1. Group 2
So, John Jerwin
Yacat, Kristine
Valeroso, Jaztine
Ganio, Mark Kevin
Domingo, Rhazeel
Fernandez, Gia Mae
Manuel, Hannah Sheena
2. *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.
*
3. *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.
*
4. *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.
*
5. *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.
*
6. *
* 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
7. * 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.
*
8. *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.
*
9. *
*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.
10. *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.
*
11. *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.
*
12. *Threat:
Failure to carefully assess
the financial problems and
possible remedies could cause
even worse effects to the
country’s economic condition.
*
13. *
*Acountry 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.
14. *
-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.
