Argentina — страница 2

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the base for the inflation tax shrank even faster--efforts to reduce the deficit were not fast or permanent enough to convince the private sector that savings in domestic currency would not be eroded by inflation. Inflation became high and unpredictable, and the main impediment to the recovery of private savings and investment. The decade ended with two episodes of hyperinflation in 1989. Post-1989 Structural Reforms Tbe present administration took office in July 1989 during a traumatic hyperinflation--July inflation alone was 200 percent. This culminated a decade-long crisis in public finance. The new team inherited weak public institutions accustomed to deficit spending and with an institutionalized reliance on the inflation tax. In addition, claims on state revenues were far

greater than its capacity to mobilize resources-in short, the Argentine state was insolvent. The government undertook stabilization programs in 1989 and 1990. Neither succeeded, principally because of the intractability of the fiscal deficit. The first terminated in a new hyperinflation at the end of 1989 and in early 1990. The second lasted from March 1990 to December 1990 and ended in a new inflationary outburst but, unlike the previous breakdowns, the economy did not spin into hyperinflation. Instead, a new fiscal package in February 1991 was sufficient to close the remaining fiscal gap. This was followed by the April 1, 1991 Law of Convertibility fixing the local currency to the dollar and effectively proscribing money creation other than to buy net foreign reserves. The

convertibility program disciplines monetary policy and limits the power of the government to finance its deficit through inflation. The law markedly reduced the foreign exchange rate risk to investors and the inflation risk to business and labor--as long as the fiscal fundamentals are in place to support it. The February 1991 program was able to close the gap in large measure because the government's sustained structural reform efforts had progressively improved the foundations of public finance. The government had undertaken difficult to reverse reforms in the legal framework, institutions, and policies. These included institutional reforms of the federal government, public enterprises, and federal-provincial fiscal relations, and restructuring liabilities with domestic and

foreign creditors to adjust them to serviceable levels. Other reforms have helped elicit efficient private investment, notably trade, deregulation, and financial sector reform. Federal Government The government undertook a major effort to improve revenues through the implementation of a much-broad- ened and uniform value added tax first to goods in February 1990, and later extended to services in Novem- ber 1990. The government also improved the efficiency of the tax administration in 1989, establishing a control system for the largest taxpayers that took effect in February 1991. The tax penalty law, adopted by Con- gress in 1990, provided much needed sanctions for tax non-compliance. The tax package of February 1991 improved the quality of revenue mobilization substan- tially

because it eliminated export taxes, reduced pro- gressively during 1990 and early 1991, deducted higher taxes on financial transactions from the income/asset tax, and removed several minor taxes. In December 1992 subsidies to industrial promotion were substantially cut by replacing self-monitored tax deductions with a tax bond program. These efforts cumulatively produced dramatic rises in tax collections from the third quarter of 1991 on. The increase in value added tax collection allowed the government to eliminate inefficient taxes, such as the fuel tax and the stamp tax, in November 1992, and several specific sales taxes in May 1993. Federal employment decreased from 671,000 to 284,000, including 103,000 layoffs and 284,000 teachers and health workers transferred to provincial

payrolls. This effort was based on a ministerial reorganization that focused federal activities on core objectives, and improvements in the civil service system through an improved salary structure and efficiency measures. The government was able to increase average salaries and partially restore salary differentials. The government took several measures to strengthen budgeting procedures and expenditure controls. By 1993 it had eliminated 105 of the 151 earmarked accounts extant in 1990, and reduced the coverage of earmarked taxes. The September 1992 Law of Public Financial Management will permit comprehensive budgeting, effective internal expenditure control, and provide for new external auditing The government has embarked on several reforms to separate the central bank from