Deposits at the nation's banks have fallen by more than US$9 billion, or more than 10 percent, since the end of June on concern the government would freeze accounts or devalue the peso, which is fixed one-to-one with the dollar. Withdrawals eased this week, with total deposits rising by US$731 million between Aug. 14 and Wednesday, according to central bank figures.
Argentina needs to cut another US$900 million in spending this year to meet a promise with the IMF to spend only what it takes in during the second half, government officials said.
That may include either reducing transfer payments to provinces, which has met opposition, or by further limiting federal expenditures. The government already has slashed state wages and pensions by 13 percent, saving US$1.3 billion and prompting nationwide protests.
The measures will do little to pull the economy out of recession, analysts said.
Argentina expects the economy to shrink 1.4 percent this year, marking the third year of a slump, Secretary of Economic Policy Federico Sturzenegger said. The new forecast was revised from expected growth of 2 percent to 2.5 percent.
The economy probably will shrink 1 percent in the third quarter, after contracting 0.5 percent in the second quarter, he said Argentina said it expects growth of 3.5 percent next year.
That's lower than the 5 percent annual growth rate that Economy Minister Domingo Cavallo promised the country would achieve by the end of this year when he took office in late March.
As part of the IMF agreement, Argentina lowered its budget deficit target for next year to US$2.3 billion and kept this year's target at US$6.6 billion. The country also promised to spend only what it received in revenue next year.
The provinces, which receive about US$1.4 billion per month in government transfers, have so far resisted any change.
"The provinces are in a pretty difficult position right now," said Dow at MFS Investment Management.
Of the IMF's new US$8 billion loan for Argentina, US$5 billion will be provided in September and the rest is earmarked to help the country carry out a swap of bonds for new longer-term securities or to buy back debt.
Argentina said it will use US$4 billion of the IMF loan to replenish central bank reserves, which have fallen by about a quarter since the end of June. Another US$1 billion will go to the government for debt payments.
The country plans to lower its total amount of Treasury bills to US$1 billion from US$5 billion in the near term, Finance Secretary Daniel Marx said.
RSS