December 29, 2017

IMF published staff report and selected issues report in context of the 2017 Article IV consultation with Argentina. The relevant key issues highlighted in the staff report relate to challenges in the area of banking and financial intermediation. Meanwhile, the selected issues report deep dives into the issues related to tax and labor reforms.

The staff report reveals that the banking sector in the country is well-capitalized and liquid, but vigilance will be needed to ensure that asset quality remains high, as credit grows. Moreover, progress has been made on a few 2013 Financial Sector Assessment Program (FSAP) recommendations—including achieving full compliance with Basel III standards—but it would be important to continue strengthening financial supervision framework and tools. Stress testing procedures should be improved, with the BCRA better reconciling bottom-up and top-down stress tests. Data collection and analysis should be enhanced (particularly on real estate transactions, cross-border activities, and non-bank financial institutions). Coordination across sectoral regulators and ministries also needs to be strengthened, under the leadership of BCRA.

The report highlights that policies are needed to better intermediate savings to productive investments, including by developing bond and equity finance markets. One positive step would be to pass the Capital Markets Law (sent to Congress last year), which would modernize the capital market regulatory framework, improve corporate governance, widen the supply of financial assets, and promote the development of domestic institutional investors. The authorities are confident that the new Capital Market Law will be approved by the end of 2017. A deeper, more developed system of financial intermediation would support capital formation, growth, and financial inclusion. There is also a large potential to increase financial inclusion by extending banking services to a greater share of the population (less than 50% of the population has access to a bank account—a much lower percentage than in other Latin American countries). 

 

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Keywords: Americas, Argentina, Banking, Securities, Basel III, FSAP, Article IV, IMF

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