The public finances deteriorated in 1999, reflecting the impact of the recession on tax revenue, a weakening of tax compliance, a growing interest bill, and spending overruns at both the federal and the provincial government level. 2/Average of LEBAC rates of all maturities. They were encouraged by the agreement recently reached with the Province of Buenos Aires, in which the latter had committed to achieving fiscal balance by 2003. The government has undertaken to continue the privatization process—among other things, with the sale of the National Mortgage Bank (BHN) to be completed in 1998—and has announced its intention to privatize Banco de la Nación (the country’s largest bank) later in the program period. A tight control of spending growth in the first few months of the year is expected to allow the federal government to meet the primary fiscal deficit objective for 2016 (4.8 percent of GDP), despite injecting some fiscal stimulus in the second half of the year. More than half of the external account deficit was financed by net foreign direct investment. Domestic and external factors combined to bring about the loss of confidence in Argentina that triggered the debt default and the crisis. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. The IMF Executive Board on February 4, 1998 concluded the 1997 Article IV consultation 1 with Argentina. Directors welcomed the authorities request for a Financial Sector Assessment Program (FSAP) to be carried out in the first half of next year. A three-year extended arrangement with the IMF was approved on February 4, 1998 (see Press Release 98/1), for a total of SDR 2,080 million (45 percent of the country’s quota on an annual basis). Confronted with this difficult situation, the authorities began an ambitious and much needed transition toward a better economic policy. A modest headwind from the planned fiscal rebalancing should be offset by a pickup in private consumption (as inflation continues to fall), an improving external environment, and a rebound of private investment. At the same time, some Directors considered that the pace of deficit reduction could be accelerated if economic activity was stronger than expected, including to facilitate the reduction of inflation. Directors expressed the hope that early agreement would also be reached on a sound reform of the revenue-sharing system. Also reflecting the drop in nominal GDP, the public sector debt increased to over 47 percent of GDP, up from 41 percent in 1998. Therefore, Directors welcomed the authorities’ commitment to take quick and decisive action to restrain domestic demand, should the current account deteriorate further or prospects for external financing worsen. Directors commended the authorities for their macroeconomic and financial management during 1997, which had helped the country weather the recent turbulence in international financial markets. In addition, a contingent repo facility was established with foreign banks to provide liquidity to the banking system, in an amount equivalent to some 10 percent of the system’s deposits, in the event of a crisis. They noted, in particular, the growing regional concentration of Argentina’s exports, and encouraged efforts to diversify export markets. The economic recovery was accompanied by an improvement in the employment situation. They also noted the strong support of the population for the regime, its demonstrated success in anchoring inflation expectations, and the high degree of de facto dollarization in the economy, as well as the fact that the economy was once again giving proof of its ability to adjust to the recent external shocks through a decline in domestic costs, nontradable goods’ prices, and domestic absorption.