IMF suggests reforms in Argentina’s utility sector

Argentina needs to introduce reforms in the utility sector including the liberalisation of prices and raise investment in infrastructure to avoid the emergence of supply bottlenecks suggested the IMF in its annual World Economic Outlook.

Argentina’s economic expansion remains strong and broad based, bolstered by buoyant domestic demand and robust export growth, adds the IMF.

But looking ahead with capacity constraints likely to become increasingly evident and inflation beginning to erode competitiveness, growth is expected to moderate, forecasts the report.

However IMF corrected its previous 2006 growth forecast for Argentina from 4.2% last September to 7.3%, as well as its estimate for 2005 which was increased from 7.5% to 9.2%. Regarding 2007, the IMF estimate is 4%.

Argentina’s fiscal policy in 2005 performed better than budgeted as strong revenue growth offset a significant increase in government spending, but going forward a combination of larger than budgeted fiscal surpluses, higher interest rates and a greater exchange rate flexibility will be needed to manage domestic demand pressures and contain accelerating inflation, projected to average 13% in 2006.

Therefore, points out IMF, authorities will need to introduce reforms in the utility sector, including the liberalization of prices and raise investment in infrastructure to avoid the emergence of supply bottlenecks and thus pave the way for higher medium term growth.

IMF mentions that both Argentina and Brazil reflecting stronger external positions have repaid all outstanding IMF obligations, 15.5 and 9.6 billion US dollars.