Group 2

So, John Jerwin

Yacat, Kristine

Valeroso, JaztineGanio, Mark Kevin

Domingo, Rhazeel

Fernandez, Gia Mae

Manuel, Hannah Sheena

Case Analysis: Argentina

*Introduction

*Argentina’s government comprises three levels: the federal government; 24 provinces, including the city of Buenos Aires, which has the rank of province, and all local governments with borrowing powers. Provinces have their own constitutions and executive and legislative branches of government.

*Argentine subnational governments have borrowed heavily from the banks, in the domestic bond market, and abroad, and by 2001 debt services was absorbing 25% of provincial spending. Devaluation of high domestic rates of interest pushed debt service beyond sustainable levels, participating widespread defaults and in November of 2002 the national government took the ultimate steps of defaulting on multilateral loans.

*Introduction

*Argentina has a weak federal government which has no effective control over provincial borrowing, which it monitors but cannot regulate. This case study of Argentina only looks at the experience of its 3 subnational borrowers – the province of Salta, the city of Buenos Aires and the province of Buenos Aires that were able to access international capital markets during the interim between crises in the mid to late 1990’s.

*The Federal government’s dwindling resources and its declining ability to assist subnational governments are major concerns in the protracted crisis because of the dramatic decline on federal revenues. The federal government failed to transfer the minimum amount required under the federal agreement fixing the monthly transfers owed to the provinces.

*Introduction

*During the 1990’s Argentina addressed several reforms that had positive effects on capital markets. Among the structural problems facing Argentina, building a workable fiscal relationship between the federal government and the provinces, is one of the most pressing.

*The province of Salta is one of Argentina’s major provinces which had issued its first public debt in February 2001 and backed by Hydrocarbon Royalties as collateral. It is the first asset-backed structure for an Argentine subnational issuer rated higher than the federal government.

*Introduction

*The City of Buenos Aires made its debut in the international bond market with a euro term note program in March 1997. The notes could be issued in a variety of currencies, including the Argentine peso, U.S. dollar, Italian and euro. The purpose of the program was to refinance the city’s debt stock and restructure its bank, Banco Cuidad de Buenos Aires. It was also aimed at gaining credibility and a sound reputation for the city among global investors.

*The province of Buenos Aires launched a euro-medium term note program in 1994 which has the intention of financing provincial needs but also to gain credibility and a sound reputation among global markets.

*General Problem

*The General Problem of Argentina when it comes to subnational borrowers is the failure of the Federal Government in providing correct measures and reforms necessary to face the economic problems of the country, which led to great debts and fiscal deficits as well as unavoidable defaults that destroyed the relationship between the country and overseas Capital Markets

*Specific Problem

*Problems that aided to the recurring financial crisis of Argentina can be found in the reforms made by the government that failed to materialize and address the problems. Such reforms include the devaluation of peso and the 1991 convertibility plan. Other problems include the loose federal structure of the government which failed to regulate the provincial borrowings. An elastic revenue system; heavy reliance on negotiated transfers from the central government; and a large, expensive, and protected public workforce have reduced the ability of subnational governments to manage their finances responsibly.

*Alternative Solution

*Extensive Rebuilding of the Argentine Political system is needed to solve the problems. Together with this must include a stricter and better Federal structure that can responsibly and effectively regulate provincial borrowers. Better plans and reforms must also be made which must spring from careful and collective analysis of date gathered from causes of debts and fiscal deficits.

*S.W.O.T. Analysis

*Strengths:

A better restructuring of the Federal Government will aid in the elimination of Argentine political problems that will provide the country with better methods of managing financial debts and revenues.

*S.W.O.T. Analysis

*Weakness:

Creating better reforms and restructuring of the whole system will take ample amounts of time. The citizens will also experience new problems in the process of transformation and will most likely disapprove.

*S.W.O.T. Analysis

*Opportunities:

Better reforms will aid in the country’s aim of achieving credibility and a sound reputation in global markets which will add investors to the country.

*S.W.O.T. Analysis

*Threat:

Failure to carefully assess the financial problems and possible remedies could cause even worse effects to the country’s economic condition.

*Conclusion

*A country is only as good as the system that guides it and the people that created and managed that system. Its functions can only perform well if the government and its people will abide by such rules or systems. Failure to provide a correct system will only result in unwanted burdens.

*Recommendation

-We recommend a restructuring of government policies and financial system.

-The country should focus more on creating policies that will alleviate the financial crises surrounding provincial areas.

-The government should be more strict and effective in regulating sub national financial transactions.

*End of Presentation