Argentina - Capital Market Development Project

The Government of Argentina has undertaken a major reform of economic policy aimed at price stability and sustained economic growth. Measures to focus the state on core public functions and raise the efficiency of revenue mobilization have been essential for improving the fiscal fundamentals. Trade liberalization and the deregulation of domestic markets have improved economic efficiency. These reforms have been strongly encouraged and supported by the World Bank. Complementing earlier public sector reforms, the Bank extended two Public Enterprise Reform Adjustment Loans and a Public Sector Reform Loan (1991-92) along with complementary technical assistance loan (1991). The Government is now in the process of reducing the role of public banks and strengthening private banks. To support these reforms the Bank approved the Financial Sector Adjustment Loan (FSAL) in February 1993. This report proposes a Capital Market Development Technical Assistance (CMTAP) Project that will help provide term finance from private sources. The Capital Market Development Project will support a backstop facility (BF) that will offer prime-rated banks an option to sell to the BF medium-term US dollar-dominated bonds which will be issued for the purpose of rolling over prior dollar-denominated bonds that those banks had issued to support their longer term loan for productive purposes. A policy and institutional development program agreed between the Government and the bank will help increase market confidence. A complementary technical assistance loan will finance improvements in the capital market supervision and regulation, including enforcement; training of commercial banks to undertake project financing; and implementation of the new, recently approved pension system. These will help improve the policy framework for the project. This report discusses how the project will facilitate the implementation of the capital market development project in an efficient manner by supporting the creation of new institutions and the strengthening of others, by ensuring the development of more effective capital market regulations. In particular, the TA loan will support the institutional strengthening of the securities market regulatory Comision Nacional de Valores (CNV) -- and the reinforcement of security market regulations; b) the implementation of the pension reform legislation that reforms the social security system which promotes the development of independent pension funds and creates a new supervisory agency; and c) early establishment by private training institutions of an advanced progr improve local skills in the area of term financing for investment projects. The project will finance expenditures -- mainly for hiring consultants -- to assist the Government in the following activities: a) developing of the securities markets; b) implementation of the pension and the new pension funds system; c)) training program for long-term financial intermediation; and d) institutional framework for project implementation.