International Bank for Reconstruction and Development
                  International Development Association            87335
                     International Finance Corporation
                Multilateral Investment Guarantee Agency
                        FOR OFFICIAL USE ONLY
                        CONFIDENTIAL
                                                                     EDS98-103
                                                                  March 16, 1998


Board Meeting of March 17, 1998
Statement by Joaquim Carvalho


                Argentina: Country Assistance Strategy-Progress Report



     We are particularly pleased to review this progress report on the
Country Assistance Strategy for Argentina. We find the report to be a
good overview of recent developments in the country and we share the
staff’s judgment that the implementation of the CAS remains
appropriate and on track. We commend the Government of Argentina for
its continued commitment to its economic reform programs.      This is
clearly evident in the impressive growth rate of 8 percent, zero
inflation, declining unemployment and investment/GDP ratio reaching
pre-1994 crisis levels. However, a number of economic and social
challenges still remain to be addressed.

     We are pleased to note that the Federal Government is taking the
opportunity of the recent economic recovery to consolidate and deepen
its economic reforms. The performance of the provincial entities is,
however, still a cause of concern. We hope that the implementation of
the four provincial adjustment operations already approved by the
Board this year will improve the fiscal performance of these
provincial governments. In this connection, we note with satisfaction
the Bank’s assistance in the areas of poverty alleviation and social
development. We are however of the opinion that the Bank’s
interventions would be more effective if staff could engage the
provincial entities in more strategic policy dialogue and make more
efforts to increase non-lending services to the non-performing
provinces to encourage them to embrace the reform process.          The
importance of     provincial   governments in addressing poverty in
Argentina cannot be over-emphasized, as more than 80 percent of social
expenditures in the country are borne by these entities, while     many
of them have recently taken up the responsibility of     infrastructure
provision. We would like to know to what extent the newly approved
instrument for loans to sub-national governments can enable the Bank
to focus more effectively on the provincial governments in Argentina.
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     We are also pleased to note the improvement in portfolio
management, especially the increase in resources allocated to
monitoring and supervision. We hope that this will strengthen the
institutional capabilities of portfolio monitoring and project
supervision. We expect that the decentralization    to the field will
enhance project supervision and policy dialogue in the country. In
this connection, the client survey, summarized    in Box 2, is worth
noting. We hope that staff will take appropriate steps to address
complaints raised by the respondents in the exercise. We also expect
to see more of it in LAC as well as in the other regions.

           On the financial sector, we note that Argentina has thus
far been able to weather the effects of the Asian crisis. The analysis
in the report on the potential negative effects of the Asian crisis on
the Argentine economy is noted. We wonder whether there may not be a
need to explore further appropriate precautionary measures to insulate
the economy from the contagion effects of such crises. As this is not
clearly spelled out in the progress report, we would   appreciate some
elaboration by staff on the Bank’s strategy and policy in this area..
The report of the Financial Sector Review, which we understand is
underway, may be of great value for formulating the appropriate
strategy.

           We welcome the Bank’s collaboration with the IDB and IMF.
We hope that the Bank will continue to concentrate on areas where it
has a comparative advantage. We also endorse the IFC’s role in SMEs,
especially its lending program through the banking system, its
institution-building for capital markets and its advisory services.
IFC also has a large exposure in the financial sector and is providing
valuable support to health services and poor provinces. We are also
pleased with the level of MIGA’s activity in the country.

     On the volume and composition of lending to Argentina, we have no
difficulty in supporting the base case lending program as we believe
that it is consistent with the government’s agenda.

      With regard to the proposed loan for the National Highways
Rehabilitation and Maintenance project, we find it in line with
Argentina’s CAS objectives of building and upgrading the road
infrastructure, enhancing public infrastructure in the provinces and
promoting private sector investment in the transport system. The
project will also improve the road network, thereby reducing the cost
of tradeable products. We therefore lend our support to the proposed
loan.

     Finally, we wish Argentina   every success in its endeavor to
deepen its reform programs, and    commend staff for their work in
support               of                 this               effort.