Argentina Bows To IMF Pressure Over Tax Breaks

by Robert Lee, Tax-News.com, London

11 December 2001

It was revealed at the weekend that the Argentinian government has bowed to pressure from the International Monetary Fund over corporate tax breaks and revenue sharing, following the international lending agency's decision to hold back $1.3 billion in crucial aid payments, needed in order to service repayments on debt now standing at around $155 billion.

Last week, Interior Minister Ramon Mestre told reporters that the IMF had demanded that the government pass its 2002 budget as a matter of urgency, alongside a new law streamlining revenue sharing with the provinces. These measures are needed to cut the country's burgeoning budget deficit, which is a condition imposed by the IMF for the disbursement of the funds.

However, following an emergency meeting in Washington, Domingo Cavallo, the country's Economy Minister, announced that he was also considering rescinding corporate tax breaks implemented earlier this year for private sector companies, which it is estimated will raise around $4 billion in extra revenue for the government.

Although tax increases may prove to be the most effective way of encouraging the IMF to release the crucial loan, they are likely to prove very unpopular in a country already beset by recession and social problems.

However, despite calls from the Opposition parties for his resignation, Mr Cavallo announced at the weekend that he was confident that the latest crisis would pass within 60 to 90 days. 'By March, we'll almost be able to leave this chapter behind us,' he reassured Argentinian citizens.

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