collective bargaining contracts. 2/ Deflated with seasonally adjusted cost of living index. ,t/ With 6 percent increase in effective wages granted through reduction in social security contributions. Table 17

MONETARY SITUATION, 1963-68

Balances at end of Period (billiono of oseoa) lAarch Percent Changes in Period March Jan -March Jan-March 1963 1964 1965 1966 1967 1968 1966 1967 1967 1968

I. Domestic Credit 380 542 676 895 1,074 j 12 32 20 3 5 Government Sector 125 198 233 328 317 333 41 - 3 10 5

Private SectorlJ 308 408 525 679 890 ,,3? 29 31 1 5

Other Accounts - 53 - 64 - 82 -112 -133 -14V 36 18 13 11

II. External Accounts 26 32 55 66 183 1;'3 20 177 26 5 III. Money and Quasi Money 406 574 731 961 1,257 1.317 31 31 5 5 Money 283 395 498 672 872 35 30 2 2

Quasi Money 123 179 233 289 385 427 24 33 11 11

Source: Central Bank

lJ Includes National Grain Board and State Enterprises Table 18

BALANCE OF PAYMENTS, 1965-68 (millions of dollars)

1965 1966 19672/ 19684/ 1968_5/

I. Current Account 184 253 180 116 66

Exports 1,493 1,593 1,465' 1,560 1,485 Inports -1,198 -1,124 -1,096 -1,220 -1,175

Trade Balance 295 469 369 340 290 Services 13 32 18 1B 18 Profits - 40 - 90 -69 - 57 ( 159 Interest - 49 - 61 -50 -102 Other'! - 34 - 97 -80 - 83 - 83

Invisibles Balance -.111 -216 -18° -224 -224

II. Capital Account -.168 -250 296 - 1 11

Direct Investment 47 30 56/ 30 30

Import Credits: Utilization 132 160 149 187 187 (Private Sector) (84) (76) (76) (101) (101) (Public Sector) (48) (84) (73) (86) (86) Long-Term Capital 39 13 59 158 170 (Loan Drawings) (39) (13) (34) (83) (95)

(Bond Issues) _- (25) (75) (75)

Amortization - 319 - 448 -366 _ 386 - 386 (Private Sector) (-64) (-122) (-75) (- 66) (- 66) (Public Sector) (_255) (-326) (-291) (-320) (-320)

Compensatory Financing:Utilization U1o 183 218 - (IiKF) - (48) - _ _ (Foreign Banks and Other) (13) (29) (201) - (Debt Refinancing) (13) (39) (17) _ (Dollar Bonds) (84) (67) _- -

Other Capital, Net - 177 - 188i/ 231 10 10

III. Errors and Omissions 1 - 7 - -

IV. Change in Reserves 16 - 4 480 115 77 (Minus=Decrease) Note: Detail may not add to totals due to rounding. Source: Central Bank and &ission Estimates 1/ Includes unilateral transfers 2/ Includes $70 million IvF subscription 3/ Provisional 1/ Estimate prepared by Central Bank in February 1968 7/ M.ission estimate t,/ Includes only direct investment in imported equiprnent Tl9

EXPORTS (f.o.b.) BY MAIN COMMODITY GROUPS, 1960-68 (r1llions of dollars)

1960 1961 1962 1963 1964 1965 1966 196712 19682U/

Livestock 520 516 541 665 590 563 690 687 n.a. dLive animals 21 24 33 2C 35 Meat 219 217 2?9 334 399 399 399 404 398 Hides 70 79 91 78 58 50 83 79 64 TJool 145 142 145 161 198 119 128 108 117 Dairy products 48 32 29 32 31 ?9 22 19 1 By-products 16 21 ?0 ?8 ?0 19 32 37 n.a.

Agriculture 509 388 607 596 695 891 772 654 n.a. Wheat 143 66 173 116 -979 373 --i59194 Corn 124 83 19? 1?7 168 154 201 904 187 Other cereals 57 46 50 38 90 49 59 h8 77 Oil seeds, vegetable oil 125 128 167 139 120 160 139 1h8 96 Fresh fruit 25 20 28 41 28 37 39 47 -59 Other agricultural products 34 45 67 65 47 48 54 63 n.a.

Forest Products 15 13 19 13 16 16 16 16 n.a.

Mining Products 5 6 29 93 13 13 'i8 12 15

Fish and Game 4 5 5 9 h _ 5 7 n.a. Manufactured Products 27 36 98 129 92 76 92 109 n.a. Sugar 7' 13 3 -7 -1T-7 -"-? Other manufactured products 20 23 95 65 86 69 86 101 n.a. Total 1,079 7T4 1,916 l,7 1,09,l ,1 3 15

Note: Details may not add to totals because of rounding. T7Provisional 2/ Projection prepared by Ministry of Economr in February 1968 Source: National Statistics and Census Office Table 20

VOLUME AND PRICE OF MAJOR EXPORTS: AVERAGE 1953-57 AND 1960-68 (Volume: 1,000 metric tons - Price: US$ per metric ton - Value: million US$)

1953-57 2/ 31 Average 1960 1961 1962 1963 1964 1965 1966 1967 1968

Meat Volume 424 438 436 570 781 616 529 646 669 672 Price 479 500 498 0oo 428 534 629 618 574 592 Value 203 219 217 228 334 329 329 399 384 398

Hides Volume 173 167 195 267 228 168 156 185 208 219 Price 364 419 405 345 342 345 321 449 375 352 Value 64 70 79 92 78 58 50 83 78 77 Wool Volume 112 140 140 159 136 97 125 145 116 150 Price 1,205 1,036 1,014 912 1,184 1,330 896 883 879 780 Value 135 145 1142 145 161 129 112 128 102 177

Wheat Volume 2,854 2,1486 1,066 2,832 1,831 3,710 6,661 5,055 2,060 3,1400 Price. 71 57 62 61 63 65 56 55 59 58 Value 202 143 66 173 116 242 373 280 122 196 Corn Volume 1,097 2,570 1,730 2,931 2,447 3,338 2,802 3,752 4,318 3,600 Price 59 48 48 41 52 50 55 54 52 52 Value 65 124 83 121 127 168 154 201 224 188 Linseed oil Volume 1/ 472 558 673 872 703 681 8-48 390 679 272 Price 71 73 74 68 60 60 55 54 52 62 Value 34 41 50 59 42 _ 41 47 21 35 17 Total value of above items 702 742 637 818 858 967 1,065 1,112 945 993 Other exports 298 337 327 398 507 443 428 481 520 567

Total export value 1,000 1,079 964 1,216 1,365 1,1410 1,493 1,593 1,465 1,560

Source: Central Bank

1/ Seed equivalent Table 21 COMPOSITIDON OF IMPORTS, 1962-68

(Millions of Dollars)

1/ 2/ 1962 1963 1964 1965 1966 196T 1968 -

I. Consumer goods 41i2 23.7 31.7 45.8 48.4 45.6 60.0 II. Raw materials and intermediate goods 664.7 530.6 748.1 874.3 761.6 737.8 812.0 Agricultural raw materials 46.1 39.4 58.7 56.o 58.5 58.6 h7.1 Lumber 30.2 27.2 36.8 47.3 55.9 48.o 54.8 Paper and paper board 44.2 43.9 59.2 74.5 79.0 65.4 76.2 Textile products 40h1 30.8 48.7 49.7 31.2 23.5 31.5 Chemicals and pharmaceuticals 82.7 81.8 123.4 143.2 144.3 163.2 176.0 Metals and metal products 177.7 128.4 195.1 267.6 205.5 195.5 191.5 Vehicles and parts 129.7 87.0 101.7 104.6 46.5 40.1 43.0 Electrical and other machinery 62.3 42.5 50.5 41.1 69.2 70.6 75.0 Other 51.7 39.6 74.0 90.3 71.5 72.9 116.9 III. Oil and lubricants 94.3 54.4 88.5 123.9 111.4 94.4 73.0

IV. Capital goods 556.3 372.0 208.9 154.6 202.9 217.7 275.0 V. Total 1,356.5 980.7 1,077.2 1,198.6 1,124.3 1,095.5 1,220.0

Sources: National Statistical Office3 and Central Bank of Argentina

1/ Provisional 2/ Estimate prepared by Central Bank in February, 1968 Table 22

OFFICIAL FOREIGN EXCHANGE ES.ERvS, 1961-67 (Millions of Dollars)

Central Bank Net Position Gold and Bilateral Exchange IF Net Treasury of Monetary Foreign Exchange Balances Liabilities Position Reserves Liabilities Authorities

1961 386 1i1 -400 -157 -61 -25 -86

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

1963 290 53 -352 -162 -171 -73 -244

1964 172 39 -218 -120 -127 -148 -275

1965 252 29 -152 -76 53 -237 -184

1966 225 36 -74 -30 157 -311 -154

March, 1967 266 24 -68 -18 204 -295 -91

June, 1967 678 28 -233 -7 466 -292 17 September, 1967 703 19 -229 2 495 -276 219

December, 1967 714 27 -230 18 529 -250 279

March, 1968 646 25 -227 48 492 -230 262

April, 1968 658 37. -227 51 519 -226 293

Source: Central Bank and I1M REVISED * ~~~Table 23 ARGETfINA - EXTERNAL MEDIUM- AND LONG-TERMI /1 PUBLIC DEBT OUTSTANDING INCLUDING UIDISBURSED AS OF JUNE30, 1967 Debt RepayaDle in Foreign Currency (In thousands of U.S. dollars)

Debt outstanding June 30, 1967 Item Disbursed Including only undisbursed TOTAL EXTER\AL PUBLIC DEBT /2 1,851,944 2,016,908

Publicly-issued bonds 31,236 31,236 Privately-placed debt 1,017,743 1,089,958 Suppliers' credits /3 573,730 633,792 Crude oil contracts 17,375 22,802 E'rivate bank credits 205,434 212,161 Privately-placed bonds 218,483 218,483 Other 2,720 2,720 IBRD loans 105,886 115,456 IDB loans 61,868 110,473 U.S. Government loans 321,606 380,811L Export-Import Bank 242,363 257, A ID 69,118 112,853 Other 10,105 10,105

Lo-ans from governments of other IB3RD members and Switzerland 157,074 161,It06 Canada 219 France 20,154 20,154 Genn2any 52,872 52,872 Italy 35,678 35,678 Japan 16,660 16,660 Netherlands 2,179 2,479 Sweden 29 29 Switzerland 3,852 3,852 UJnited Kingdom 25,054 25,411 Yugoslavia 77 77 Loans from other governments 21 924 22,958 Czechoslovakia 1 7 2,007 Hungary 1,907 1,907 Rumania 2,096 2,096 U.S.S.R. 15,954 16,948 Other 134 607 134,607 Conpensation for annulled oil contracts 103,.4T Nationalized properties 30,993 30,993 71iDebt t-it,h an criginal or extend-ed maturity of one year or more. 75 Inclu.des the cdebt of Segba, which Argentina considers private debt. Also includes private deot guaranteed by ?anco de la Nacion, Banco Industrial, and provincial banks insolfar as it is kno.n (i.e., any such loans from IDB or Export-Import Bank). EYclildes IMPF drawings. /3 Includes Sais,em credit to Gas dcl Estado of $257.9 million. Statistical Services Division Economics Department February 7, 1968 Table 21¢ REVISED

AEGENTINA - ESTIMATED CONTRACTUAL SERVICE PAYMENTS DUE IN FUTURE Oil .7VE I{,U MEDIUM'- AND LONG-TERM PUBLIC DEBT OUTSTANDING INCLUDING UNDISBUDED AS OiF JUNlE 30, 1957 /1 /2

Debt Repayable in Foreign Currency

(In thousands of U.S. dollars) Page 1 DERT OUTST (REGIN OF PEHIOD) PAYmIENTS DURING PERIOD INCLUDING AMOHTI- YEAR UNDISBURStD ZArIUN INTEREST TOTAL

GRAND 10TAL

1967 2,038,419 L3 351,457 1014,109 455,566 1966 1,861,399 334,260 106,930 441,210 1969 1,526,765 330,998 88,255 419.254 1970 1.195,766 279,401 69,Q05 349.306 1971 916,365 189,016 52,514 241,530 1972 727,349 142,230 43,716 185,947 1973 585,119 125,959 35,471 161,430 1974 459,160 10,759 27,890 128,648 19/5 358,401 81,534 22,421 103,955 1976 276,867 72,230 17,927 90,158 197- 204,637 36,564 9,615 46,178 1978 168,0/3 25,693 7,722 33,415 1979 142,3HLI 19344 6,675 26,020 1980 123,036 13,028 4,326 17,353 1981 110,009 11,458 3,679 15,137

PUBLICLY-ISSULD BONDS

1967 31,236 3 6,234 2,026 8,260 1968 26,388 6,207 1,615 7,822 1969 20,181 3,216 1,253 4.469 1970 16,965 3,226 1,049 4,274 1971 13,739 3,019 845 3,865 19/2 10,720 3.000 65n 3,650 1973 7,720 7,000 455 7,455 19/4 720 - - 19/5 720 - 1976 720 - 19/7 720 - 1978 720 - 19/9 720 - - - 1980 720 - 1981 720 -

See footnotes at end of t?tb'e. REVISED

ARGENTINA - ESTIMATED CONTRACTUAL SERVICE PAYMEN.TS DUE IN FUTURE ON EXTERNAL MEDIUM- AND LONG-TERN4 PTBLIC DEBT OUTSTANDING INICLUDING UNDISBURSED AS OF JUNE 30, 3.967 /1 /2 (CONT.)

Debt Repayable in Foreign Currency

(In thousands of U.S. dollars) Page 2

DERT oU rST (BEGIN OF PERIOD) PAYMENTS DURING PERIOD INCLUDING AMORTI- YEAR UNDIS8URSED ZAIIUN INTEREST TOTAL

PRIVATELY-PLACED DE8T - TOTAL

1967 1,084, 1 69 L3 233,441 58,939 292,380 1968 976.092 212,766 63,373 276,140 1969 762,9/1 207,963 5n,417 258.400 1970 554,989 156,8d9 38,689 195,578 197i 398,099 106,723 27,519 134,242 1972 291.3/6 63,576 23,348 86,924 1973 227,800 66,611 19,381 85,992 19/4 161,189 58,087 14,937 73,024 1975 103,102 40,3Y5 11,807 52,202 19/6 62,707 40,296 9,229 49,525 1977 22,411 7,329 2,524 9,853 19/8 15,082 4,241 2,006 6,246 1979 10,841 4,241 1,96A 6,209 1980 6,600 600 330 930 19i1 6,000 600 30n 900

SUPPLIERS CREUITS

1967 628,303 /3 114,183 36,647 150 ,830 1968 57219/1 108,128 40t,119 148,247 1969 464,489 101,969 34,518 136,487 1970 362,520 74,831 27,692 102,522 1971 2 8 7 6 8 9 53,489 21,678 75,167 1972 234,200 46,363 19,R67 66,201 1973 J87,867 44,861 170n38 61,869 1974 p43,t)Si) 39,934 14,347 54,281 1975 103,102 40,395 11,807 52,202 1976 62,707 40,296 9,P29 49,525 19/7 22,411 7,329 2,524 9,853 19/d 15 062 4,241 2,006 6,246 19/9 10,841 4,241 1,96R 6,209 19L0 6,600 600 330 930 19d1 6,000 600 300 900

See footnotes at end of table. REVISED

ARGTENTINA - ESTIMATED COINTRACTUAL SERViCE PAYT-0TS DUE IN FUFURE Oil EXInr'TAL ItEDIUM- AND LONIG-TER1 PUBLIC DEBT OUTSTANJDING INCLUDING UNDISBURSED AS OF JUNE 30, 1967 /l /2 (cotr.)

Debt Repayable in Foreign Currency

(In thousands of U.S. dollars) Page 3

DE'3T OUrST (BEGIN OF PERIOD) PAYMENTS DURING PERIOD INCLUDING AMORTI- YEAR UNOIS8URSED ZA I JUN INTERFST TOTAL

CHUDE OIL CONTRACTS

1967 22,802 h§ 26,956 586 27,542 1968 5.427 5,427 69 5,496

PRIVATELY-PLACEL) DEBT OTHERS

1967 43.,354 /3 92,302 21,707 1L4,00o 1968 397,6Y4 99.211 23,185 1221 56 1969 298,482 106,014 15,899 121,913' 19/0 192,468 82,059 1n,997 93,056 1911 110,410 53,234 5,P41 59,075 1972 57,176 17,243 3.480 20,723 19/3 39.933 21.780 2,343 24.123 1974 18,153 18,153 590 18,743

See footnotes at end of table. REVISED

ARGENTINA - ESTIMATED CONTRACTUAL SERV-iCE PAYMENTS DUE IN FUTURE ON EXTERNALT MEDIUM- AND LONG-TERI PUBLIC DEBT OUTSTATDING INCLUDING UNDISBU.SED AS OF JUtE 30, 1967 /l /2 (COIIT.)

Debt Repayable in Foreign Currency

(In thousands of U.S. dollars)

Page h

DE9T OUrST (BREGIN OF PERIOD) PAYMENTS DlURING PERIOD INCLUDINLN AMOkTI- YEAR UNDISBUWSED ZATION I NTEREST TOTAL

I8RD LOANS

1967 115,456 4,403 6,101 10,504 1968 113,223 4,658 6,445 11,103 1969 108,565 4,926 6,173 11.099 1970 103,639 5,214 5,885 11,099 1971 98,425 5,516 5,561 11,097 19/2 92,909 5,844 5,259 11,103 1973 87,065 6,187 4,918 11,105 1974 80,878 6,542 4,557 11,099 1975 74,336 6,922 4,176 11,098 1976 67,414 7,331 3,773 11,104 1977 60,083 7,7t5 3,345 11,1no 1978 52,3?d 4,583 2,943 7,526 1979 47,745 4,8,3 2,677 7,530 1980 42,892 5,133 2,393 7,526 1981 37,759 5;438 2,0n94 7,532

ID0 LOANS /4

1967 107,473 /3 4,027 3,433 7,460 1968 104,658 5,924 4,536 10,460 1969 98,734 8,141 5,136 13,277 .1970 90,593 9,301 5,110 14,411 1971 81,292 10,903 4,853 15,755 19/2 70,390 10,909 4,188 15,095 19/3 59,481 10,784 3,525 14,3 ^9 19/4 48,697 8,747 2,895 11,642 1975 39,949 8,656 2,352 11,008 1976 31,293 7,023 1,844 8,868 1977 24,2/0 6,467 1,423 7,8P9 19/8 17,803 4,979 1.n35 6.014 19/9 12,625 4,185 746 4,931 1980 8,640 3,225 496 3.721 1981 5,415 1,975 314 2,2P9

See footnotes at end of table. REVI SC,D

AfrENTINA - ETTIATED COT'TRACTUAL SERVICE PAYMENTS DUE IN FUTUPRl'.E 0NXTLJ:. MEDIUM- AND LONG1-TERM' PUBLIC DEBT OUTSTANDING INCLUDIThG UNDISBUR2F.,D h8 Ok0 JUNE 30, 1967 /1 /2 (COlT..)

Debt Repayable in Foreign Currency

(In thousands of U.S. dollars) Page 5

DEPT OUVST (BEGIN OF P[:RluP) PAYMENTi DURING PERIOD INCLUDING AMOR1I- YEAR UNnISHURSDED ZAIIONN INTERFST TOTAL

U, S, GOVERNMtNT LOANS -TOTAL A /5

1967 380,814 /3 52,519 15,778 68,297 1968 354,064 47,981 14,398 62,379 1969 306,083 46,030 12,331 58,360 1970 260,054 44,072 9,932 54,004 1971 215,981 29,534 7,799 37,333 1972 186,447 28,314 6,285 34,599 1973 158,133 23,658 4,925 28,5' 1974 134.4/5 19,187 3,809 22.997 1975 115,288 18,644 2,885 21,529 1976 96,644 15,363 2,084 17,446 1977 81,251 12,956 1.450 14,406 19/8 68,326 9,982 975 10,957 1979 58,343 4,156 626 4,782 1980 54,157 2,160 553 2,714 1981 52,027 2,137 523 2,660

U,S. GOVT, - EXIMdANK LOANS /A

1967 257,656/3 44,810 13,377 58,186 1968 235,4Y2 41,497 11,867 56,364 1969 193,9/5 40,072 9,25 49,898 1970 153,903 38,114 7,640 45,754 1971 115,789 23,575 5.760 29,334 1972 92,215 22,213 4,502 26.715 19/3 70,002 18,2;5 3,395 21,651 1974 51,746 14,740 2,485 17,225 1975 37,006 13,552 1,716 15,269 1976 23,454 9,449 i,n75 10.524 1917 14,005 7,040 607 7,647 1978 6,965 5,920 279 6,199 19/9 1,045 1,045 26 1,071 REVISED

ARGENTINA - ESTIMATED CONTRACTUAL SERV ICE PAYMENTS DTJE IN FUTURE ON EXT7CTJIAL MEDIUM- AND LONG-TERM PUBLIC DEBT OUTSTANDING INCLUDINT UNDISBURSED AS OF JUNE 30, 1967 /1 /2 (COlIT.)

Debt Repayable in Foreign Currency

(In thousands of U.S. dollars) Page 6

DEBT OU1ST (BFEGIN OF PER10!) PAYMENTS; DURING PERIOD INCLUDIN(S AMOhTI- YEAH UNDISBUR,,ED ZAIIUN INTEREST TOTAL

U,S, GOVT9 - UTHER LOANS /S

1967 122,958. /3 7,710 2,402 10,11.1 1968 118,591 6,483 2.531 9,015 1969 112,108 5,957 2,505 8,463 19/0 106,151 5,979 2.292 8,251 1971 100,192 5,960 2,039 7,999 1972 94,232 6,101 1,783 7,884 1973 88,131 5,402 1,530 6,932 1974 82,729 4,447 1.324 5,772 19/5 78,282 5,n91 1,169 6,260 1976 73,190 5.914 1,008 6,922 1977 67,2/6 5,916 843 6,759 1978 61,360 4,062 696 4,758 19/9 57,298 3,111 600 3,711 1980 54,187 2.160 553 2,714 1961 52,027 2,137 523 2,660

LOANS 2ROM GOVERNI'INTS OF OTHER IBRO1) MEMT5B.-kS A,I: SWITZEPLANI) - TOTAL

1967 161L406 P 23,510 9,375 32, 885 1968 144,351 33s184 9.015 42,199 1969 111,167 39,745 6,577 46,322 1970 71,422 39,728 3,978 43,706 1971 31,694 15,128 1,696 16,824 1972 16.566 14,091 784 14,875 1973 2,475 650 107 757 19/4 1,825 326 71 397 1975 1,499 326 52 378 1976 1,173 326 3? 358 1977 847 165 13 178 1978 682 17 8 26 19/9. 665 17 8 26 19b0 647 17 8 25 1961 630 17 8 2D REVISED

ARGEiTINA - ESTIMATED CONTRACTUAL SERVICE PAYMENTS DUE IN FUTURE ON EXTERNAL MEDIUM- AND LONG-TERI PUBLIC DEBT OUTSTANDING INCLUDING UTDISBURSED AS OF JUNE 30, 1967 /1 /2 (CONT.)

Debt.Repayable in Foreign Currency

(In thousands of U.S. dollars) Page 7

DEBT OUTST (bEGIN OF PBRIoD) PAYMENTS DURING PERIOD INCLUDING AMORTI- YEAR UNDIS8URSED ZAI UN INTEREST TOTAL

LOANS FFOM (ANAi)A

1967 4,163 /3 225 155 3 0 1968 3,969 389 199 588 1969 3,580 389 176 564 1970 3,192 389 152 541 1971 2,803 326 130 456 1972 2,4/7 326 111 437 1973 2,151 326 91 417 1974 1,825 326 71 397 19.5 1,499 326 52 375 1976 1l1/3 326 32 358 1977 847 165 13 178 19/8 682 17 8 26 1979 665 17 8 26 1950 647 17 8 25 1981 6'0 17 8 25

LOANS FROM FRANCE

J967 20,154 /3 3,350 1,n67 4,417 1968 18,529 4,299 900 5,199 1969 14,231 4,904 673 5,577 1970 9,326 4,904 423 5,328 1971 4,422 1,857 211 2,0U9 1972 2,565 2,241 109 2,350 1973 324 324 16 34 0

'P4o fnt%nnt.Pcz At. Pnr$ nf tphlp- REVISED

ARGiENTINA - TMMATED CONTRACTUAL SERVICE PADENTS DUE IN FUTU.?S ON EXTERNA'L MEDIUN,- AND LONG-TERM PUBLIC DEBT OUTSTANDING INCLUDIINTG UTDISBUPSF.D AS OY JUNE 30, 1967 /1 /2 (COIT.)

Debt Repayable in Foreign Currency

(In thousands of U.S. dollars) Page 8

DEHT OUTI ST (BEGIN OF PERIOnD) PAYMENTS DURING PERIOD INCLUDING AMOHTI- YEAR UNDISBURSED ZAIIUN INTEREST TOTAL

LOANS FROM UERMANY

1967 52,6/2 /3 5,686 2,903 8,7F9 1968 49,934 j1s102 3,146 14,249 1969 38,8.32 15,279 2,223 17,501 1970 23*553 15,279 1,211 16,4P9 1971 8,2/4 5,724 342 6,067 1992 2,550 2,550 111 2,661

LOANS FROIi ITALY

1967 35,6/8 /3 5,588 2,31n 7,898 1968 32,891 8,000 2,472 10.4735 1969 24,690 8,808 1.831 10,639 1970 16,082 8,808 1.139 9,9')6 1971 7,2/3 382J3 550 3 ,7P 2 1972 4,041 4,041 258 4,298

See footnotes at end of table. REVISED

ARGENTIlm - ESTIMATED CONTRACTUAL SERVICE PAYMENITPS DUE IN FUTURE ON EXTER`AL MEDIUM- AND LONG-TERM PUBLIC DEBT OUTSTANDING INCLUDING UNDISBUBSED A'S OF JUNE 30, 1967 /1 /2 (CONT.)

Debt Repayable in Foreign Currency

(In thousands of U.S. dollars) Page 9

DERT OUIST (BEGIN OF PERIOD) PAYMENTS DURING PERIOnn INCLUDING AMOhTI' YEAR UNDISBURSED ZATION INTEREST TOTAL

LOANS FROM JAPAN

1967 16.660 /3 2,499 925 3.425 1968 15,741 3,373 884 4,256 1969 12,368 3,884 605 4,549 19/0 8,485 3,864 428 4,311 1971 4,601 2,045 220 2,265 1972 , 2.556 2,556 92 2,648

LOANS FROM NETHERLANDS

1967 2.479 /3 456 82 538 1968 2,023 554 148 702 1969 1,469 567 73 660 1970 862 567 45 632 1971 295 131 17 148 1972 164 164 9 173

Sec footnotes at end of table. REVISE,D

ARGEN4TINTA - ESTIKATED CONTRACTUAL SERV ICE PAYIE5NTS DUE IN FUTURE OJ EXTBREJAI MEDIUM- AND LONG-TE}RM PUBLIC DEBT OUTSTANDING INCLUDING UNDISBUThSED AS OF JuNE 30, 1967 /A /2 (CoITr.)

Debt Repayable in Foreian Currency

(In thousands of U.S. dollars) Page 10

DEPT OUI'ST (BEGIN OF PER 10f)) PAYMENTS DURING PERIOD INCLUDIN G AMOhTi- YEAR UNO.IS8URSED ZA1IUN INTEREST TOTAL

LOANS FROM ShWLDtN

1967 2913 13 1 J.4 1968 22 15 1 16 1969 7 7 - 8

LOANS FROM bW1TZERLAND

1967 3,8t,2 13 567 181 748 1968 3,285 805 153 958 1969 2,480 8t4 114 998 1910 1.596 8d4 73 957 1971 712 317 32 349 1972 395 395 15 410

3etc footnotes at end of table. REVISED

ARGENTINA - ESTIIIATED CONTRACTUAL SERVICE PAYMENTS DUE IN FUrURE ON EXTEVINA1. MEDIUMI- AND LONG-TERM PUBLIC D3T OUTSTANDING INCLUDING UNDISBURSED AS O': JUNE 30, 1967 /1 /2 (CONT.)

Debt Repayable in Foreign Currency

(In thousands of U.S. dollars) Page 11

DEBT OUTST (BEG1N OF PERIOD) PAYMENTS VURING PERIOD INCLUDING AMOHT1- YEAR UNDIS&URSED ZAIION INTERFST TOTAL

tOANS FROM UNITtD KINGDUM

1 96 7 25, Li4l /3 4 618 1,740 6, 359 1968 17,893' 4,622 1,107 5,729 1969 13.2/1 4,978 820 5,798 1970 8,293 4,980 508 5,4P8 1971 3.313 1,495 193 1.6R8 1972 1,818 1,818 80 1.89B

LOANS FROM YU60ObLAVIA

196b7 77 /3 307 11 318 1968 64 26 4 30 1969 38 26 2 28 .1970 13 13 - 13

-. G~~~~~~~~~~ -- ~ .---- 4n" n- _ ...4 REVISED

ARGENTINA - ESTIMATED CONTRACTUAL SERVICiE PAYMENIS DUJ, IN FUTUERE ON EXTERNAL MEDIUM- AND LONG-TERME PUBLIC DEBT OUTSTANDING INCLUDING UNDISBUIRSED AS OF JUNE 30, 1967 /1 /2 (CONT.)

Debt Repayable in Foreign Currency

(In thousands of U.S. dollars) Page 12

DEHT OUlST (BEGIN OF PERIOD) PAYMENTS DLJRI-NG PERIOD INCLUDING AMOrTI- YEAR UNDISBURSEI) ZAIIUN INTEREST TOTAL

LOANS FROM OIWED&R GOVE-NMENTfS - TOTAL

1967 22,958 13 6,362 487 6,849 1968 19.206 6;92U 436 7.357 1969 12,286 4,768 214 5,002 1970 7,498 4,357 96 4.453. 1971 3p140 2,305 25 2,330 1912 8J6 836 3 839

LOANS FROM CZLCH0SLOVAKIA

1967 2,007 /3 1,167 206 1,372 1968 1.251- 1,123 145 1,268 1969 128 72 7 79 19/0 56 42 2 45 1971 14 13 - 13 1972 1 1 - 1

See footnotes at end of table. _TOISi,D

ON LEX'TER%I ARGENTINA - ESTIMATED CONI'RACTUAL SERVICE PAYMENrS DUE IN FUTUHE AS OF M{EDIU1N- AND LON.rG-TERII PUBLIC DEBT OUTSTANDINCr INCLUDItN UNDISBUIC-5ED JUNE 30, 1967 /1 /2 (CONT. )

Debt Repayable in Foreign Currency

(In thousands of U.S. dollars) Page 13

DEBT OU I ST (REGIN OF PtRIOD) PAYMEiNTS DURING PERIOD INCLUDING AMOkT I- YEAR UDISHBURSED ZAIIUN INTEREST TOTAL

LOANS FROM HUNGARY

1967 1,907 /3 1,272 112 1,38;3 196.8 1,271 1.271 48 1,319

LOANS FRRON RUMANIA

1967 2,096/3 278 85 363 1968 1,818 318 71 3F9 1 9 6 9 j ,500 620 83 703 1970 879 646 46 692 1971 233 233 7 240

See footnotes at end of table. ARGINTINA - ES' ATED CONTRACTUAL SERVICE PAYnE,. , DUE IN FUTURE ON EXTERRNAL 7E,DI4M- AND LOT1TG-TE}C- PUBLIC DEBT OUTSTANDING INCLUDINIG UNDISBUPISED AS OF JUNtE 30, 1967 /1 /2 (COINT .)

Debt Repayable in Foreign Currency

(In thousands of U.S. dollars) Page l!g

DEHT OUTST (BEGIN OF PERIuD) PAYMENTS bURIUG PEIlnD INCLLIDINi AMOi-TTI- YEAR UNDISBURSED ZATION INTERFST TOTAL

LOANS FROM U,S.S,

1967 16,948 /3 3,645 85 3,730 1968 14,866 4,208 173 4,381 1969 10,658 40096 124 4,220 19/0 6,562 3,668 48 3,717 1971 2,893 2,059 18 2,077 19/2 864 864 3 837

NATIONAL IZA rUN

1967 134,607 /3 20,960 7,971 28,931 1968 123,417 16,640 7,111 23,751 1969 106,777 16,170 6,154 22,324 1970 90,607 16,614 5,166 21,780 1971 73,993 15,887 4,197 20,084 1972 56,106 15,661 3,198 18,859 1973 42,445 11,009 2,160 1.3,229 1974 31,376 7,869 1,62n 9.489 1975 23,5U7 6,591 1,149 7,740 1976 16,916 1,891 965 2,856 1977 15,025 1,892 860 2,752 1978 . 13,113 1,891 755 2.646 1979 11,242 1,892 650 2,54? 1960 9,350 1,892 545 2,43 1961 7,458 1,2Nl 440i 73

See footno4es at end of table. REVISED

ARGENTINA - ESTINATED CONTRACTUAL SERVICE PAYMENTS DUE IN FUTURE ON EXTERNAL IEDIUM- AND LONG-TER14 PUBLIC DEBT OUTSTANDING INCLUDING UNIDISBURSED AS OF JUNE 30, 1967 /1 /2 (CONT.) ______Pa.~e 15 /1 Includes service on all debt listed in Table 1 prepared February 7, 1968, with the exception of the following for which the terms are not available:

Total $8 ,89,000 Suppliers' credit 5,489,005 IDB 3,000,000 /2 Except for the amount outstanding and service payments for 1967, pounds sterling and Spanish pesetas on this table have been converted to dollars at the rates established by the November 1967 devaluation. /3 Amount outstanding is as of June 30, 1967; payments are for the entire year 1967. 7T Includes loans to private companie's guaranteed by Banco de la Nacion Argentina, Banco Industrial de la Republica Argentina, or provincial banks. /5 Interest payments include 3/4 of l service charge on loans from Social Progress Trust Fund of IDB.

Statistical Services Division Economics Department February 7, 1968