Report No. 16996-AR Argentina The Fiscal Dimension of the Convertibility Plan A Background Report (in Two Volumes) Volume il: Annexes January 22, 1998 Argentina Chile and Uruguay Country Management Unit Poverty Reduction and Economic Management Unit Latin America and the Caribbean Regional Office Document of the World Bank  TABLE OF CONTENTS ANNEXES STATISTICAL APPENDIX ANNEX I Estimación de la Ejecución Base Caja del Sector Público Provincial ANNEX II Why Privatize? The Case of Argentina's Public Provincial Banks ANNEX III Sistema de Coparticipación Federal. Cambios Para Una Mayor Eficiencia Fiscal ANNEX IV Las Politicas de Vivienda en la Argentina: Análisis Económico de F.O.N.A.VI  目  Table Al Central Government Fiscal Accounts (Million Pesos - Cash Basis) 1991 1992 1993 1994 1995 1996 Current Revenues 27,92 38,344~ 43,943 4738 47,947~ 45,000 Tax revenues (Incl. coparticipation) 17,721 24,368 29,007 31,614 31,035 33,176 Social security contributions 7,979 11,947 12,246 12,913 13,705 10,281 Non Tax Revenue 2,223 2,030 2,690 2,861 3,207 2,543 Current Expditure 2707 69 40,07 454470 47,30 4,3#7 W&S General Government 4,589 4,814 5,607 6,308 6,643 6,750 G&S General Government 1,420 1,930 2,578 1,944 2,064 2,144 Social,Security Payments 7,824 11,429 13,136 16,001 15,628 15,444 Transfers 10,944 15,267 15,847 17,990 18,686 19,452 Provinces 9,000 12,516 12,595 13,568 12,429 13,336 Coparticipation 7,559 10,977 10,321 11,115 9,966 10,854 Others 1441 1,538 2,274 2,452 2,463 2,481 Other Transfers 1,943 2,752 3,252 4,422 6,256 6,117 Interest (1) 2,729 2,998 2,849 3,142 4,076 4,599 Domestic 586 346 326 226 187 138 Foreign 2,143 2,652 2,523 2,915 3,890 4,460 Other Current Expenditures 302 460 58 91 204 8 Public Enterprises Current Balance (982) (93) 690 (25) (59) (55) Public Sector Current Balance (867) 1,353 4,559 1,889 588 (2,452) Capital Receipts 4,066 1,887 668 807 1,256 501 of which Privatizations: 2,194 1,781 523 733 1,171 375 Capital Expenditures 1,843 1,838 2,496 2,780 3,218 3,564 National Administration 640 721 1,567 2,415 2,992 3,384 Public Enterprises 1,204 1,117 929 365 225 180 Balance (w/o extrabudgetary capital expenditures) 1,356 1,402 2,731 (84) (1,373) (5,514) Balance (w/o privatizations) (838) (379) 2,207 (817) (2,545) (5,889) Balance (w/ extrabudgetary cap. exp. and privatization 1,356 1,402 2,031 (1,084) (3,362) (7,580) (1) Public enterprises interest payments are included in the public enterprises current balance. (2) Balance doesn't include the Central Bank operations (and IMF interest payments are included in the Central Bank balance). Source: Cuenta Ahorro-Inversion. Ministery of Economy. Table A2 Central Government Fiscal Accounts (% current GDP - Cash Basis) 1991 1992 1993 1994 1995 1996 Cr R.4. 1,9 17. 6.8 17.1 . . . . . . . . ..... . ... . ... . . . . .> . . . .. . . . . . . . .."I"',....: "I . . .. . . . . Tax revenues (Incl. coparticipation) 9.8 10.8 11.3 11.2 11.1 11.0 Social security contributions 4.4 5.3 4.8 4.6 4.9 3.4 Non Tax Revenue 1.2 0.9 1.0 1.0 1.1 0.8 Current Ependtitures 15L4 16,3 15. 1.1 16Ø. 1. W&S General Government 2.5 2.1 2.2 2.2 2.4 2.2 G&S General Government 0.8 0.9 1.0 0.7 0.7 0.7 Social Security Payments 4.3 5.0 5.1 .5.7 5.6 5.1 Transfers 6.0 6.7 6.2 6.4 6.7 6.5 Provinces 5.0 5.5 4.9 4.8 4.4 4.4 Coparticipation 4.2 4.8 4.0 3.9 3.5 3.6 Others 0.8 0.7 0.9 0.9 0.9 0.8 Other Transfers 1.1 1.2 1.3 1.6 2.2 2.0 Interest (1) 1.5 1.3 1.1 1.1 1.5 1.5 Domestic 0.3 0.2 0.1 0.1 0.1 0.0 Foreign 1.2 1.2 1.0 1.0 1.4 1.5 Other Current Expenditures 0.2 0.2 0.0 0.0 0.1 0.0 Public Enterprises Current Balance (0.5) (0.0) 0.3 (0.0) (0.0) (0.0) Public Sector Current Balance (0.5) 0.6 1.8 0.7 0.2 (0.8) Capital Receipts 2.2 0.8 0.3 0.3 0.4 0.2 of which Privatizations: 1.2 0.8 0.2 0.3 0.4 0.1 Capital Expenditures 1.0 0.8 1.0 1.0 1.1 1.2 National Administration 0.4 0.3 0.6 0.9 1.1 1.1 Public Eniterprises 0.7 0.5 0.4 0.1 0.1 0.1 Balance (w/o extrabudgetary capital expenditures) 0.7 0.6 1.1 (0.0) (0.5) (1.8) Balance (w/o privatizations) (0.5) (0.2) 0.9 (0.3) (0.9) (2.0) Balance (w/ extrabudgetary cap. exp. and privatization 0.7 0.6 0.8 (0.4) (1.2) (2.5) (1) Public enterprises interest payments are included in the public enterprises current balance. (2) Balance doesn't include the Central Bank operations (and IMF interest payments are included in the Central Bank balance). Source: Cuenta Ahorro-Inversion. Ministery of Economy. Table A3 Estimated Provincial Public Sector Accounts (Million Current Pesos - Cash Basis) 1991 1992 1993 1994 1995 1996 Current Revene U...14?74 2. 2.4...95 2.,71 2..,119 27.$. Provincial Sources 5,408 8,561 10,348 11,573 10,970 11,414 . Tax Revenues 4,678 7,364 8,784 9,663 9,146 9,756 . Non-Tax Revenues 730 1,197 1,564 1,910 1,824 1,658 Federal Sources 9,366 13,244 14,451 15,298 15,149 16,245 . Coparticipation Federal 6,869 9,906 10,345 10,592 10,303 10,671 . Royalties 460 540 547 578 645 691 . Fondo de Desequilibrios 175 14 1 0 0 0 .Regimen Ley Nø 22916 y mod. 29 4 0 0 0 0 . Fondo Educativo 261 274 151 124 50 24 . Fondo de Innovacion Tecnologica 13 0 0 0 0 0 . Sistema de Seguridad Social 53 118 196 185 163 189 . Organ.de Vialidad (o Copart.Vial) 61 226 267 301 256 351 . Obras Infraest.(y Dto.2733 inc.c) 81 113 133 155 101 144 . Others 68 656 1,105 1,432 1,642 1,958 . Discretionary Grants 1,295 1,393 1,705 1,932 1,989 2,218 Non Reimbursable 356 608 841 995 1,214 1,228 - A.T.N. 112 222 359 470 584 550 - F.E.D.E.I. 15 73 101 83 81 101 - F.D.R. 101 23 90 37 60 44 - Others 129 290 291 405 489 533 Reimbursable 939 785 864 937 775 990 - FO.NA.VI. 805 729 828 928 771 988 - Anticipo de Impuestos 113 0 0 0 0 0 - Others 21 56 36 10 4 3 Current xpndtes1 4 '1,479 23,67 25,2ø 24,70. 25L4.2 . Wages 7,791 11,691 14,154 14,923 14,479 14,932 . Goods and Services 1,490 - 2,280 2,786 3,097 3,013 2,806 . Interest 227 349 469 590 729 871 . Transfers 3,496 5,160 6,458 6,657 6,483 6,852 Public Savings 1,770 2,327 931 1,605 1,415 2,197 Capital Revenues 85 130 269 300 309 316 Capital Expenditures 1,594 2,180 2,700 3,524 3,695 4,150 Extra budgetary expenditures 106 146 291 355 439 192 .. ... .... ...... ... .......... .e.....r l .. 3...alc... ... 3 (74) (2,1) ( Source: World Bank estimation. Table A4 Estimated Provincial Public Sector Accounts (% current GDP - Cash Basis) 1991 1992 1993 1994 1995 1996 Curent Revenues....9.......5..,3.9. Provincial Sources 3.0 3.8 4.0 4.1 3.9 3.8 . Tax Revenues 2.6 3.2 3.4 3.4 3.3 3.2 . Non-Tax Revenues 0.4 0.5 0.6 0.7 0.6 0.6 Federal Sources 5.2 5.8 5.6 5.4 5.4 5.4 . Coparticipation Federal 3.8 4.4 4.0 3.8 3.7 3.6 . Royalties 0.3 0.2 0.2 0.2 0.2 0.2 . Fondo de Desequilibrios 0.1 0.0 0.0 0.0 0.0 0.0 . Regimen Ley No 22916 y mod. 0.0 0.0 0.0 0.0 0.0 0.0 . Fondo Educativo 0.1 0.1 0.1 0.0 0.0 0.0 . Fondo de Innovacion Tecnologica 0.0 0.0 0.0 0.0 0.0 0.0 Sistema de Seguridad Social 0.0 0.1 0.1 0.1 0.1 0.1 Organ.de Vialidad (o Copart.Vial) 0.0 0.1 0.1 0.1 0.1 0.1 Obras Infraest.(y Oto.2733 inc.c) 0.0 0.0 0.1 0.1 0.0 0.0 Others 0.0 0.3 0.4 0.5 0.6 0.7 Discretionary Grants 0.7 0.6 0.7 0.7 0.7 0.7 Non Reimbursable 0.2 0.3 0.3 0.4 0.4 0.4 - A.T.N. 0.1 0.1 0.1 0.2 0.2 0.2 - F.E.D.E.I. 0.0 0.0 0.0 0.0 0.0 0.0 - F.D.R. 0.1 0.0 0.0 0.0 0.0 0.0 - Others 0.1 0.1 0.1 0.1 0.2 0.2 Reimbursable 0.5 0.3 0.3 0.3 0.3 0.3 - FO.NA.VI. 0.4 0.3 0.3 0.3 0.3 0.3 Wages 4.3 5.2 5.5 5.3 5.2 5.0 Goods and Services 0.8 1.0 1.1 1.1 1.1 0.9 Interest 0.1 0.2 0.2 0.2 0.3 0.3 . Transfers 1.9 2.3 2.5 2.4 2.3 2.3 Public Savings 1.0 1.0 0.4 0.6 0.5 0.7 Capital Revenues 0.0 0.1 0.1 0.1 0.1 0.1 Capital Expenditures 0.9 1.0 1.0 1.3 1.3 1.4 Extra budgetary expenditures 0.1 0.1 0.1 0.1 0.2 0.1 Oäer. 2e .. ...... ..... ..... 7) (..7. (0.9) (~ Source: World Bank estimation. Table A5 Consolidated Public Sector Accounts 1991 - 1996 (Million current pesos - Cash basis) 1991 1992 1993 1994 1995 1996 CmrntReenus 3,39 47,02 4,44 49,689 59,63 '7,$7 Central Govemment 18,965 25,829 30,591 32,793 33,617 30,304 National Administration 10,751 13,442 14,626 15,479 12,656 11,740 Social Security System 8,214 12,387 15,965 17,314 20,961 18,564 Provinces 14,774 21,673 24,893 26,896 26,022 27,569 ..............................................7... Central Govemment 19,832 24,475 26,967 32,108 35,109 35,307 National Administration 11,770 12,210 10,584 12,203 10,761 11,377 Social Security System 8,062 12,265 16,384 19,906 24,348 23,930 Provinces 13,004 19,479 23,867 25,266 24,705 25,462 Public Crrent Baance 40 3,47 448 2,31 C1?51 (2,95 Central Govemment (867) 1,353 3,624 684 (1,492) (5,003) National Administration (1,019) 1,232 4,042 3,276 1,895 363 Social Security System 151 122 (419) (2,592) (3,387) (5,366) Provinces 1,770 2,194 1,026 1,630 1,317 2,107 Central Govemment 1,872 1,887 668 807 1,256 501 National Administration 1,634 1,248 622 562 957 384 Social Security System 238 639 46 245 299 117 Provinces 85 130 269 300 309 316 CapitEpndi...e. .437 4... 42.. 5, 4 $4Ø$ Central Govemment 1,843 1,838 1,561 1,576 1,137 1,013 National Administration 1843 1838 1561 1570 1121 1008 Social Security System 0 0 0 6 17 5 Provinces 1,594 2,180 2,700 3,524 3,695 4,150 Central Govemment (838) 1,402 2,730 (84) (1,373) (5,514) National Administration (1,228) 641 3,103 2,269 1,732 (261) Social Security System 389 761 (373) (2,353) (3,105) (5,254) Provinces 261 144 (1,404) (1,594) (2,069) (1,726) Balance (w/o privatizations) (2.772) (235) 802 (z411) (4,614) (7,616) Privatization incomes 2,194 1,781 523 733 1,171 375 Trust fund (Banks) 0 0 0 0 (801) (589) Ex-Cajas Provinciales 0 0 0 0 0 (484) Capitalized interest 0 0 (700) (1,000) (1,188) (993) Balance (including extra budgetary accounts) (578) 1,546 626 (2,678) (5,431) (9,307) Includes: National Administration, Social Security and estimations for Provincial Govemments. Source: Ahorro - Inversion, Ministry of Economy. Table A6 National Administration Fiscal Accounts (Million Pesos - Accrual Basis) 1994 1995 1996 Natonal Administraion Current Re.ven.ues 38,.2.7981 35.4 Tax revenues 20,941 21,069 22,322 Social Sec. contributions 14,005 13,705 10,281 Non Tax Revenue 2,079 1,710 1,351 Goods and services sales 346 322 169 Rents 576 1,072 959 Current transfers 12 56 63 Other incomes 94 48 2 National Ad1ministration Current Expendire 3785 385 3,1 ........................ . .... Consumption Expenditures 9,067 9,626 9,480 W&S General Government 6,523 7,134 7,202 G&S General Government 2,539 2,491 2,222 Others 4 0 56 Property rents 3,175 4,004 4,160 Interest (Accrued) 3,173 4,000 4,158 Other rents 2 4 2 Social Security Payments 16,578 15,921 15,426 Other current expenditures 2 14 2 Current transfers 9,024 9,270 9,046 Private sector 3,788 4,607 4,526 Public sector 5,122 4,601 4,368 Provinces and MCBA 3,358 2,869 2,746 Universities 1,411 1,474 1,539 Others 353 259 83 External sector 113 62 152 Public Savings 207 -854 -2969 Capital Receipts 803 1,251 727 Capital Expenditures 3,242 3,428 3,882 Total revenues 38,855 39,232 35,873 Total expenditures 41,087 42,263 41,997 Financial balance (2,232) (3,031) (6,124) Trust fund (Banks) 0 (801) (589) Ex-Cajas Provinciales 0 0 (484) Capitalized interest (1,000) (1,188) (993) Overall Balance (with extra budgetary capital exp.) (3,232) (5,020) (8,190) Source: Boletin Fiscal. Ministry of Economy. Table A7 National Administration Fiscal Accounts (% current GDP - Accrual Basis) 1994 1995 1996 Adm.inistratin urrent Revenues......1.. 1 1 Tax revenues 7.4 7.5 7.4 Social Sec. contributions 5.0 4.9 3.4 Non Tax Revenue 0.7 0.6 0.4 Goods and services sales 0.1 0.1 0.1 Rents 0.2 0.4 0.3 Current transfers 0.0 0.0 0.0 Other incomes 0.0 0.0 0.0 National Adm o Crrent .xpendite .4 1,8 12.7 Consumption Expenditures 3.2 3.4 3.2 W&S General Government 2.3 2.5 2.4 G&S General Government 0.9 0.9 0.7 Others 0.0 0.0 0.0 Property rents 1.1 1.4 1.4 Interest (Accrued) 1.1 1.4 1.4 Other rents 0.0 0.0 0.0 Social Security Payments 5.9 5.7 5.1 Other current expenditures 0.0 0.0 0.0 Current transfers 3.2 3.3 3.0 Private sector 1.3 1.6 1.5 Public sector 1.8 1.6 1.5 Provinces and MCBA 1.2 1.0 0.9 Universities 0.5 0.5 0.5 Others 0.1 0.1 0.0 External sector 0.0 0.0 0.1 Public Savings 0.1 -0.3 -1.0 Capital Receipts 0.3 0.4 0.2 Capital Expenditures 1.2 1.2 1.3 Total revenues 13.8 14.0 11.9 Total expenditures 14.6 15.1 14.0 Financial balance -0.8 -1.1 -2.0 Trust fund (Banks) 0.0 -0.3 -0.2 Ex-Cajas Provinciales 0.0 0.0 -0.2 Capitalized interest -0.4 -0.4 -0.3 Overall Balance (with extra budgetary capital exp.) -1.1 -1.8 -2.7 Source: Boletin Fiscal. Ministerio de Economia y Obras y Servicios Publicos Table A8 Provincial Public Sector Accounts (Central Administration) (Million Current Pesos - Accrual Basis) 1991 1992 1993 1994 1995 1996 Provincial Sources 5,408 8,561 10,348 11,573 10,970 11,414 . Tax Revenues 4,678 7,364 8,784 9,663 9,146 9,756 . Non-Tax Revenues 730 1,197 1,564 1,910 1,824 1,658 Federal Sources 9,366 13,244 14,451 15,298 15,147 16,213 . Coparticipation Federal 6,869 10,038 10,250 10,567 10,401 10,761 .Royalties 460 540 547 578 645 691 . Fondo de Desequilibrios 175 14 1 0 0 0 . Regimen Ley No 22916 y mod. 29 4 0 0 0 0 . Fondo Educativo 261 274 151 124 50 24 . Fondo de Innovacion Tecnologica 13 0 0 0 0 0 . Sistema de Seguridad Social 53 118 196 185 163 189 . Organ.de Vialidad (o Copart.Vial) 61 226 267 301 256 351 . Obras Infraest.(y Dto.2733 inc.c) 81 113 133 155 101 144 . Others 68 523 1,200 1,457 1,545 1,868 . Discretionary Grants 1,295 1,393 1,705 1,932 1,987 2,186 Non Reimbursable 356 608 841 995 1,212 1,196 - A.T.N. 112 222 359 470 584 550 - F.E.D.E.I. 15 73 101 83 81 101 - F.D.R. 101 23 90 37 60 44 - Others 129 290 291 405 486 501 Reimbursable 939 785 864 937 775 990 - FO.NA. VI. 805 729 828 928 771 988 - Anticipo de Impuestos 113 0 0 0 0 0 - Others 21 56 36 10 4 2 . Wages 8,431 11,972 14,159 15,044 15,206 14,844 . Goods and Services 1,722 2,375 2,817 3,140 3,177 2,872 . Interest 267 353 469 594 721 900 . Transfers 3,639 5,300 6,473 6,865 6,689 6,839 Public Savings 716 1,806 880 1,229 324 2,173 Capital Revenues 85 130 269 300 309 316 Capital Expenditures 2,189 2,400 3,346 3,977 4,239 3,957 Over ilanc (a8i) (44) (2,197} (2,448) (3,o0c) {1 M46B Source: "'Direccion Nacional de Coordinacion con las Provincias" Ministry of Economy. Table A9 Provincial Public Sector Accounts (Central Administration) (% current GDP - Accrual Basis) 1991 1992 1993 1994 1995 1996 M ......... ........ . .. . .. .. .. ...............~ .. Provinciai Sources 3.0 3.8 4.0 4.1 3.9 3.8 . Tax Revenues 2.6 3.2 3.4 3.4 3.3 3.2 . Non-Tax Revenues 0.4 0.5 0.6 0.7 0.6 0.6 Federal Sources 5.2 5.8 5.6 5.4 5.4 5.4 . Coparticipation Federal 3.8 4.4 4.0 3.8 3.7 3.6 . Royalties 0.3 0.2 0.2 0.2 0.2 0.2 . Fondo de Desequilibrios 0.1 0.0 0.0 0.0 0.0 0.0 . Regimen Ley No 22916 y mod. 0.0 0.0 0.0 0.0 0.0 0.0 Fondo Educativo 0.1 0.1 0.1 0.0 0.0 0.0 Fondo de Innovacion Tecnologica 0.0 0.0 0.0 0.0 0.0 0.0 Sistema de Seguridad Social 0.0 0.1 0.1 0.1 0.1 0.1 Organ.de Vialidad (o Copart.Vial) 0.0 0.1 0.1 0.1 0.1 0.1 Obras Infraest.(y Dto.2733 inc.c) 0.0 0.0 0.1 0.1 0.0 0.0 Others 0.0 0.2 0.5 0.5 0.6 0.6 . Discretionary Grants 0.7 0.6 0.7 0.7 0.7 0.7 Non Reimbursable 0.2 0.3 0.3 0.4 0.4 0.4 - A.T.N. 0.1 0.1 0.1 0.2 0.2 0.2 - F.E.D.E.I. 0.0 0.0 0.0 0.0 0.0 0.0 - F.D.R. 0.1 0.0 0.0 0.0 0.0 0.0 - Others 0.1 0.1 0.1 0.1 0.2 0.2 Reimbursable 0.5 0.3 0.3 0.3 0.3 0.3 - FO.NA.VI. 0.4 0.3 0.3 0.3 0.3 0.3 ...................... . . . . . Crnt Expenditure. 7. t............. Wages 4.7 5.3 5.5 5.3 5.4 4.9 Goods and Services 1.0 1.0 1.1 1.1 1.1 1.0 .Interest 0.1 0.2 0.2 0.2 0.3 0.3 . Transfers 2.0 2.3 2.5 2.4 2.4 2.3 Current Balance 0.4 0.8 0.3 0.4 0.1 0.7 Capital Revenues 0.0 0.1 0.1 0.1 0.1 0.1 Capital Expenditures 1.2 1.1 1.3 1.4 1.5 1.3 .............. ............ Source: "Direccion Nacional de Coordinacion con las Provincias" Ministry of Economics. Table A10 Consolidated Public Sector Accounts 1994 - 1996. (Million Pesos - Accrual Basis) 1994 1995 1996 ~.... *..*.** . Central Govemment 38,052 37,981 35,146 National Administration 24,047 24,276 24,865 Social Security System 14,005 13,705 10,281 Provinces 26,871 26,117 27,627 Central Govemment 34,486 35,966 35,368 National Administration 17,909 20,045 19,942 Social Security System 16,578 15,921 15,426 Provinces 25,642 25,793 25,454 Central Govemment 3,566 2,015 (222) National Administration 6,138 4,231 4,923 Social Security System (2,573) (2,216) (5,145) Provinces 1,229 324 2,173 Central Govemment 803 1,251 727 National Administration 803 1,251 727 Social Security System 0 0 0 Provinces 300 309 316 Central Govemment 3,242 3,428 3,882 National Administration 3,242 3,428 3,882 Social Security System 0 0 0 Provinces 3,977 4,239 3,957 Central Govemment 1,126 (162) (3,377) National Administration 3,699 2,054 1,768 Social Security System (2,573) (2,216) (5,145) Provinces (2,448) (3,606) (1,468) Extra budgetary expenditures Trust fund (Banks) 0 (801) (589) Ex-Cajas Provinciales 0 0 (484) Capitalized interest (1000) (1,188) (993) Baance (w/extrabdetrapitatexp.) (2,322) .,767} #12 Includes: National Administration, Social Security and Provincial Govemments. Source: Boletin Fiscal. Ministry of Economy. ANNEX 1 Estimación de la Ejecución Base Caja del Sector Público Provincial Período 1991/1996 Lic. Mirta Basile  ANNEX I 1. OBJETIVOS El objetivo del presente trabajo es la elaboración de una metodología para la estimación de la ejecución presupuestaria base caja del Sector Publico Provincial Argentino correspondiente al periodo 1991/1996 y la realización del cálculo de la misma. La Dirección Nacional de Coordinación Fiscal con las Provincias del Ministerio de Economía y Obras y Servicios Públicos (DNCFP) aportó la información de base necesaria para la estimación y llevó a cabo también una apoyatura de carácter técnico. II. CONSIDERACIONES CONCEPTUALES El Sector Público Provincial presenta una serie de particularidades de suma importancia para este trabajo. En principio, estas características lo diferencian de la Administración Nacional. A comienzos de la década del '90 existían mayores similitudes entre ambos niveles de gobierno en lo referido a la conformación administrativa y a las modalidades de presentación de sus registros presupuestarios. Luego, en el orden nacional se implementó la Ley de Administración Financiera, reforma que habrá de aplicarse en el futuro en el Sector Público Provincial pero que en la actualidad está en una etapa inicial. Sin entrar en detalle cabe mencionar que esta situación ocasiona que la 'taja única" sea una modalidad del ámbito nacional el cual abandonó el uso de los residuos pasivos que aún se implementan en las Provincias. Estas particularidades motivan una serie de consideraciones conceptuales, las que se presentan a continuación: La cobertura del Sector Público Provincial El Sector Publico Provincial incluye 23 Estados Federales y el Gobierno de la Ciudad Autónoma de Buenos Aires. Generalmente, en cada una de estas Jurisdicciones funciona una administración central (con sus pertinentes dependencias), las cuentas especiales y los organismos descentralizados. Cada Provincia tiene su propia conformación institucional, por lo cual interjurisdiccionalmente varan las dependencias de la Administración Central, las cuentas especiales y los organismos descentralizados. Entre estos últimos se destacan por su importancia cuantitativa los Institutos de Viviendas Provinciales y las Direcciones Provinciales de Vialidad. Con relación a las Cuentas Especiales en términos generales puede decirse que tienen un fin especificado en el momento de su creación y determinados recursos afectados a tal destino. Puede suceder que una determinada función que antes fuera cumplida por una dependencia de la administración central, debido a decisiones políticas y/o administrativas, con el transcurso del tiempo, pase a ser desempeñada por una cuentas especial, y viceversa. Un ejemplo de ello lo constituye el Fondo de Reparación Histórica o Fondo del Conurbano Bonaerense que en sus inicios funcionó como una cuenta especial y en 1997 pasó a desempeñarse como una dependencia de la Administración Central. -2- ANNEX I Por último, cabe mencionar que usualmente se excluyen los presupuestos de los organismos que no consolidan en los presupuestos provinciales tales como las Cajas de Previsión Social y los Bancos Provinciales, entre los más importantes. Existen vinculaciones financieras con incidencia presupuestaria que son consideradas en los cálculos de la Dirección Nacional de Coordinación Fiscal con las Provincias. Hay otras relaciones de carácter extrapresupuestario con incidencia en el base caja, como se referirá más adelante. Estos comentarios se realizan para destacar un hecho de singular importancia constituido por lo complejo que resulta el relevamiento de la totalidad del Sector Publico Provincial; situación que se acentúa en el tratamiento de series interanuales debido a la variabilidad en el tiempo de la conformación de cada Gobierno Provincial. En la consolidación de las ejecuciones presupuestarias en cada Estado Federal intervienen: la Dirección Provincial de Presupuesto y la Contaduría General de la Provincia. Por lo cual el cálculo del presupuesto base ejecutado según el gasto devengado para el conjunto de Provincias generalmente no presenta dificultades relacionadas con la cobertura del sector. Pero diferente es el escenario cuando se trata de calcular la ejecución presupuestaria en la etapa del pagado. En las Provincias no funciona una sola tesorería sino que generalmente existe una para la Administración Central en tanto que cada organismo descentralizado y cada cuenta especial opera con su propia tesorería. A su vez en la mayoría de los casos no existe una oficina provincial que consolide los pagos efectivizados por cada tesorería de cada una de las distintas dependencias '. Luego, la tarea del relevaniento y consolidación resulta más amplia y compleja respecto a la que se realiza cuando se calculó el presupuesto ejecutado base devengado. Este hecho constituye una seria limitación dado que la importancia de contar con una cobertura significativa de la información es un requisito necesario -aunque no suficiente- para garantizar adecuadas estimaciones del base caja de las cuentas publicas provinciales. La compatibilización de los criterios de imputación y la consistencia de la información son sin duda otros requisitos ineludibles. Las etapas del gasto en los presupuestos provinciales Los registros presupuestarios de los gastos de las Provincias, en términos generales, tienen en cuenta las siguientes etapas: Primera etapa CREDITO ORIGINAL Segunda etapa CRÉDITO DEFINITIVO Tercera etapa COMPROMISO O EJECUTADO Cuarta etapa MANDADO A PAGAR Quinta etapa PAGADO Del presente trabajo surgió que la Provincia de Córdoba contabiliza una consolidación de su sector publico en la etapa del pagado relativo al ejercicio presupuestario, vale decir que no consolida incluyendo los pagos realizados por deuda flotante ni por residuos pasivos de ejercicios anteriores. -3- ANNEX I Algunas Jurisdicciones utilizan denominaciones especificas en cada una de las etapas. Por ejemplo: en Santa Fe el mandado a pagar se lo denomina 'liquidado", en Buenos Aires "compromisos incluidos en ordenes de pagos". La diferencia existente entre el ejecutado y el mandado a pagar se denomina residuos pasivos. Estos créditos presupuestarios comprometidos pero no enviados a pagar tienen un plazo específico de vigencia en cada jurisdicción, finalizado el cual perimen. Si en el futuro se quiere concretar ese gasto se requerirá un nuevo crédito presupuestario. La diferencia entre el mandado a pagar y el pagado constituye la deuda flotante, vale decir los libramientos de pago que están en la tesorería esperando su concreción. El cálculo de recursos Con respecto a los recursos las etapas de registración resultan mas sencillas puesto que se limitan a las tres primeras antes citadas. La etapa del ejecutado se corresponde con el concepto de percibido o ingresado y consecuentemente equivale al concepto incluido en la etapa del pagado. Luego, en términos generales no deberían haber significativas diferencias entre los registros del ejecutado y del pagado. Cabe mencionar que en las estimaciones aquí realizadas surgen algunas diferencias que serán oportunamente mencionadas. El presente trabajo se propuso realizar una serie de testeos en lo referido a las imputaciones de las transferencias efectuadas por el Gobierno Nacional a las Provincias derivadas de los distintos componentes de las relaciones financieras intergubernamentales dada su importancia en la estructura de recursos y aportes de las Jurisdicciones (en el promedio 91/96 representan el 56%). Luego, en este nivel de análisis se confrontan tres fuentes de información: i) los registros de los gobiernos provinciales; los registros del Gobierno Nacional, realizados en dos dependencias diferentes ii) Oficina Nacional de Presupuesto (ONP) y iii) DNCFP. Para una mejor comprensión del problema se describe el circuito operativo que siguen las remesas de fondos de origen nacional que tienen transferencia automática 2. Existe un circuito bancario que genera un desfasaje temporal entre el momento en que el Banco de la Nación Argentina y/o Banco Hipotecario Nacional realizan las transferencias y el momento en el cual los fondos ingresan efectivamente a las arcas del Tesoro Provincial. A modo de ejemplo se pueden considerar los recursos que por coparticipación transfiere diariamente el Banco de la Nación Argentina a la cuenta que posee el Tesoro de cada Estado Federal en su Banco Provincial. La secuencia suele ser la siguiente: el día 1 el Banco de la Nación Argentina realiza la transferencia que el agente financiero de la Provincia percibe el día 2 pero efectúa la acreditación al Gobierno Provincial el día 3 o alguno posterior. Asimismo el monto a acreditarse puede ser diferente al 2 La denominación automáticas se utiliza porque a través del Banco pertinente (Banco de la Nación Argentina o Banco Hipotecario Nacional) los fondos se transfieren a medida que el Gobierno Nacional percibe la recaudación de tributos que dan origen a la remesa. -4.- ANNEX 1 transferido originalmente dado que puede suceder que se afecte parte de la transferencia (v.g.: al pago de un préstamo, a la cancelación de anticipos de coparticipación, etc.). Luego, la comparación entre los registros captados a nivel del Gobierno Nacional y los de cada presupuesto provincial pueden diferir tanto en el tiempo que se efectuó la imputación como en el quantum. Las diferencias no perduran en el tiempo, sino que se van regularizando. Pero dada la dinámica de las operatorias, en una observación estática (cierre de un ejercicio fiscal) se pueden detectar divergencias. Por tal motivo, los cálculos de las ejecuciones presupuestarias provinciales realizados por la DNCFP incorporan su propia información 3 en lo referido a los recursos transferidos automáticamente y derivados de las relaciones financieras con el Gobierno Nacional. Luego, las estimaciones que aquí se presentan tienen como base los datos de la DNCFP pero se han propuesto como un objetivo adicional testearlos con los que surgen del presupuesto base caja del Gobierno Nacional en lo referido a las remesas antes mencionadas. En los restantes conceptos, los esquemas de la DNCFP incorporan los datos que surgen de las ejecuciones presupuestarias de los Estados Federales. Con relación a los mismos caben hacer algunas consideraciones. El Manual de Estadísticas de las Finanzas Públicas del Fondo Monetario Internacional 4 recomienda que 'los impuestos que recauda el gobierno para otros gobiernos en calidad de agente deben imputarse a aquellos y no al gobierno recaudador" Los Gobiernos Provinciales transfieren a sus comunas recursos coparticipados, en la mayoría de los casos también automáticamente. Sin embargo, las estadísticas de los gobiernos provinciales suelen incluir el recurso por el total recaudado. En contraposición imputan como egreso las remesas automáticas en concepto de coparticipación conjuntamente con otras transferencias v.g.: subsidios que realizan a las comunas. Ello se corresponde con la normativa legal y en algunos casos constitucional relacionada con los municipios en cada Provincia, y con el tratamiento que efectúan en cada Ley de Presupuesto. Por último cabe hacer una mención al tratamiento de los 'Vemanentes de ejercicios anteriores" concepto que forma parte del cálculo de recursos de las Jurisdicciones. Bajo tal denominación imputan en el periodo t+1 aquellos recursos que habiendo ingresado en el periodo t quedaron al finalizar el ejercicio como saldos bancarios sin utilizar. Su imputación en los recursos del periodo t+1 se realiza a los efectos de habilitar el gasto pertinente. Un caso típico de tal situación está constituido por los recursos afectados 5. Puede decirse que los remanentes constituyen un concepto de stock. Desde el punto de vista del esquema base caja la utilización de los saldos de caja y bancos constituye una fuente de financiamiento. Para adaptar la información de los remanentes presupuestarios al concepto base caja se consideró a los mismos como una aproximación a los saldos de las cuentas bancarias de los gobiernos provinciales y se calculó la 3 La DNCFP lleva una estadística diaria de cada transferencia automática efectuada a cada Estado Federal la cual considera como fuente de infonnación los partes diarios realizados por el banco oficial pertinente (Banco de la Nación Argentina y/o Banco Hipotecario Nacional). 4 En el Capítulo H "Selección y preparación de datos". 5 Inclusive en muchos casos los remanentes dan lugar a un manejo financiero de los fondos afectados a un fin específico. En oportunidades suelen utilizarse para solventar otro tipo de gastos manteniéndose saldos bancarios inexistentes. -5- ANNEX I variación existente entre dos períodos consecutivos. Vale decir, que si en el período t+1 existió un remanente superior al registrado en el período t se puede decir que su variación (Ç) se originó en recursos percibidos durante el primer período que no fueron utilizados, y viceversa. La variación (Ç) de los remanentes constituye una fuente de financiamiento del período t si tiene saldo positivo y una aplicación de fondos si tiene un saldo negativo. II. LA INFORMACION Identificación de los registros útiles para la estimación Un adecuado calculo de la etapa del pagado para el consolidado del sector publico provincial debería contar con los datos de las veinticuatro Tesorerías que funcionan en la administraciones centrales de cada una de las Jurisdicciones. A ello cabría adicionarle el flujo de ingresos y egresos de cada una de las tesorerías, de cada cuenta especial y de cada organismo descentralizado, existentes en cada Estado Federal. Esta información no estaba disponible, por lo cual se buscó identificar algunos registros presupuestarios y/o contables útiles a la hora de realizar la estimación. Para ello, caben hacer algunas referencias conceptuales. La ejecución del crédito presupuestario de un ejercicio puede tener los siguientes destinos: COMPROMISO(t) = residuos pasivos (t) + pagado (t) + deuda flotante (t) Los pagos de un ejercicio surgirían de las obligaciones generadas en distintos ejercicios fiscales, lo cual puede sintetizarse en la sumatoria de los siguientes conceptos: PAGADO (t) = pagado(gt) +a * residuos pasivos (gt-n) + b * stock deuda flotante (gt-n) en donde: gt = crédito presupuestario del ejercicio gt-n = crédito presupuestario de ejercicios anteriores a = proporción de residuos pasivos pagada en t. b = proporción del stock de deuda flotante pagada en t. Luego, la disponibilidad de registros referidos a los residuos pasivos o a la evolución del stock de la deuda flotante serían de utilidad a los fines del presente trabajo. Si bien estos registros permitían adicionar datos aumentaban la cantidad de información a utilizar como así también el proceso de consistencia de los mismos. Si bien no se obtuvo toda la información necesaria se consiguió detectar algunas pautas de comportamiento de los pagos realizados por el sector público provincial que fueron de suma utilidad a la hora de formular hipótesis de comportamiento por el modelo aquí diseñado. -6- ANNEX I La información disponible en la Dirección Nacional de Coordinación Fiscal con las Provincias Usualmente la DNCFP posee en sus archivos algunas cuentas de inversión de los estados provinciales. Pero dado que en muchos casos no contabilizan la etapa del pagado a nivel consolidado, sólo se pudo obtener información del mandado a pagar para algunos ejercicios. Por otra parte, en algunos casos la cuenta general del ejercicio incluye el movimiento de fondos de la Tesorería Provincial, el cual ofrece como un dato agregado el monto total pagado correspondiente a los créditos presupuestarios del ejercicio y el monto total pagado correspondiente a créditos presupuestarios de ejercicios anteriores, aunque no incluye los movimientos de tesorerías de organismos descentralizados y cuentas especiales. El relevamiento de información Dados los escasos datos disponibles en la DNCFP se procedió a requerir información a las distintas Jurisdicciones. El grado de respuesta fue favorable puesto que 16 Provincias enviaron algún tipo de información, la cual se especifica en el anexo 1. Pero en general la información correspondía a uno o pocos ejercicios fiscales y una vez procesados los datos se concluyó que su calidad era cuestionable y requería de mayores testeos y de la revisión en sus fuentes. Teniendo en cuenta que el plazo de realización del presente trabajo era escaso (un mes) se concentró el esfuerzo en aquellas Provincias consideradas relevantes desde el punto de vista cuantitativo. De tales datos se obtuvieron algunas pautas de comportamiento que fueron consideras en el modelo de estimación de la ejecución base caja. IV. LA METODOLOGÍA DE ESTIMACIÓN En primera instancia, teniendo en cuenta los aspectos citados en 2.3 'El cálculo de recursos' se consideró que el esfuerzo debía concentrarse en las estimaciones de los niveles pagados y de su asignación por partida. La estimación del cálculo de recursos se podía obtener en base a la información de la DNCFP sin mayores inconvenientes. Las distintas alternativas Centrando la atención en los gastos base devengado, una primer metodología seguida consistió en determinar las Provincias que se consideraban cuantitativamente más relevantes. Para ello se tomó en cuenta el presupuesto ejecutado base devengado de la DNCFP y se calculó la incidencia de cada Provincia en el total, lo cual se presenta en el anexo 2. De modo sintético puede decirse que siete Jurisdicciones concentraron entre el 61% y el 64% del gasto total durante el periodo 1991/96, según se detalla a continuación: -7- ANNEX I CUADRO 1 PARTICIPACION DE LAS PRINCIPALES PROVINCIAS EN LAS EROGACIONES TOTALES PERIODO 1991/1996 - en Porcentaje del Total - PROVINCIA 1991 1992 1993 1994 1995 1996 Ciudad de Bs.As. 10.20 11.50 10.30 9.20 9.00 9.80 Buenos Aires 25.20 25.30 25.60 27.20 26.50 29.40 Córdoba 7.80 8.30 8.70 8.60 8.00 6.70 Entre Ríos 3.50 3.70 3.40 3.50 3.60 3.60 Mendoza 3.50 4.10 4.70 4.40 4.50 4.00 Santa Fe 7.90 7.50 7.40 7.40 7.60 7.60 Tucumán 3.10 3.30 2.90 3.10 3.40 3.30 SUBTOTAL 61.20 63.70 63.00 63.40 62.60 64.40 Restantes 38.80 36.30 37.00 36.60 37.40 35.60 TOTAL 100.00 100.00 100.00 100.00 100.00 100.00 Fuente:DNCFP. Luego, se intentó estimar el presupuesto base caja de las siete Jurisdicciones consideradas relevantes en base a la información por ellas remitida. Posteriormente se sumarían los pagados por cada una de las Provincias. El total de ese subconjunto se extrapolaría para incorporar en la estimación de modo indirecto a las Provincias faltantes. El cálculo se haría a nivel de cada partida presupuestaria. Tomando como ejemplo el caso particular del gasto en personal el procedimiento sería: GPP (7) GPP (24) GPE(7) GPE (24) en donde: GPP (7) gasto en personal pagado de las siete Provincias seleccionadas. GPE(7) gasto en personal devengado de las siete Provincias seleccionadas. GPP(24) gasto en personal pagado del conjunto de Provincias. GPE(24) gasto en personal devengado del conjunto de Provincias. En la ecuación GPE(7) y GPE(24) son datos y GPP(7) surgía de la estimación. En base a ambos se podría haber estimado GPP(24) con un elevado grado de confiabilidad. El procedimiento se repetiría para cada una de las partidas presupuestarias que conforman el gasto. Este camino luego del procesamiento de la información de base fue desechado porque no se consiguió completar la serie a estimar para las siete Jurisdicciones seleccionadas y porque los datos disponibles en algunos casos presentaban inconsistencias y deficiencias. - 8 - ANNEX I La metodología aplicada Se optó por cambiar la metodología y trabajar en base a un consolidado del presupuesto ejecutado de todas las Jurisdicciones a partir del cual se armó un modelo de operatoria del base caja. El modelo tomó como datos los ejecutados base devengado de la DNCFP y el sotck de la deuda del conjunto de Provincias al 31/12/1996 facilitada por la misma Dirección. Además el modelo tomó en cuenta: a) una serie de pautas de comportamiento derivadas de la observación de la información disponible de algunas Provincias; b) algunos aspectos que surgen del conocimiento de la evolución de las finanzas publicas provinciales; y c) una serie de supuestos Estos tres conceptos tuvieron las siguientes implicancias en el modelo: 1. el esquema base ejecutado denota que los gastos superaron holgadamente a los recursos, en todos los ejercicios. Por ello se supone que los ingresos han sido utilizados casi totalmente para cancelar los compromisos de pagos. En la práctica ello implicó ponerle restricciones al resultado base caja el cual debería ser cercano a cero; 2. las variaciones de caja fueron calculadas como variaciones interanuales de las remesas de ejercicios anteriores (ver el tema en II.iii. "El cálculo de recursos"); 3. el gobierno provincial solo priorita el pago de una parte de la deuda flotante correspondiente a los períodos anteriores. Esta proporción varía con el transcurro del tiempo dado que está sujeta a sus disponibilidades financieras. Por ello los ejercicios fiscales en los cuales existe una recuperación de los recursos posibilitaron la cancelación de deuda flotante. Este aspecto también es acorde con la política de saneamiento de deuda encarada por los Estados Federales. 4. hay una proporción de gastos ejecutados que constituyen residuos pasivos perimidos (ver el tema en I.ii. 'Las etapas del gasto en los presupuestos provinciales') y que por lo tanto nunca llegan a ser pagados. Esta proporción fue estimada en base al comportamiento observado en algunas Jurisdicciones. Se estableció que los residuos perimidos representaban un monto equivalente al 0.75% del gasto ejecutado. 5. hay movimientos de ingresos y egresos extrapresupuestarios y que por lo tanto no están registrados en los presupuestos ejecutados. En algunos casos estos están vinculados con los anticipos de recursos a organismos que no consolidan en el presupuesto de la Administración Central provincial. A veces, ligados a la crisis específica de algunas instituciones (Cajas de Previsión Provinciales, Municipios, Empresas del Estado Provincial) las Tesorerías Provinciales otorgaron a esos organismos anticipos financieros que no se regularizaban en el -9- ANNEX I ejercicio en cuestión. Esta situación deriva en fluctuaciones en el nivel del pagado. Su estimación a nivel de ingresos y de gastos resulta sumamente complicada. Por ello, este aspecto fue considerado en términos de saldos en los cuales usualmente los gastos exceden a los recursos. Se estima que la proporción de saldos extrapresupuestarios no fue cuantitativamente significativa excepto en los años 1994-5, periodo en el cual se vieron influenciados por la situación de algunos Bancos Oficiales Provinciales. En el periodo previo a la privatización de los mismos, los Tesoros Provinciales se vieron obligados en muchos casos a sostener a esas entidades, ya sea manteniendo indefinidamente algunos de sus depósitos (remesas de coparticipación) o bien aportando capital o financiando transitoriamente sus déficits. En algunos casos esta indisponibilidad de fondos no tuvo un reflejo presupuestario en el año pertinente, por lo que los mismos fueron tenidos en cuenta a los efectos de la presente estimación bajo el concepto de saldos extrapresupuestarios. 6. A partir de 1993, los Estados Federales recibieron bonos del Gobierno Nacional por un valor nominal de $ 4.222,8 millones que éste otorgó para compensar una serie de deudas que existían entre ambos niveles de gobierno 6. Los esquemas de ejecución presupuestaria incorporaron desde 1993 solo la parte de los bonos que fueron vendidos en el mercado por los Gobiernos Provinciales, ya para hacer frente a sus gastos, ya para mantener como disponibilidad en caja para ser utilizados oportunamente. El esquema base caja mantuvo el criterio utilizado por el ejecutado, vale decir solo incorporó los bonos que se vendieron en el mercado, pero introdujo una variante al imputarlos en el año en el cual se produjo su utilización. 7. La variabilidad de instrumentos utilizados en el marco del endeudamiento provincial (títulos públicos caucionados, operaciones de pase, prestamos en moneda extranjera, entre otros) y el permanente proceso de refinanciacion hacen que se tenga un especial cuidado en su tratamiento. Por tal motivo se identificó: i) aquel endeudamiento provincial que fue una mera captación de fondos del mercado de capitales ii) del endeudamiento provincial que atendió gastos presupuestarios de modo directo (v.g. Córdoba pago sueldos al personal con títulos de deuda provincial). Cabe aclarar que teniendo en cuenta las recomendaciones del Manual de Estadísticas de las Finanzas Públicas del Fondo Monetario Internacional 7 el presupuesto base caja incorporó los egresos cubiertos con el financiamiento mencionado anteriormente bajo el ítem ii) dado que se considera que se cubrieron con una obligación contractual a plazo fijo. 8. La Ley de consolidación de deudas nacionales Nro. 23.082 que diera origen a la emisión de los bonos de consolidación de deudas con proveedores (BOCON) y con beneficiarios previsionales (BOCÓN previsional) invitaba a las Provincias a realizar un proceso de consolidación de sus propias deudas, mediante la emisión de bonos provinciales, con características similares. Esta consolidación fue un proceso que se implementó en muchos 6 El monto surge de considerar la suma de los bonos de compensación de deudas por un valor nominal de $ 2.164,3 millones según los convenios específicos firmados por cada Provincia con el Gobierno Nacional y bonos originados en la incorrecta liquidación de las regalías correspondientes a las Provincias productoras de hidrocarburos, por un valor nominal de $ 3.162,8 millones a los cuales se le descontaron deudas con BCRA por un valor nominal de $ 1.104,3 millones. 7 En el Apartado II. A. 6. " Pagos con instrumentos de deudas". - 1o-- ANNEX I Estados Federales. Se estima que se inició en el año 1992 y que tuvo un fuerte impacto en la cancelación del stock de deuda flotante realizada durante ese ejercicio y el siguiente, para tener poca relevancia en los años posteriores. El Manual de Estadísticas de las Finanzas Públicas del Fondo Monetario Internacional recomienda la inclusión de los pagos de deuda flotante mediante la emisión de valores del gobierno a favor de los proveedores (comúnmente denominada "consolidación de deudas"). V. EL CALCULO DE LA METODOLOGíA APLICADA El modelo planteó como una primera etapa, la obtención de los niveles totales de los montos ingresados y pagados en cada uno de los ejercicios. La segunda etapa consistió en la apertura de cada una de tales variables en las partidas presupuestarias pertinetes. La primera etapa del modelo 1. Recursos del año (t) 2. Utilización de caja y Bancos (t) 3. Utilización de otros Activos Financieros (t) 4. Uso del Crédito (t) 5. Recursos disponibles del año (1+2+3+4) 6. a * Deuda flotante de ejercicios anteriores (t-n). 7. Saldos Extrapresupuestarios (t) 8. Recursos Netos para solventar gastos del presupuesto corriente (5-6-7) 9. Total de erogaciones del presupuesto corriente (8-10) 10. Pagos de amortización de deuda del ejercicio (t) 11. Total de erogaciones del presupuesto corriente (t) y pagos de amortización (t) (10+9) 12. b * Residuos pasivos (t) 13. Deuda flotante del ejercicio (t) (ejecución de gastos menos (11+12) 14. Consolidación de deuda flotante de ejercicios anteriores (t-n). 15. Stock de deuda flotante (t) (13-14). Los ítems 1 a 4 surgen del presupuesto base ejecutado de la DNCFP, con algunas reformulaciones que han sido anteriormente explicitadas. El coeficiente a del ítem 6 indica la proporción de la deuda flotante de ejercicios anteriores (t-n) que se paga en el ejercicio corriente (t). El coeficiente b del ítem 12 indica la proporción de residuos pasivos que perimen. Estos al igual que el ítems 7 fueron estimados en base al comportamiento observado en algunas Provincias. El ítem 10 surge de considerar que una parte del devengado se concreta en pagos, esta proporción fue tomada de la información remitida por algunos Estados Federales. Los montos de consolidación de la deuda fueron obtenidos de la DNCFP (ítem 14). -11- ANNEX I La mecánica del modelo es sencilla. Una parte de los recursos disponibles (item 5) se destinan en primer lugar a cancelar una parte de la deuda flotante proveniente de ejercicios anteriores (ítem 6) y a atender los gastos extrapresupuestarios (ítem 7). Los recursos netos de tales pagos serán aplicados a pagar los egresos del ejercicio (t) incluyéndose en los mismos los pagos de amortizaciones. La deuda flotante del ejercicio (t) (ítem 13) será igual a los gastos comprometidos durante el ejercicio (t) netos de los residuos que se estiman que perimen (ítem 12) y de los montos pagados de los créditos del ejercicio (t) (ítem 11). El stock de deuda flotante al cierre del ejercicio (t) (ítem 15) será igual al stock de deuda acumulada al cierre del ejercicio anterior (t-1) menos la proporción cancelada durante el ejercicio (t) (ítem 6) más la deuda flotante generada durante el ejercicio (ítem 13). El modelo testeó los niveles de deuda flotante resultante al finalizar el ejercicio 1996 con la información obrante en la DNCFP. La segunda etapa del modelo Esta etapa centró su atención en la apertura a nivel de partida de los niveles de pagos totales calculados en la etapa anterior. La apertura de los recursos prácticamente constituyó un dato rearmado a partir de la información de la DNCFP . Para determinar los pagos por partida se diferenciaron: i) los pagos derivados de los créditos presupuestarios del ejercicio en cuestión; ii) los restantes pagos, derivados de la deuda flotante en stock. Para calcular los pagos correspondientes al ejercicio presupuestario en cuestión(t) a nivel de partida se estimaron los datos de los niveles pagados por las Jurisdicciones más relevantes (ver IV.i. 'Las distintas alternativas'). Las estimaciones se efectuaron en base a la información parcial remitida por tales Provincias. Se realizó la sumatoria de los montos pagados por las siete Provincias de los créditos presupuestarios del ejercicio y en cada uno de los ejercicios se calculó la estructura de pagos por partida. Este procedimiento se repitió para cada uno de los años del período tratado. Luego se calculó la estructura de pagos por partida. Esta estructura fue aplicada a los niveles del pagado total correspondiente a los créditos presupuestarios de cada ejercicio calculados en la primer etapa (ítem 9). Para estimar los pagos derivados de la deuda flotante en stock a nivel de partida presupuestaria, el modelo supuso una determinada distribución del stock de deuda flotante del año 1991. Además trabajó con una hipótesis de pago de stock de deuda flotante a nivel de partida presupuestaria. Con dicha hipótesis se fueron distribuyendo a nivel de partida los montos correspondientes al ítem 6. -12- ANNEX I Luego, el pagado total por partida surgió como sumatoria de los pagos realizados por créditos presupuestarios del ejercicio (i) y los pagos de deuda flotante de ejercicios anteriores (ii). A su vez con desagregación por partida presupuestaria se fueron calculando los niveles de deuda flotante que se generaban en cada ejercicio. Para ello a los niveles de créditos presupuestarios devengados se les descontaron los pagos realizados y los residuos perimidos, sobre los cuales también se trabajó con una hipótesis a nivel de partida. Esta metodología implicó que en la deuda flotante de los créditos presupuestarios del ejercicio quedaran comprendidos los residuos pasivos no perimidos. La deuda flotante generada en un ejercicio fue adicionada a la proveniente de años anteriores. De tal modo, el modelo permitió recalcular los niveles de stock de deuda en cada ejercicio con apertura por partida presupuestaria. A ello, en los años pertinentes se le dedujeron los pagos de deuda flotante correspondiente a ejercicios anteriores concretados mediante la emisión de títulos de los Estados Provinciales. Para cada uno de los años el modelo fue calculando los niveles de i) y ii) para obtener el pagado por partida presupuestaria. VI. LOS RESULTADOS En el anexo 1.3 se ofrece la estimación de la ejecución presupuestaria base caja para el sector publico provincial resultante de la metodología explicitada en V.i. En el anexo 4 se presentan los resultados antes mencionados bajo la forma del esquema ahorro-inversión- financiamiento tradicionalmente utilizado. A tales efectos se realizaron las aperturas de los gastos conforme a la clasificación presupuestaria con la metodología detallada en V.ii. El esquema general y las fuentes de financiamiento A continuación se destacan los resultados generales: CUADRO 2 ESQUEMA BASE CAJA DEL SECTOR PUBLICO PROVINCIAL - en Millones de Pesos - INGRESOS 1991 1992 1993 1994 1995 1996 RECURSOS Y APORTES 14.859.0 21.803.7 25.162.2 27.195.7 26.329.9 27.885.8 VARIACION DE ACTIVOS (94,8) (332,9) 1.613,5 830,0 704,1 918,1 USO DEL CREDITO 484,1 868,7 1.034,3 2.225,8 3.436,8 4.762,7 TOTAL 15.248.3 22.339.5 27.810.0 30.251.5 30.470.8 33.566.6 GASTOS PRESUPUESTARIOS 14.742,7 20.555,3 26.054,9 28.472,0 29.001,8 30.037,4 EXTRAPRESUPUESTARIOS 105,6 145,6 291,0 355,0 438,8 191,5 DEUDA FLOTANTE EJ. ANT. 400,0 1.638,6 1.464,1 1.424,5 1.030,1 3.337,7 TOTAL 15.248,3 22.339,5 27.810 30.251,5 30.470,8 33.566,6 - 13.- ANNEX I En el anexo 1.5 se presenta la relación porcentual entre los pagos y los créditos comprometidos para cada una de las partidas presupuestarias de los egresos, en tanto que en el anexo 6 se adjunta el esquema ahorro-inversión-financiamiento de la ejecución presupuestaria base devengado. A nivel de gasto total puede decirse que los pagos representaron entre el 90% y el 100,5% de los créditos devengados. El coeficiente menor se corresponde con el primer año de la serie en el cual hubo poca disponibilidad de recursos, en términos históricos. Por tal motivo el 12% de los créditos comprometidos en egresos y en amortizaciones de deudas pasaron a formar parte del stock de la deuda flotante. La relación entre los pagos y los gastos comprometidos se incrementó entre 1992 y 1994 coincidiendo con una mayor disponibilidad de recursos y aportes. En ese período se canceló con pagos en efectivo entre el 50% y el 60% de la deuda flotante en stock. En 1995 se revirtió la situación, se contrajeron los ingresos como producto del decrecimiento de los recursos de Jurisdicción Provincial acompañados por un comportamiento de igual sentido pero de menores proporciones de los recursos de origen nacional. El 8% de la sumatoria de los créditos comprometidos en gastos y en amortizaciones de deudas pasaron a formar parte del stock de deuda flotante. Cabe hacer una referencia respecto a las estimaciones correspondientes al ejercicio 1996. La DNCFP efectuó una proyección con carácter provisorio dado que no contó con los datos definitivos de todas las Provincias. Por lo tanto, las estimaciones del presupuesto base caja deberán considerarse en tal contexto. Las proyecciones de recursos indican una recuperación de los ingresos de los Estados Federales como producto de los mayores fondos derivados esencialmente de los distintos regímenes de coparticipación y, en menor magnitud, de un aumento de la recaudación tributaria provincial. Esta excelente situación financiera se vio acompañada por un comportamiento similar en las fuentes de financiamiento. De tal manera, se canceló buena proporción de la deuda flotante en stock, obteniéndose una disminución del 15% de sus niveles. Al comparar los datos del presupuesto base devengado con el base caja se observan algunas diferencias en las fuentes de financiamiento. En especial, la variación de activos constituyen una fuente de financiamiento significativa a partir de 1993 en el presupuesto base devengado. Su importancia se ve atenuada en el presupuesto base caja dada la incidencia que tienen los bonos de compensación de deudas del Gobierno Nacional, recibidos por los Estados Federales que fueron incorporados en dicho esquema en la medida que fueron utilizados. Ello ocasionó un corrimiento de los aumentos de los activos por lo que presentan una mayor concentración en 1996. Por su parte, las variaciones de pasivos denotan un mayor crecimiento en el base caja respecto del base devengado puesto que no se cancelaron todos los compromisos de amortizaciones de deudas. -14- ANNEX I Vale resaltar la evolución de la deuda flotante que se registró como producto del comportamiento antes mencionado. Se destaca que a los efectos de recomponer la evolución del stock de deuda flotante se tuvo que efectuar una hipótesis de stock inicial de deuda flotante, la cual fue estimada para el comienzo del período en $ 1.700 millones. CUADRO 3 EVOLUCION DEL STOCK DE LA DEUDA FLOTANTE SECTOR PUBLICO PROVINCIAL - en Millones de Pesos - CONCEPTO 1991 1992 1993 1994 1995 1996 STOCK INICIAL DE 1.700.0 3.277.2 2.614.5 2.374.2 2.575.4 3.513.4 DEUDA FLOTANTE PAGOS DEUDA 400.0 1.638.6 1.464.1 1.424.5 1.030.1 3.337.7 FLOTANTE EN STOCK DEUDA FLOTANTE 1.977.2 2.215.9 2.023.8 2.075.7 2.448.2 2.957.7 DEL EJERCICIO _ CONSOLIDACION DE 0.0 1.240.0 800.0 450.0 480.0 150.0 DEUDA FLOTANTE STOCK DEUDA FLOTANTE 3.277.2 2.614.5 2.374.2 2.575.4 3.513.4 2.983.3 Los recursos La compatibilizacion con la información de la Oficina Nacional de Presupuesto En primer lugar cabe tratar la conciliación realizada a los efectos de compatibilizar los datos de la Oficina Nacional de Presupuesto (OPN) con los obrantes en la DNCFP. Cabe aclarar que en los Presupuestos de la Administración Nacional las presentaciones de la información de los recursos difieren porque no incorporan la mayor parte de las recursos coparticipados. A los efectos del presente trabajo, se consideraron los esquemas base caja que elabora la OPN. En el anexo 7 se presenta un comparativo de ambas fuentes de información. Cabe mencionar que la ONP contabiliza el flujo de remesas presupuestarias que realiza el Gobierno Nacional a los Estados Federales en la partida transferencias (corrientes o de capital, según corresponda). Por su parte, la DNCFP registra los recursos teniendo en cuenta: i) si son propiedad compartida entre los Gobiernos Provinciales y el Nacional, actuando este último. como recaudador; o ii) si son subsidios o aportes del Gobierno Nacional a los Estados Federales. En términos generales las divergencias entre ambas fuentes de información se deben a una cobertura distinta de las remesas incorporadas por cada oficina, la cual, además no es homogénea en el tiempo. - 15.- ANNEX I En tal sentido operan los registros que por ingresos en concepto de las regalías realiza la DNCFP dentro de los recursos corrientes de origen nacional de los esquemas provinciales. En primera instancia las regalías eran recursos transferidos por la empresa Yacimiento Petrolíferos Fiscales (YPF) por la utilización de un recurso no renovable localizado en el subsuelo de la Provincia pertinente. Una vez que YPF fue privatizada las empresas realizan el pago de las regalías directamente a cada Provincia. La DNCFP mantuvo sus registros sin variación a los efectos de dar homogeneidad a la serie. Por tal motivo y al mero efecto de la presente comparación, se descontaron los recursos por regalías de la información de la DNCFP Las diferencias encontradas a posteriori pueden atribuirse a que la ONP incorpora en sus estadísticas una cobertura mayor de las remesas. Algunas de ellas suelen funcionar en las Administraciones Provinciales con la modalidad de cuentas de terceros, puesto que no constituyen un recurso de dicho nivel de gobierno (v.g.: fondo del tabaco). La comparación con los datos de la ejecución presupuestaria de la DNCFP En el anexo 1.8 se calculó el coeficiente que relaciona los recursos del presupuesto base ejecutado con los del presupuesto base caja. Los coeficientes denotan diferencias entre ambos conceptos las cuales se corresponden: i. con el criterio de imputación de los remanentes de ejercicios anteriores; y ii. en el caso de los pagos por cláusula de garantías por coparticipación federal el ejecutado imputa las remesas al año en el cual corresponde la garantía aunque fueran transferidas con cierto rezago y por lo tanto se percibieron en el ejercicio siguiente. El pagado mantiene el concepto del percibido e imputa las remesas en el año que efectivamente ingresaron en las Tesorerías Provinciales. Esto genera una diferencia en la línea 'bláusula de garantía" que forma parte de los recursos corrientes de Jurisdicción Nacional. Los gastos Las erogaciones corrientes En términos generales puede decirse que se ha observado como tendencia un mayor grado de cumplimiento en las erogaciones corrientes. El anexo 1.9 presenta la participación de cada partida en el total de pagos, en tanto que en el anexo 1.10 se presenta un cuadro similar para el caso del presupuesto base devengado. En la primera, se observa una mayor importancia relativa de los gastos corrientes respecto a los de capital aunque se registra una leve tendencia decreciente. En efecto, los pagos de gastos corrientes representaron el 88% del total en 1991 y pasaron al 85% en 1996. La tendencia no deriva de la evolución del base caja sino que deviene de la ejecución presupuestaria, ver anexo 1.10. -16- ANNEX I Este comportamiento está fuertemente influenciado por los pagos correspondientes a los gastos en personal y, en menor medida, a las transferencias. Ambos conceptos son los que en términos históricos presentan el mayor coeficiente pagado respecto al devengado. En muchos casos las transferencias están vinculadas a los pagos de salarios (jubilaciones, docentes privados) o al cumplimiento de normas legales vigentes (transferencias por coparticipación de impuestos a las comunas). Ello ocasiona que registren los mayores niveles de cumplimiento de pagos. Las postergaciones de pagos en personal más relevantes se localizan en los que pueden denominarse "años críticos" del período analizado: 1991 y 1995. Las erogaciones de capital Los gastos de capital pasaron de representar el 11% del total en 1991 al 14% en 1996. No obstante, son ellos los que registran mayores postergaciones y en los mismos se supone que tienen mayor incidencia los créditos presupuestarios perimidos. En 1996 los pagos superaron a los créditos presupuestarios comprometidos puesto que tuvo significativa incidencia la cancelación de deuda en sotck. La inversión financiera en donde se registran los aportes de capital que efectúa el estado provincial tuvieron especial incidencia en el marco de las privatizaciones de empresas públicas y bancos oficiales. Los saldos extrapresupuestarios Como se explicara, derivan de oscilaciones en ingresos y egresos de carácter extrapresupuestario en cuyo resultado se supone que los segundos exceden a los primeros en los montos consignados en el anexo 1.3. La incidencia en el pago total fue más relevante en los añlos 1993/95 cuando se incorporó el efecto negativo que tuvo sobre las finanzas provinciales la situación de los bancos oficiales provinciales. De todos modos el efecto neto fue relativamente bajo, en términos cuantitativos, porque de manera gradual y progresiva bajo distintos mecanismos la situación se fue 'blanqueando" en los registros de las cuentas públicas provinciales. VIL PROPUESTA DE ESTIMACION DEL PRESUPUESTO BASE CAJA EN EL FUTURO En el presente trabajo sin lugar a duda las dificultades más importantes fueron la obtención de la información de base y su consistencia. Si se evalúa una mejora futura en primer lugar hay que superar ambos aspectos. Para ello hay que encarar un relevamiento de la totalidad de las tesorerías provinciales 8. Luego del relevamiento de información habrá que homogeneizar a Dada la magnitud de la información a captar es posible fijar pautas que indiquen prioridades, concretamente puede realizarse un muestreo de las Provincias de mayor importancia relativa y realizar el cálculo de las mismas, en primer instancia. - 17- ANNEX 1 los planes de cuentas utilizados en cada caso, para obtener uno común a todos los Estados Federales. En forma muy general, puede plantearse la confección de la siguiente planilla básica: CUADRO 4 EJECUCION PRESUPUESTARIA BASE CAJA - en millones de $ - CONCEPTO CONSOLIDADO ADMINIS- ORGANISMO CUENTAS TRACION S DESCEN- ESPECIA- CENTRAL TRALIZADOS LES 1-INGRESOS a- PRESUPUESTARIOS b- del ejercicio c- EXTRAPRESUPUESTARIOS 2- EGRESOS a- PRESUPUESTARIAOS b- del ejercicio c- de ejercicios anteriores * libramientos de pago * residuos pasivos d-EXTRAPRESUPUESTARIOS 3- DIFERENCIA(1-2) a- SALDO INICIAL DE CAJA Y BANCOS b- SALDO FINAL DE CAJA Y BANCOS c- OTROS Cada uno de los conceptos mencionados en el cuadro deberían abrirse considerando la clasificación presupuestaria. La información puede complementarse con datos que muestren la situación al cierre del ejercicio del conjunto de Tesorerías de cada Provincia: -18- ANNEX I CUADRO 5 SITUACION DE LAS TESORERIAS al 31/12/.......... CONCEPTO CONSOLIDADO ADMINIS- ORGANISMOS CUENTAS TRACION DESCEN- ESPECIALES CENTRAL TRALIZADOS 1-VALORES ACTIVOS a- caja b- bancos c- cuentas a cobrar d- otros 2- VALORES PASIVOS a- remuneraciones b- aportes previsionales c- aportes obra social d- proveedores e- contratistas f- entes comunales g- empresas del estado provincial h- Estado Nacional i- otros 3- DIFERENCIA También sería útil incluir estadísticas con información adicional como la que se consigna a continuación: 1. detalle de los saldos bancarios. 2. detalle de las cuentas a cobrar. 3. detalle de la deuda exigible. 4. detalle de la deuda no exigible. El grado de desagregación de la información dependerá de la magnitud del trabajo a encarar existiendo igual correspondencia con los resultados a alcanzarse. Para ello deberá definirse una estrategia a efectos de conseguir los datos de manera ordenada y compatible con el resto de la información existente en el seno de la Dirección Nacional de Coordinación Fiscal con las Provincias y mediante los mecanismos a aplicar (misiones, notas de pedido, teléfono, capacitación a los técnicos, etc.) y en función de los medios que se pueden destinar a este fin. -19- ANNEX I ANEXO 1.1 DETALLE DEL RELEVAMIENTO DE LA INFORMACIÓN REFERIDA A LOS PRESUPUESTOS PROVINCIALES BASE CAJA A continuación se detalla la información disponible a los efectos del presente trabajo. Cabe aclarar que la existente en la DNCFP era escasa, por lo cual se efectuó un requerimiento específico a cada Provincia haciéndose hincapié en aquellas de significativa importancia cuantitativa. 1. GOBIERNO DE LA CIUDAD AUTONOMA DE BUENOS AIRES La Jurisdicción opera con una única Tesorería. Se dispuso de: 1. el pagado del ejercicio presupuestario correspondiente al periodo 1991/95; 2. el movimiento de fondos de la tesorería con agregación de las partidas principales para el periodo 1991/95. 2. BUENOS AIRES La Administración Central opera con una Tesorería General, en tanto que cada organismo descentralizado y cada cuenta especial tienen la propia. Se dispuso de: 1. el mandado a pagar del ejercicio presupuestario correspondiente al periodo 1993/96; 2. el movimiento de fondos de la Tesorería General con totales de pagado del ejercicio; del ejercicio anterior y de los restantes ejercicios para el periodo 1993/96. 3. CATAMARCA No se dispuso de información. 4. CORDOBA La Administración Central opera con una Tesorería General, en tanto que cada organismo descentralizado y cada cuenta especial tienen la propia. Se dispuso de: 1. el pagado del ejercicio presupuestario correspondiente al periodo 1991/95; 2. los totales de las obligaciones de pagos de ejercicios anteriores cumplimentadas por la Tesorería General para el mismo periodo; 3. los residuos pasivos de cada ejercicio anterior pagados durante el ejercicios a nivel agregado para el periodo 1991/95. 5. CORRIENTES La Administración Central opera con una Tesorería General, en tanto que cada organismo descentralizado y cada cuenta especial tienen la propia. Se dispuso únicamente del mandado a pagar del ejercicio presupuestario correspondiente al periodo 1991/94. - 20- ANNEX I 6. CHACO La Administración Central opera con una Tesorería General, en tanto que cada organismo descentralizado y cada cuenta especial tienen la propia. Se dispuso únicamente del pagado del ejercicio presupuestario correspondiente a los ejercicios 1991 y 1994. 7. CHUBUT La Administración Central opera con una Tesorería General, en tanto que cada organismo descentralizado y cada cuenta especial tienen la propia. Se dispuso del pagado del ejercicio presupuestario correspondiente al periodo 1991/95. 8. ENTRE RIOS La Administración Central opera con una Tesorería General, en tanto que cada organismo descentralizado y cada cuenta especial tienen la propia. Se dispuso del pagado del ejercicio presupuestario correspondiente a los ejercicios 1991; 1993 y 1995. 9. FORMOSA La Administración Central opera con una Tesorería General, en tanto que cada organismo descentralizado y cada cuenta especial tienen la propia. Se dispuso del pagado del ejercicio presupuestario correspondiente a los periodos 1991/92 y 1994/95. 10. JUJUY La Administración Central opera con una Tesorería General, en tanto que cada organismo descentralizado y cada cuenta especial tienen la propia. Se dispuso del pagado del ejercicio presupuestario correspondiente a los ejercicios 1991 y 1992. 11. LA PAMPA La Administración Central opera con una Tesorería General, en tanto que cada organismo descentralizado y cada cuenta especial tienen la propia. Se dispuso de: 1. el pagado del ejercicio presupuestario correspondiente al periodo 1991/95; 2. la deuda flotantes de la Tesorería General para el periodo 1991/95; 3. los residuos pasivos efectuados en cada ejercicio para el periodo 1991/95. 12. LA RIOJA La Administración Central opera con una Tesorería General, en tanto que cada organismo descentralizado y cada cuenta especial tienen la propia. Se dispuso del pagado del ejercicio presupuestario correspondiente a los ejercicios 1992 y 1994. 13. MENDOZA La Administración Central opera con una Tesorería General, en tanto que cada organismo descentralizado y cada cuenta especial tienen la propia. Se dispuso del pagado de la Administración Central del ejercicio presupuestario y de los anteriores correspondiente al periodo 1992/96. -21.- ANNEX 1 14. MISIONES No se dispuso de información. 15. NEUQUEN No se dispuso de información. 16. RIO NEGRO No se dispuso de información. 17. SALTA La Administración Central opera con una Tesorería General, en tanto que cada organismo descentralizado y cada cuenta especial tienen la propia. Se dispuso del pagado del ejercicio presupuestario correspondiente al periodo 1991/95. 18. SAN JUAN No se dispuso de información. 19. SAN LUIS No se dispuso de información. 20. SANTA CRUZ No se dispuso de información. 21. SANTA FE La Administración Central opera con una Tesorería General, en tanto que cada organismo descentralizado y cada cuenta especial tienen la propia. Se dispuso de: 1. mandado a pagar del ejercicio 1991; 2. movimiento de fondos de la Tesorería General del año 1995; 3. mandado a pagar y pagos de deuda flotante del año 1996. 22. SANTIAGO DEL ESTERO La Administración Central opera con una Tesorería General, en tanto que cada organismo descentralizado y cada cuenta especial tienen la propia. Se dispuso del pagado del ejercicio presupuestario correspondiente al periodo 1991/2. 23. TUCUMAN La Administración Central opera con una Tesorería General, en tanto que cada organismo descentralizado y cada cuenta especial tienen la propia. Se dispuso del movimiento de fondos de la Tesorería General correspondiente al periodo 199115. 24. TIERRA DEL FUEGO No se dispuso de información. ANEXO 1.2 EROGACIONES TOTALES POR JURISDICCION PERIODO 1991 - 1996 (en % de erogaciones del total de jurisdicciones) PROYECC. Jurisdicción 1991 1992 1993 1994 1995 1996 Ciudad de Buenos Aires 10.2 11.5 10.3 9.2 9.0 9.8 Buenos Aires 25.2 25.3 25.6 27.2 26.5 29.4 Catamarca 1.6 1.7 1.6 1.6 1.4 1.5 Córdoba 7.8 8.3 8.7 8.6 8.0 6.7 Corrientes 2.7 2.5 2.2 2.3 2.2 2.4 Chaco 3.1 3.0 2.7 2.6 2.7 2.9 Chubut 1.8 1.8 2.0 2.1 1.9 1.9 Entre Ríos 3.5 3.7 3.4 3.5 3.6 3.6 Formosa 2.6 2.3 2.4 2.3 2.3 2.0 Jujuy 2.8 2.0 2.3 2.2 2.3 2.0 La Pampa 1.5 1.6 1.7 1.6 1.6 1.5 La Rioja 2.1 2.0 1.8 1.7 2.0 2.0 Mendoza 3.5 4.1 4.7 4.4 4.5 4.0 Misiones 2.3 2.5 2.4 2.2 2.4 2.5 Neuquén 3.2 3.0 3.2 3.1 3.8 3.0 Rio Ncgro 2.4 2.4 3.2 2.6 2.6 2.6 Salta 3.4 3.1 2.8 2.7 2.8 2.5 San Juan 2.3 2.0 2.3 2.7 2.5 2.1 San Luis 1.4 1.3 1.3 1.5 1.4 1.5 Santa Cruz 2.0 1.6 1.6 1.8 2.0 2.1 Santa Fe 7.9 7.5 7.4 7.4 7.6 7.6 Santiago del Estero 2.5 2.5 2.5 2.4 2.1 2.1 Tierra del Fuego 1.0 1.1 1.0 1.2 1.3 1.1 Tucumán 3.1 3.3 2.9 3.1 3.4 3.3 TOTAL 24 JURISDICCIONES 100.0 100.0 100.0 100.0 100.0 100.0 ANEXO L3 MODELO PARA DETERMINACION BASE CAJA 1991 1992 1993 1994 1995 1996 CONÉCEPTO EJE~ITAD PAGADO JEClIADD PAOADO MIJCUTADO PAGADO EMCrADD PAGADO nJECD.TADO PAGADD LJCuTADO PAGADO . RECURSOS DEL AÑO 14,859.0 14,859.0 21,936.4 21,803.7 25,067.4 25,162.2 27,170.7 27,195.7 26,427.4 26,329.9 27,975.2 27,885.8 2- UTILIZACION DE CAJA Y BANCOS 9.0 (94.0) 104.6 (332.9) 437.5 (254.0) 1,109.9 223.4 620.3 89.5 507.3 218.8 3 131.I/AIIIJNtIR>.'IA('IIVI> INAN('IFRO!I 00 0.0 0.0 0.0 2,277.5 1,675 349.3 606.6 5908 614.6 620.4 699.3 4- USO DEL CREDITO 484.1 484.1 868.7 868.7 1,034.3 1,034.3 2,22S.8 2.225.8 3,436.8 3,436.8 4,762.7 4,762.7 5- RECURSOS DISPONIBLES DEL AÑO 15,352.8 15,248.2 22,909.7 22,339.5 28,816.7 27,810.0 30,855.7 30.251.5 31,075.2 30,470.7 33.865.6 33,566.6 6. PAGADO DE DEUDA FLOTANTE EN STOCK 400.0 400.0 1,638.6 1,638.6 1,464.1 1.464.1 1,424.5 1,424.5 1,030.1 1,030.1 3,337.7 3,337.7 6.1. Erociones Coirentes y de Capital 0 390.6 1.5894 1,4285 1,3521 8999 2,9502 62. Amort~ó de la Deuda 0 94 493 356 71.7 1302 3875 7-SALDOS EXTRAPRESUPUESTARIOS 0.0 105.6 0.0 145.6 0.0 291.0 0.0 355.0 0.0 438.8 0.0 191.5 9. RECURSOSNETOS DEL AÑO=PAGADO DEL PRESUPUESTO 14,952.8 14,742.6 21,271.1 20,555.3 27,352.6 26,054.9 29,431.2 28,472.0 30,045.1 29,001.8 30,527.9 30,037.4 9- EROCACIONES DEL AÑO SIN AMORTIZACIONES 16,247.4 14,207.8 22,399.9 20,069.9 27,264.7 25,138.2 19,619.3 27,436.5 . 30,006.2 27,499.8 29,463.9 26,660.5 10. AMORTIZACION DE LA DEUDA 594.3 534.9 539.3 495.4 1,018.5 916.7 1,150.5 1,035.5 1,660.9 1,502.0 3,752.1 3,376.9 11. EROGACIONES Y AMORTIZACIONES DEL AÑO 16,841.7 14,742.6 22,939.2 20,555.3 28,283.2 26,054.9 30,769.8 28,472.0 31,675.0 29,001.8 33,216.0 30.037.4 12- RESIDUOS PASIVOS PERIMIDOS 121.9 0.0 168.0 0.0 204.5 0.0 222.1 0.0 225.0 0,0 221.0 0.0 13. DEUDA FLOTANTE DEL AÑO 1,977.2 2,215.9 2.023.8 2,075.7 2,448.2 2,957.7 14- CONSOLIDACION DE DEUDA 0.0 1,240.0 1,240.0 800.0 800.0 450.0 450.0 480.0 480.0 150.0 150.0 I5. STOCK DEUDA FLOTANTE 3,277.2 2,614.5 2,374.2 2,575.4 3,513.4 2,93.3 ANEXO 1.4 BASE CAJA CONSOLIDADO 24 JURISDICCIONES -En Millones de S- - RECURSOS CORRIENTES 13,478.9 20.230.1 2317.118 24,963.7 24,031.7 25,351.7 De Juriadieción Provincial 5,408.3 8.561.4 10.347.8 11,573.2 10.970.4 11,413.6 . Tributario 4,678.3 7,364.4 8,783.9 9,663.3 9,146.2 9,755.8 . No Tributarios 730.1 1.197.0 1.563.9 2.909.9 1.824.2 1,657.9 De Juriadicción Nacional 8,070.6 11,713.8 12,339.9 13,390.6 13,061.3 13,938.1 .Coparticipación F~deal 6,868.9 9,905.5 10,3450 10,591.9 10,303.3 10,671.1 - Coparticipación Ncta 6,868.9 8,421.0 8,2937 9.014.8 8.249.1 9,029.5 - Afect a Transt Servicios 0.0 1.191'3 1.2957 1,318.0 1.318.0 1,318.0 - ClausuLa de Garantia (Ley 24310) 0.0 293.2 7555 259.1 736.3 323.6 Regalias 460.4 540.3 5470 578.3 644.8 753.7 .Fondo de Desequilibnos 174.6 14.4 1.1 0.0 0.0 0.0 .Regrnen Ley N 22916 y mod. 28.8 4.3 0.0 0.0 0.0 0.0 . Fondo Educativo 261.4 274.0 ¡51.1 123.5 49.7 23.6 . Fondo de innovación Tecnoógca 13.3 0.0 00 0.0 0.0 0.0 Sistera de Segundad Socia 52.6 117.8 196.1 185.1 162.7 189.1 Organsmos de Vialidad (o Copart.Vial) 61.3 226.3 266 9 300.7 255.7 351.2 Obras nfaetuctura (y Dto. 2733 mc.c) 80,9 113.2 132.8 154.6 101.3 143.5 Ofros 68.5 523.0 1,1999 1,456.5 1.5438 1,805.9 II - EROGACIONES CORRIENTES 13,004.2 19,479.2 23,M67.1 25,265.8 24.704.6 25.440.7 Personal 7,790.8 11.690.5 14.154 3 14.922.9 14,479.4 14,931.7 Bienes y Servicios No Personales 1,490.3 2.279.9 2.7856 3.096.6 3.012.6 2.805.3 Intereses de la Deuda 227.3 348.9 469.0 589.8 729.3 871.4 Transferencias 3,495.8 5,159.9 6,4582 6,656.5 6,483.3 6.832.3 III - RECURSOS DE CAPITAL 35.2 129.3 269.1 299.7 309.1 316J IV -APORTES 1,294.9 1.393.3 1.71W3 1,932.3 1,939.1 2,217.3 Apertes No Reaitegrables 35.4 60. 341.1 995.3 1,213.3 1,227.7 -A.T.N. 111.9 221.5 3590 470.4 584.3 550.1 - F.E.D.E.1. 14.6 72.8 101.0 83.1 81.3 101.0 F.D.R. 101.3 23.5 89.9 36.8 59.7 44.0 128.6 290.9 291.3 405.0 488.5 532.6 Aportes Reintegrables 933.5 735.0 364.2 937.0 775.3 99.1 - FO.NA.VI. 805.3 729.4 823.2 927.5 770.9 987.5 - Antcipo de Impuestos 112.7 0.0 03 0.0 (0.0) (0.0) -Otros 20.5 55.7 35 7 9.5 4.4 2.6 V - EROGACIONES DE CAPITAL 1,594.1 2.130.1 2,699.4 3,523.5 3.695.1 4,150.0 Inversión Real 1,464.4 1,921.4 2,1619 2,718.9 2.591.5 2,897.2 - Bienes de Capital 56.4 109.3 181 7 226.5 201.0 153.9 - Trabajos Púbhcos 1,407.9 1,812.1 1,980.3 2,492.4 2,390.4 2,743.3 Bienes Pre~=óstentes 8.5 20.3 23.8 28.2 29.9 31.0 inveión Financiera 121.2 238.4 5138 776.4 1.073.8 1.221.7 VI - EROGACIONES EXTRAPRESUPUESTARIAS 105.6 145.6 291.0 355.0 433.8 191.5 VII - TOTAL REC. Y APORTES ( 1+111+1V ) 14,159.0 21,03.7 25,162.2 27.195.7 26,329.9 27, 115.3 VIII -TOTALDEEROGACIONES(11+V+VI) 14,703.9 21,04.9 26,57.7 29,144-4 23,33.5 29,§02.2 IX - NECESIDAD DE FrO. ( VII - VI) (155.0) 1.2 1,695.4 1.94@.7 2, 4.6 1.916.4 X - VARIACION DE ACTIVOS (94.3) (332.9) 1,613.5 330.0 704.1 91.1 Xi - VARIACION DE PASIVOS (60.2) 334.1 31.9 1.118.6 1,304.5 99.3 DEUDA PUBLICA (60.2) 334.1 31.9 1.113.6 1,104.5 99.3 Obtención (Uso del Crédito) 484.1 868.7 1.034.3 2,225.8 3.436.8 4,762.7 Amortiación de la Deuda (544.3) (534.6) (952.3) (1,107.2) (1,632.2) (3,764.4) .Otoa 0.0 0.0 00 0.0 0.0 0.0 ANEXO 1.5 EROGACIONES RELACION PAGADO/EJECUTADO -en 0/0- .......~., ...........:.......... ~ .. ..... .. .. . . . . . . . . . . I - EROGACIONES CORRIENTES 92.5 97.4 99.8 98.5 95.9 99.8 Personal 92.4 97.7 100.0 99.2 95.2 100.6 Bs. y Scios. No Personales 86.6 96.0 98.9 98.6 94.8 97.7 Intereses de la Deuda 85.3 98.7 99.6 99.3 101.1 96.8 Transferencias 96.1 97.4 99.8 97.0 97.3 99.4 II - EROGACIONES DE CAPITAL 72.8 90.8 80.7 88.6 87.2 104.9 Inversión Real 71.8 91.4 80.4 86.6 86.6 101.6 - Bienes de Capital 87.6 86.3 88.8 97.4 90.4 92.9 - Trabajos Pblicos 71.3 91.7 79.7 85.7 86.3 102.2 Bienes Preexistentes 96.8 44.4 94.2 -59.9 90.1 115.7 Inversión Financiera 85.5 94.8 81.3 98.3 88.4 113.1 IV - EROGACIONES TOTALES (*) 89.9 96.7 97.4 97.2 94.6 100.5 V - AMORTIZACION DE LA DEUDA 91.6 99.1 93,5 96.2 97.8 100.3 (*): Sin incluir Erogaciones Extrapresupuestarias ANEXO 1.6 JECUTADO CONSOUDAIDO 24 JURISDICCIONES - En Millones deS. CONrCRPTOö " 99$ 5992 . '193 2994*9 l RECURSOS CORRIENTES 13,47.9 20,412.8 23,092.9 24,938.7 24,129.2 25,441.1 De Jur~åsdien Pronia 5,408.3 3,51.4 10.347.8 11,573.2 10.970.4 11,413.6 Tribu~ados 4.678.3 7,364.4 8,783.9 9,663.3 9,146.2 9,753.8 * No Tribu~ros 730.1 1,197.0 1,563.9 1.909.9 1,824.2 1,657.9 De Jurisdiedön Nademal 8,070.6 11,151.5 12.745.1 13.365.6 13.152.8 14,027.5 .Copom~spacinFod~ra 6,868.9 10.038.2 10.250.1 10,566.9 10,400.8 10,760.5 -Coprcipbain Nete 6,868.9 8,421.0 8,293.7 9,014.8 8,249.1 9,029.5 - Afet. 8 Trtanf. Seraos 0.0 1.191.3 1,295.7 1.318.0 1,318.0 1,318.0 -Cula de ~Gana (Ley 24310) 0,0 425.9 660.7 234.1 833.8 413.0 . as 460.4 540.3 547.0 578.3 644.8 753.7 . Fondod Desequilibrio 174.6 14.4 1.1 0.0 0.0 0.0 .Regimen .ey N 22916 y mod. 28.8 4.3 0.0 0.0 00 0.0 . Fondo Ed~abvo 261.4 274.0 151.1 123.5 49.7 23.6 Fondo dm Inoación Teccn~oóp 13.3 0.0 0.0 00 00 00 . Stsuma dSegdad Socia 32.6 117.8 196.1 185.1 162.7 129.1 - Or~mamos de Vialidad (o Coprt.Via) 61.3 226.3 2669 300.7 255.7 351.2 . Obras infraatrctura (y Dio. 2733 i.c) 80.9 113.2 132.8 1546 1013 1435 Oros 68.5 523.0 1,199.9 1,456.5 1.543.8 1,8059 II - EROGACIONES CORRIENTES 14,05.4 20,000.2 23,918.9 25,642.3 25.766.9 25,506.9 P 8,431.0 11,971.5 14,158.7 15.043.5 15.206.1 14,8445 BynesyServicio No Petoles 1.721.7 2,375.2 2,815.8 3.1399 3.176.7 2,871.9 Intes de la Doda 266.5 353.4 471.1 594.2 721.5 900.0 Trasfei 3,639.2 5.300.1 6,473.4 6,864.6 6.662.6 6,890.6 II - RECURSOS DE CAPITAL 5.2 129.8 269.1 299.7 309.1 316-3 IV - APORTES 1,294.9 1,393.8 1,705.3 1,932.3 1,919.1 2,217.8 Aparav No Reda~n . 356.4 608.8 841.1 995.3 1,213.8 1,227.7 -A.T.N. 111.9 221.5 3590 470.4 584.3 5501 F.E.D.E.I. 14.6 72.8 101.0 83.1 81.3 101.0 - F.DR. 101.3 23.5 89.9 36.8 597 44.0 -r 128.6 290.9 291.3 405.0 488.5 532.6 .Aper~ Roaa ~ 938.5 785.8 64.2 937.0 775.3 990.1 - FO.NA.VI. 805.3 729.4 828.2 927.5 770.9 987 5 -Anhipo de Impstos 112.7 00 0.3 0.0 (00) (0.0) o 20.5 55.7 35.7 9.5 4 4 2.6 V - EROCACIONES DE CAPITAL 2,189.0 2,399.7 3,345.7 3,977.0 4,239.2 3,957.0 Invi R"al 2,038.5 2.202.4 2,6881 3,1403 2,9913 2,850.3 - B~enes de rapital 64.4 126.6 204.5 232.5 222.3 163.6 Trbajos Púbicos 1,974.0 1,975.9 2,483.6 2,907.8 2,769 1 2.684 7 . ikns Praex^iamns 8.8 45.8 25.3 47 1 33.1 268 . Finan~«, 141.7 251.6 632,3 789.5 1.2147 1,079.9 VI -EROGACIONES EXTRAPREUPUESTAIAS 0.0 8.0 0.0 0.0 0.0 0.0 VII -TOTAL REC. Y APORTES ( +i11+IV) 14.159.0 21,936.4 25,067.4 27.170.7 26,427.4 27,975.2 VInl -TOTAL DE EROGACIONES (II + v + i) 16,247.4 22,399.9 27,264.7 29,619.3 30.006.2 29.403.9 IX - NECESIDAD DE FrO. (VII -V) 1338.4 463.5 2.197.3 2,448.5 3,578.7 1,4~8.7 X -VAIACION DEACTVOS 1,49,7 134.1 2131.5 1,373.3 1,810.9 478.1 XI - VARIACION DE PASIVOS (110.2) 329.4 15.7 1.075.3 1,767.9 1,010.6 DEUDA PUBLICA (110.2) 329.4 15.7 1,075.3 1,767.9 1,010.6 ~Obtnon (Uso del Crédio) 484.1 868.7 1,034.3 2.225 8 3,4368 4,762.7 ~Am ~rs-m de la D r^da (594.3) (539.3) (1,018.5) (1,1505) (1,668.9) (3.752.1) .Ot 0.0 0.0 0.0 0.0 00 0.0 ANEXO 1.7 ESQUEMA COMPARATIVO DE LAS REMESAS DEL GOBIERNO NACIONAL A LOS ESTADOS FEDERALES - en millones de $ - FUENTE CONCEPTO 1991 1992 1993 1994 1995 1996 DNCFP 1. RECURSOS CORRIENTES DNCFP 1I JUJRISDICCION NACIONAL 8,0706 11,718.8 128399 13,3906 13,061 3 13.938 1 DNCFP 1 1 1 Regahas 460 4 5403 5470 5783 6448 753 7 DNCFP 2. APORTES 1,294.9 1,393.8 1,705.3 1,932.3 1,989.1 2,217.8 DNCFP 3. TOTAL BASE CAJA (¡+2) 9,365.4 13.112.6 14.545.3 15,322.8 15,050.4 16,155.8 DNCFP 4. BASE CAJA SIN REGALIAS (3-1.I.l.) 8,905.0 12,572.3 13,998.3 14,744.5 14,405.6 15,402.1 ONP 5. TRANSFERENCIAS 9,001.5 12,619.6 13.529.8 14,771.6 14,509.7 15,886.2 ONP 5 1 CORRIENTES si s/i 12.5949 13,5675 12.4293 13,3358 ONP 5 2 DE CAPITAL s s.,i 934 9 1,204 1 2.080 4 2.5504 ONP 6. TOTAL BASE CAJA (5.1+5.2) 9,001.5 12,619.6 13,529.8 14,771.6 14,509.7 15,886.2 DIFERENCIAS (6-4) 96.5 47.3 - 468.5 27.1 104.1 484.1 DNCFP: Dirección Nacional de Coordinación Fiscal con las Provincias ONP: Oficina Nacional de Presupuesto ANEXO 1.8 RECURSOS Y APORTES RELACION PAGADO/EJECUTADO -en %- 1 - RECURSOS CORRIENTES 100.0 99.3 100.4 100.1 99.6 99.6 *De Jurisdicción Provincial 100.0 100.0 100.0 100.0 100.0 100.0 *De Jurisdicción Nacional 100.0 98.9 100.7 100.2 99.3 99.4 Coparticipación Federal 100.0 98.7 100.9 100.2 99.1 99.2 - Coparticipación Neta más Transferencia de Servicios 100.0 100.0 100.0 100.0 100.0 100.0 - Cláusula de Garantía 0.0 68.8 114.4 110.7 88.3 78.4 . Otros 100.0 100.0 100.0 100.0 100.0 100.0 II - RECURSOS DE CAPITAL 100.0 100.0 100.0 100.0 100.0 100.0 il- A1PORF.S 100.0 10 0.00 100. 1 1 (0.0 100.11 *No Reinegnbles 100 0 100 01 10)0 100 100 () *Reintegrables 100.0 100.0 100.0 100.0 100.0 100.0 IV - TOTAL DE RECURSOS (1+11+111) 100.0 99.4 100.4 100.1 99.6 99.7 V - VARIACION DE ACTIVOS (6.3) (248.3) 74.0 60.4 38.9 192.0 VI - USO DEL CREDITO 100.0 100.0 100.0 100.0 100.0 100.0 ANEXO 1.9 BASE CAJA PARTICIPACION EN EL TOTAL DE EROGACIONES -En%- CONCEPTO 1991 1992 1993 1994 1995 1996 I - EROGACIONES CORRIENTES 88.4 89.3 88.9 86.7 85.7 85.4 . Personal 53.0 53.6 52.7 51.2 50.2 50.1 . Bs. y Scios. No Personales 10.1 10.5 10.4 10.6 10.4 9.4 . Intereses de la Deuda 1.5 1.6 1.7 2.0 2.5 2.9 . Transferencias 23.8 23.7 24.0 22.8 22.5 23.0 II - EROGACIONES DE CAPITAL 10.8 10.0 10.1 12.1 12.8 13.9 . Inversión Real 10.0 8.8 8.0 9.3 9.0 9.7 - Bienes de Capital 0.4 0.5 0.7 -0.8 0.7 0.5 - Trabajos Públicos 9.6 8.3 7.4 8.6 8.3 9.2 . Bienes Preexistentes 0.1 0.1 0.1 0.1 0.1 0.1 Inversión Financiera 0.8 1.1 1.9 2.7 3.7 4.1 III - EROGACIONES EXTRAPRESUPUESTARIAS 0.7 0.7 1.1 1.2 1.5 0.6 TOTAL (I+II+III) 100.0 100.0 100.0 100.0 100.0 100.0 III . Amortización de la Deuda 3.7 2.5 3.5 3.8 5.7 12.6 ANEXO 1.10 DEVENGADO PARTICIPACION EN EL TOTAL DE EROGACIONES -En%- CONCEPTO 1991 1992 1993 1994 1995 1996 1 - EROGACIONES CORRIENTES 86.5 89.3 87.7 86.6 85.9 86.6 . Personal 51.9 53.4 51.9 50.8 50.7 50.4 . Bs. y Scios. No Personales 10.6 10.6 10.3 10.6 10.6 9.7 . Intereses de la Deuda 1.6 1.6 1.7 2.0 2.4 3.1 . Transferencias 22.4 23.7 23.7 23.2 22.2 23.4 II - EROGACIONES DE CAPITAL 13.5 10.7 12.3 13.4 14.1 13.4 Inversión Real 12.5 9.4 9.9 10.6 10.0 9.7 - Bienes de Capital 0.4 0.6 0.8 0.8 0.7 0.6 - Trabajos Públicos 12.1 8.8 9.1 9.8 9.2 9.1 . Bienes Preexistentes 0.1 0.2 0.1 0.2 0.1 0.1 . Inversión Financiera 0.9 1.1 2.3 2.7 4.0 3.7 III - EROGACIONES EXTRAPRESUPUESTARIAS 0.0 0.0 0.0 0.0 0.0 0.0 TOTAL (1+11+111) 100.0 100.0 100.0 100.0 100.0 100.0 III . Amortización de la Deuda 3.7 2.4 3.7 3.9 5.6 12.7 ANNEX II Why Privatize? The Case of Argentina's Public Provincial Bank's George Clarke Robert Cull DECRG ANNEX II WHY PRIVATIZE? THE CASE OF ARGENTINA'S PUBLIC PROVINCIAL BANKS* I INTRODUCTION This paper estimates the fiscal impact of privatizing Argentina's public provincial banks. At the beginning of this decade, each Argentine province had at least one government-owned bank. Of the nearly thirty public provincial banks, almost half had been privatized as of December, 1996. Section II uses balance sheet data from 1991-96 for provincial, private, and privatized provincial banks to estimate the rate at which each type of bank's net worth declined relative to total liabilities (and assets). The data indicate that the loss rates were, on average, much higher for public provincial banks than for privatized or private banks. In fact, the private and privatized provincial banks nearly maintained their ratio of net worth to liabilities throughout the period 1992-96.1 These data allow us to construct simple simulation models of the re-capitalization cycle under the assumption that the public provincial banks remain in public hands. Using the estimated loss rate, we calculate the future costs of re-capitalization assuming that every three years public provincial banks increase their capital to bring their ratios of net worth to assets in line with Argentina's 2 prudential standards. The cost estimates, which appear in Section III, indicate that the present value of future re-capitalization far exceeds the costs associated with privatization. Re- capitalization costs, moreover, represent a substantial fiscal burden relative to provincial deficits and expenditures. Paper prepared as part of report on Argentina's fiscal situation under the task management of Paul Levy, LA1C2 (Argentina: Fiscal Dimensions of the Convertibility Plan). We thank Stefan Alber, Jerry Caprio, Luis Guasch, Paul Levy, and Mary Shirley for many helpful comments and suggestions. For providing data and many helpful discussions we are indebted to Javier Bolzico, Andrew Powell, Gabriel Caracciolo, Maria Hernandez, Andrea Molinari, Laura D'Amato, Juan Barale, Horacio Fernandez, and Jorge Lombardi of the Central Bank of Argentina; Rogelio Frigerio, Alejandro Caldarelli, and Enrique Scala of the Fondo Fiduciario; and Raul Benitez and David Rosenblatt of the World Bank. All remaining errors are ours. From 1991 to 1992, however, there was a large drop in the ratio of net worth to liabilities for all banks. That decline was largely the product of the exceptionally high ratio in 1991, which reflected severe financial disintermediation (ie. low liabilities) borne of high inflation. As disintermediation subsided, ratios gradually returned to steady state levels. Throughout the period, however, public provincial banks had the steepest declines. See Figure 3 and Figure 4. 2 The qualitative results of the analysis are similar when we assume that public provincial banks re-capitalize in each year, every five years, or every seven. Though arbitrary, the three-year re- capitalization assumption seems plausible, and, most importantly, is not an important determinant of the outcomes presented here. The fiscal benefits of privatization may even be slightly greater than those estimated here because we ignore any additional tax revenue that will be collected from the privatized provincial banks. - 2.- ANNEX II The "costs" of privatization are analyzed in Section IV. An interesting feature of the loss rate data is that, in the last year under public management, the net worth of the bank in question always dropped dramatically. These declines coincided with rigorous formal audits of the privatizing bank's assets, which suggests that, prior to privatization, net worth data may have been somewhat less reliable than for the post-privatization period.4 Not surprisingly, the losses exposed in the course of these audits were often attributed to privatization by those who benefited from the old arrangement. Privatization or no, however, these losses had been incurred, and would have had to be treated in some way. To confront them as overtly as did the privatizations, however, certainly entailed substantial additional political costs. How a province recovers its bank's assets and how it dispenses with its liabilities will have a substantial short-term fiscal impact. In almost all of the privatizations to date, the post-audit management of assets and liabilities was dictated by political and banking realities. Provinces managed to sell off only the performing assets in their banks' portfolios. From an economic perspective, banks with negative net worth and little hope of future profits should sell at negative prices. Politicians may, however, find it difficult to explain to constituents why the government has to pay a private bank to acquire its public provincial bank. From the perspective of a private purchaser concerned about its banking reputation, moreover, being saddled with a public provincial bank's liabilities and non-performing assets is an unattractive alternative. Borrowers that once found it in their interest to default on public provincial bank loans may now find it their interest to behave as responsible debtors with respect to a private bank. Better to let the privatized entity start afresh with such a borrower rather than force it to collect on past provincial loans that neither the state-owned bank nor the borrowers truly expected to be fully repaid. Section IV describes the way in which assets and liabilities were apportioned between the privatized provincial bank and the "residual" entity. In most cases, performing assets were matched by nearly an equal amount of liabilities (most private). The sales prices of the privatized entities were quite small, especially in comparison with the size of the residual entity. In addition, most provinces agreed to jointly capitalize the privatized provincial bank with the winning bidder.s The sum of these capitalization costs and the eventual losses associated with liquidating the residual entity will be the realized costs of privatization. To some small extent, they were defrayed by the sales price of the privatized entity. While capitalization costs and sales prices are fixed, the realized costs associated with liquidating the residual entities are still quite uncertain. A province that negotiates its way out of substantial liabilities while at the same time recovering substantial non-performing assets may sharply curtail the short-term cost of privatization. Unfortunately, for this analysis we have data for multiple periods from only three provinces on the liquidation of their public provincial banks. In most cases, residual entity asset recovery was left to the privatized entity who received a This is not to suggest that these banks had not undergone external audits in the past. Rather, the audits undertaken prior to privatization were more rigorous, presumably so as to attract private buyers. Whatever the motivation, the post-audit write-down of assets and the increased provisioning which it implied were substantial. Throughout the paper, these audits are referred to as pre-privatization audits. 5 Put another way, many provinces decided to maintain ownership of some fraction of the shares of the privatized entity. Because they could have presumably sold these shares and used the proceeds for other government projects, the retained shares should be thought of as a fiscal cost associated with privatization. -3- ANNEX II percentage of the recovered loan payments. Percentages were typically decreasing in the quality of the asset recovered; the worst loans -- which were presumably the most difficult to recover -- generated the highest percentage payment for the manager of the residual entity. We should emphasize that with only three cases, it is too early to analyze the links between liquidation contracts and asset recovery. We also emphasize, however, that even if no residual entity assets were recovered, the re-capitalization simulations indicate that the typical province would generate large fiscal savings from privatizing its bank. On the liabilities side, the Federal Government and the World Bank employed an interesting strategy to ease the fiscal burden of provinces facing massive short-term liabilities that heretofore had gone unrealized. With Bank assistance, the Federal Government created the Fondo Fiduciario, a fund designed to convert short-term provincial liabilities into long-term loans. Proceeds from the Fondo's long-term loans went to pay the residual entity's creditors; the province will pay off the Fondo over time. The fiscal impact of converting short-term obligations to long- term loans is difficult to estimate, as the counter-factual is difficult to specify. It is not clear how provincial governments would have financed these liabilities without access to the Fondo Fiduciario?6 In our fiscal estimates, therefore, we ignore the benefits of meeting provincial obligations on beneficial financial terms. The political feasibility of the privatization program, however, depended crucially on the ability to convert obligations from short to long term. A province in a desperate fiscal situation would have found it hard (if not impossible) to finance its obligations privately; meeting them all at once would have made a terrible fiscal situation worse, if it could have been done at all. Indeed, given the tax base of many provinces, meeting all public provincial bank obligations immediately was probably unaffordable. In Section IV, we describe the extent and the terms of Fondo Fiduciario assistance to each privatizing province in greater detail. Section IV also relates sales prices of public provincial banks to characteristics of the sale. Again, the actual "sales prices" are often negative because capitalization costs and the eventual losses of the residual entities far outweigh the small positive sums received for the privatized provincial bank in most instances.7 How negative depends, to some extent, on features of the sale and the nature of assets. For example, in some cases, the public provincial bank had a substantial amount of fixed assets (buildings, in particular) that may have been difficult to liquidate and therefore may have had a dampening effect on price. We use residual liabilities as a proxy for short-term potential privatization costs.! We regress residual liabilities on features of the old public provincial bank including its ratio of performing loans to total loans (just prior to privatization) and its fixed assets. Although the number of observations available is quite small, the preliminary results confirm economic intuition -- burdensome features of the sales contract and These provinces probably had little, if any, access to private credit at this time. Obviously, this does not imply that the price paid for the privatized entity was ever negative. What was privatized was the so-called "good bank," which represented a fraction of the former bank. Good banks were designed as viable businesses with equity sufficient to meet regulatory capital requirements. The total potential short-term costs associated with privatization are equal to the sum of any capitalization costs borne by the province and residual entity liabilities, minus the price paid for the privatized entity. There were, however, other incremental costs associated with privatization such as fees paid to advisors, auditors, and investment bankers. Those costs were presumably quite small in comparison with others costs and are, therefore, left out of the analysis that follows. -4- ANNEX II low quality provincial assets are reflected in the net returns to privatization (i.e a large residual entity). Future privatizers may benefit from these estimates when contemplating the short-term fiscal impact of privatization. Another potentially important fiscal issue is the future solvency of the privatized provincial banks. If privatized provincial banks continue to operate as poorly as public provincial banks, they will go bankrupt. Although predicting the future, solvency of any bank, public or private, is a speculative endeavor, the available post-privatization data indicate strongly that privatized provincial banks have become quite distinct from provincial ones in their operations. In fact, data presented in Section V on credit allocation by sector, operating income and costs, and portfolio quality indicate that privatized provincial banks now differ little from the ten largest private banks in operation in 1996.9 A strong case can be made, therefore, that the solvency risks posed by privatized provincial banks are no worse than those posed by the typical private bank. Given the incentives faced by owners of the privatized provincial bank, this may come as little surprise, especially to economists. Empirical confirmation of simple economic intuition, however, may be especially welcomed by policy makers -- although it should be emphasized that the post- privatization experience has not been long, and future data are required before ironclad conclusions can be drawn. The first five sections of the paper make clear that, at every point in the privatization process, policy decisions were guided as much by political reality as they were by economic theory. In an effort to better understand the political economy of privatization, in Section VI we model the decision to privatize as a function of the quality of the public provincial bank, the fiscal situation of the province, the political incentives of decision makers, and exogenous shocks to the banking sector (the Tequila Crisis, for example). Bank quality, fiscal pressures, and political incentives all played a role in privatization decisions, even when controlling for exogenous shocks. One exogenous shock, the Tequila Crisis, did, however, have a pronounced effect on privatization decisions. Facing a severe liquidity crunch in the wake of substantial deposit flight, many public provincial banks were privatized just after the crisis. These results should help policy makers contemplating privatization as to when that policy may be most fruitfully pursued. The results should have implications not only for Argentina's remaining public provincial banks, but also for other countries that have state-owned banks frequently in need of re-capitalization.10 Finally, in Section VII, we conclude and draw lessons from Argentina's bank privatization experience to date. II PUBLIC PROVINCIAL BANKS: Loss or NET WORTH Theoretically, banks' profit maximizing incentives help ensure that capital is allocated efficiently across enterprises. The private banker that faces the prospect of exiting the industry in the wake of substantial loan losses has a strong incentive to award credit according to commercial criteria. These bankers invest considerable effort in developing long-term relationships with clients and in analyzing pertinent loan application information to alleviate the informational asymmetries that plague lenders with respect to borrowers. In state-owned banks, the link is usually severed The welfare effects associated with improved credit allocation may be the most important legacy of these privatizations. As these benefits are difficult to quantify, especially at this early juncture, we ignore them. This is yet another way that we under-estimate the benefits of privatization. 10 Indeed, Argentina offers a unique opportunity to study a cross-section of bank privatizations in one country. -5 - ANNEX II between profit maximization, resolution of informational asymmetry, and efficient allocation of credit. Directors of these banks typically have little fear that their institution will be closed because of their non-performing loans. Often, the profit-maximizing incentive faced by private bankers is replaced with political ones. Directing credit to favored constituencies may be an efficient way to sustain support for a government, if an inefficient way to allocate credit in an economy. A state banker that does the bidding of his government, moreover, expects re- capitalization rather than closure in the event of large loan portfolio losses. The infusion of capital, in turn, allows the cycle to begin anew. Resolving the problem is made more difficult in that state bank credit is often funneled for purposes that ostensibly further social welfare, or at least have appealing redistributive features. The government that offers credit to producers in a particular industry on advantageous terms can (and often does) claim that it must do so to correct a capital market imperfection. Capital market imperfection or no, subsidizing credit to, say, rural enterprises can have important redistributive consequences. Although a government may direct credit to rural enterprise with the purest of intentions, the political advantages associated with redistribution cannot be ignored. Most importantly, directing credit on a non-market basis is often a sustainable political equilibrium as those targeted for benefits find it easier to act in concert in supporting a government than do the large group of taxpayers that must foot the bill to finance the cycle of directed credit, loan loss, and re-capitalization in opposing the government. Not surprisingly in light of the foregoing discussion, throughout the period 1991-6, the typical public provincial bank lost net worth, even in nominal terms (Table 1). The one notable exception was Banco de La Provincia de Buenos Aires (hereafter Buenos Aires), whose net worth increased at a pace commensurate with many well-established private banks. Given its location and the resulting implications for its business, Buenos Aires' situation appears to be distinct from those of other public provincial banks. Moreover, as the flagship of the public banking system, Buenos Aires may receive somewhat different treatment from regulators than other public provincial banks. Clearly, a full discussion of how and why it is that Buenos Aires can be publicly owned and yet apparently function more effectively than other state-owned banks is beyond the scope of this paper. In all results that follow, public provincial bank data is presented with and without Buenos Aires. The small nominal losses in net worth for public provincial banks coincided with large declines in the ratio of net worth to total liabilities (NW/TL), as the nominal values of liabilities climbed throughout the period. On average, the private banks," Buenos Aires, and those privatized provincial banks that had already gone through their pre-privatization audits all experienced increases in nominal net worth (Table I and Figure 1). With respect to NW/TL, public provincial banks experienced the largest average declines (9%). Although the period was a rough one for all banks, as indicated by average decreases in NW/TL for private banks (3.7%), the average decline for public provincial banks was over twice as large (Table I and Figure 3). It should be noted, however, that part of the large average declines in NW/TL during this period were I I "Private banks" refers to a sample of the ten largest private banks in Argentina as of 1996. It was thought that these ten would be among the best performing banks in Argentina, and thus would provide a difficult comparitor for the privatized bank sample. In this way, we biased our analysis against the conclusion that privatized banks were performing well solely because they had improved relative to public provincial banks. Encouragingly, in the comparisons that follow, the privatized provincial banks tend to perform nearly as well as these large private banks. -6- ANNEX H the product of severe financial disintermediation (low liability levels) early in the period. In 1991, inflation was 172% and, as a result, the ratio of M2 to GDP dipped to 10.6%. The ratio of quasi- money (time, savings, and foreign currency deposits) to GDP was only 4.2%, quite low even by developing country standards. As inflation subsided (24.6% in 1992 and 10.6% in 1993), financial depth recovered (quasi-money was 8.7% of GDP in 1992, 11.7% in 1993). As bank liabilities increased, NW/TL dropped. That drop was especially dramatic in 1991. Even when one excludes data from that year, however, the average annual loss in NW/TL was 6.3% for public provincial banks. The performance of privatized provincial banks with respect to net worth and NW/TL depended greatly on how far along the province was in the privatization process. In the year just prior to the actual sale (the last year of public management), when rigorous pre-privatization audits typically occurred, net worth plummeted, in most cases dipping well below zero. In the first full year under private management, net worth recovered, typically becoming positive. On average, the gains in net worth, when coupled with the reduced liabilities of the privatized provincial bank, were more than sufficient to offset the decline in NW/TL during the last year of public operation. The improvements left the average privatized provincial bank with a marginally acceptable NW/TL ratio (9.8%) that it typically sustained throughout the second year of private operation (See Figure 5 for examples). -7.- ANNEX II Figure 1 Net Worth By Bank Type 4,000,000 3,500,000 -+- Private Banks 3,000,000 2,500,000 2,000,000 rivatizing Banks 1,500,000 1,000,000 Prov Mnus Buenos 500,000 A. 0 Prov Buenos A. 1990 1992 1994 1996 Year Figure 2 Net Worth By Bank Type 1,400,000 1,000,000 m Privatizing Banks 800,000 600,000. Prov Mnus Buenos 400,000 A. 200,000 a I Prov Buenos A. 0. 1990 1992 1994 1996 Year Notes: Figure 2 is a re-production of Figure 1, except that private banks are eliminated to foster better visual comparisons. -8- ANNEX I Table 1: Net Worth/Assets by Type of Bank (1991-96)12 Bank Type Mean Std. Dev. Max. Min. Observ. Net Worth Provincial 87,476.8 208,054.1 1,282,039 -32,307 135 Prov - BA 44,622.4 47,491.6 227,959 -32,307 129 Private 221,535.6 168,059.1 687,052 9,478 70 Privatized Prov Last Year Public -16,938.7 53,275.7 58,352 -133,079 13 1st Year Private 17,896.8 11,441.0 37,403 4,500 6 2nd Year Private 28,041.0 16,448.6 45,852 13,423 3 Change in Net Worth Provincial 2,959.7 37,037.0 194,707 -128,424 109 Prov - BA -1,890.6 25,824.9 65,012 -128,424 104 Private 36,854.4 47,189.8 232,437 -93,911 60 Privatized Prov Last Year Public -50,778.8 64,395.5 14,240 -186,965 13 1st Year Private 46,818.8 73,145.3 146,231 -34,214 6 2nd Year Private 6,027.3 4,611.0 8,923 710 3 Chng in NWITL Provincial -0.086 0.217 0.170 -1.523 106 Prov - BA -0.090 0.222 0.170 -1.523 101 Private -0.037 0.066 0.138 -0.307 58 Privatized Prov Last Year Public -0.150 0.208 0.054 -0.665 13 1st Year Private +0.210 0.265 0.584 -0.052 5 2nd Year Private +0.005 0.045 0.053 -0.035 3 % Chg in Assets Provincial +26.7 39.1 215.5 -50.6 108 Prov - BA +27.6 39.8 215.5 -50.6 103 Private +43.9 36.1 174.3 -27.1 58 Privatized Prov Last Year Public -8.1 37.7 66.8 -76.8 13 1st Year Private -13.1 64.6 80.8 -69.2 5 2nd Year Private +68.6 75.8 156.1 23.4 3 12 Notes: Provincial covers all public provincial banks, including those observations for privatized provincial banks prior to privatization. As noted below, qualitative results for provincial banks are quite similar if these pre-privatization observations are dropped. Prov - BA is Provincial except for observations for Buenos Aires. Private covers a sample of ten large private banks. For privatized provincial banks, the data are broken into three categories. The first is all observations from privatized banks when they were in their final year as a public bank (when more rigorous audits occurred). The second, "1st year private," contains observations for all privatized banks during their first full year of private operations. "2nd year private" contains observations from their second years of private operation. -9- ANNEX II Figure 3 Ratio of Net Worth to Total Liabilities 0.8 .6 Private ii 0.6 a Privatizing 0.4- Prov w /o BA 2 ~ 02 Prov BA 0.2 --Prov wo BA, COR 1990 1992 1994 1996 Year Figure 4 Ratio of Net Worth to Total Liabilities 0.4 0.35 -+- Private 0.3 a 0.25 a Privatizing - 0.2 Prov w /o BA C0.15.. Prov BA E 0.1 U 3 11 0.05. 3*Prov w lo BA, COR 1992 1993 1994 1995 1996 Year Notes: Private includes the ten large banks in the private banking sample. Privatizing includes those had privatized by 1996, and five banks who were in the early stages of privatization in 1996, but had not as yet sold their banks. Prov BA is Buenos Aires. Prov w/o BA is for all public provincial banks except Buenos Aires. Prov w/o BA, COR is for all public provincial banks except Buenos Aires and the Banco de La Provincia de Cordoba. Figure 4 presents data for only 1992-96 to foster better visual comparisons. As noted in the text, 1991 was a year of severe financial disintermediation. The result was a very high ratio of net worth to liabilities, which declined dramatically in 1992 as disintermediation subsided. The 1993-96 data probably give the most accurate depiction of the steady-state situation. The comparisons between privatized and private banks in Table 1 may be misleading in that almost all privatizations occurred late in the period. To the extent that banking conditions were more favorable in these years, privatized provincial banks' relatively impressive performance with respect to net worth and NW/TL may be illusory.13 Table 2 offers the same comparisons between banks as in Table 1, except that they are broken down by year for the period 1994-6, the prime privatization years. The qualitative results 13 Of course, the Tequila Crisis years occurred late in the period, which makes it unlikely that the privatized provincial banks' performance benefited from timing effects. In any event, by breaking down the Table 1 data by year, Table 2 should help correct any misleading comparisons borne of timing effects. -10- ANNEX II remain largely unchanged. With respect to net worth and NW/TL, public provincial banks under- performed private banks and those privatized provincial banks in their first and second years of private operation in each of the three years. Again, the poor performance of public provincial banks becomes even clearer when Buenos Aires is eliminated from the provincial sample: on average, nominal net worth declined in each year, as did NW/TL. For the typical private bank in the sample, nominal net worth increased in each year, and NW/TL increased in 1995. 14 Though, on average, private banks' NW/TL did decline in 1994 and 1996, the decreases were typically smaller than those for the public provincial banks (except Buenos Aires). The median decline in NW/TL for private banks in 1994, for example, was 1.8%; for public provincial banks (except Buenos Aires) the figure was 4.2%. In short, the data indicate that, regardless of the conditions in the banking sector in a particular year, public provincial banks lost capital at a faster rate than did private banks from 1994-96." Year by year comparisons between provincial and privatized provincial banks are made difficult by a lack of data. No reliable comparisons can be furnished for 1991-93: only Corrientes had privatized, and it was still not far along the post-privatization path. For 1994-96 there were typically provinces in the first, second and third years of privatization. The number of observations in each group were, however, quite small (less than four). The comparisons offered between privatized and other banks in Table 2 are less reliable than one might like, though suggestive nonetheless. 14 Those familiar with the recent history of Argentina's banks may be confused by the data in Table 2. 1995, the year in which the Tequila Crisis took hold, appears to have been a relatively good year for most Argentinean banks. Net worth and NW/TL data are not, however, especially reflective of the situation of many banks for a number of reasons. The first is that, because troubled banks were being rescued, their dire situation was not depicted in either net worth or liabilities. In many cases, deposits left these banks swiftly, only to be replaced by B.C.RA. or interbank loans. Indeed, it was the liquidity crunch faced by many of the public provincial banks that drove many provinces to privatization (See Section VI for details). The asset side of their balance sheets also sustained some damage, as reflected in the decrease in nominal assets for public provincial banks (except Buenos Aires). Small losses in assets coupled with the rescue efforts to shore up public provincial bank liabilities resulted in only small losses in nominal net worth and NW/TL. Without these efforts to keep liabilities in line with assets throughout 1996, the losses in net worth and NW/TL began to increase again. By extending credit to troubled banks, some better banks appear to have improved the asset side of their balance sheets. The ten largest private banks experienced an increase in nominal assets (Table 2). As deposits rushed out of troubled banks, they often found homes in some of these better banks. Although this so-called "flight to quality" increased liabilities for our private bank sample, assets increased at an even faster pace, resulting in an increase in both nominal net worth and NW/TL. The same occurred for Buenos Aires, although those results do not appear in Table 2. The established privatized provincial banks appear to have had similar 1995 experiences, which is encouraging. In short, the crisis clearly affected "good" and "bad" banks differently. Those differences are partly captured in Table 2 except that the rescue efforts may hide the true effects on weaker banks. For a view of how the crisis affected the financial system overall and how it caused severe liquidity problems for weaker banks see Appendix 1. The same comparisons are valid for each year from 1991-93. -11- ANNEX II Table 2: Changes in Net Worth, Assets by Type of Bank by Year (1994-6) 1994 1995 1996 Bank Type Mean Mean Mean Net Worth Provincial 86,206 99,465 133,091 Prov - BA 47,719 46,133 37,345 Private 236,556 279,923 376,197 Privatized Prov Last Year Public 502 -77,462 -5,833 1st Year Private n.a. 20,951 13,780 2nd Year Private 24,848 n.a. 29,637 Change in Net Worth Provincial 4,249 6,741 -8,719 Prov - BA -3,063 -2,657 -19,106 Private 50,364 43,368 33,575 Pnvatized Prov Last Year Public -25,090 -118,044 -36,489 1st Year Private n.a. 20,701 91,242 2nd Year Private 710 n.a. 8,686 Chng in NW/TL Provincial -0.086 -0.012 -0.025 Prov - BA -0.089 -0.013 -0.027 Private -0.013 +0.012 -0.037 Privatized Prov Last Year Public -0.086 -0.307 -0.117 1st Year Private n.a. +0.076 +0.306 2nd Year Private -0.035 n.a. +0.025 % Chg in Assets Provincial +24.2 -1.8 +10.3 Prov - BA +25.3 -2.6 +10.0 Private +41.0 +8.3 +46.3 Privatized Prov Last Year Public +30.3 -53.7 -0.3 1st Year Private n.a. +25.1 -7.1 2nd Year Private +23.3 n.a. +91.2 Notes: See Table 1. The privatized provincial bank data in this table are for all privatized banks that fell within a particular category in the year in question. For example, the 502 net worth figure for "last year public" banks in 1994 indicates that those privatized banks that were in their final year of public operations in 1994 had average net worth of 502,000 pesos. Data Source: B.C.R.A. Regardless of the year, banks in the last year of public operation had far steeper declines in both nominal net worth and NW/TL than did either private or other public provincial banks. As noted, this was due largely to the rigorous audits that the privatizing banks undertook prior to their sale. The result, however, does not appear to be driven by conditions in the banking sector: -12- ANNEX II although they varied from 1994-96 (as indicated by the changes in net worth, assets, and NWffL for private banks), privatizers in their last year of public operation always under-performed all other banks. Similarly, with only one minor exception, banks in their first and second full years of private operations always out-performed all others. Privatizers in their first year of private operations typically experienced dramatic post-audit increases in both net worth and NW/TL which were, no doubt, largely indicative of the province's efforts to create a salable bank out of the post-audit ruins. The dramatic increases are not, therefore, an indication that old public provincial bank operations had necessarily improved, but rather that the difficulties resulting from years of sub-par operations had been swept into the residual entities. The results for privatizers during their second year of private operations do, however, provide some hope that the privatized entities have actually improved operations. The data for 1994, which are for Corrientes, indicate that the privatized provincial bank increased its nominal net worth in a year when privatizers in the last year of public operations and public provincial banks experienced declines on this measure. With respect to NW/TL, Corrientes did experience a decline in its second year under private management, but that drop (3.5%) was much smaller than the corresponding ones for privatizers in their last year of public operations (8.6%) and public provincial banks (8.9%). Although Corrientes did not perform as well as did private banks in 1994, its improvements were at least mildly encouraging, especially when one considers that it was a very early privatization that did not enjoy access to the Fondo Fiduciario. It should also be noted that Corrientes eventually went back to public hands. At present, the province has begun searching for a new private owner. Clearly, the Corrientes experience should be seen as distinct from the others. Figure 5 Entre Rios: Ratio of Net Worth to Liabilities 0.3 9 0.25 3 0.2 Zo 0.15 0 0.05 1991 1992 1993 1994 1995 1996 Year -13- ANNEX II Figure 6 Formosa: Ratio of Net Worth to Liabilities 0.3 - 0.3' -0.1 10. 0.1-oil 1992 1993 1994. 1995 1 ;o-0.2 Z -0.5 Year Figure 7 San Luis: Ratio of Net Worth to Liabilities 0.3 -04 -0.5 Year The 1996 data for privatizers in their second year of private operation comes from Entre Rios and La Rioja. These latter privatizations inspire even greater confidence than did Corrientes that privatized provincial banks can function as well as established private banks by their second year of private operation. In both cases, nominal net worth increased by between 8-9 million pesos in 1996. Public provincial banks and privatizers in their last year of public operation declined on this measure. Private banks nominal net worth increased, and more dramatically than did Entre Rios and La Rioja, but that is due primarily to their large size. On the more instructive measure, NW/TL, private banks declined by 3%, while La Rioja improved by 5.3% and Entre Rios maintained its level (.2% decline). In short, privatizers in their second full year of private operations in 1996 out-performed the sample of well-established private banks. While it should be re-emphasized that the limited number of observations makes these comparisons less reliable than one would like, the 1996 results provide hope that privatized provincial banks will not lose capital at the torrid pace of the public provincial banks. Figure 5, Figure 6 and Figure 7 help underscore that the privatization cycle - dramatic declines in NW/TL in the last year of public operations, and a recovery in the first year of private -14- ANNEX II operations that is maintained in the second year -- is evident regardless of banking conditions in a given year. Entre Rios, Formosa, and San Luis all experienced dramatic declines in NW/TL in their last years as public banks, which were 1994, 1995, and 1996, respectively. Both Entre Rios and Formosa recovered to NW/TL levels just under .10 (in line with the Basle guidelines for capital adequacy). As noted, Entre Rios maintained these levels in its second full year of private operation. It remains to be seen whether Formosa will do the same in 1997, and whether San Luis will recover and then maintain in 1997 and 1998. However, the available data strongly suggest the existence of a privatization cycle with respect to net worth. A province contemplating privatization should expect a sharp decline in NW/TL once the light of a more rigorous pre-privatization audit shines upon its bank. Again, these losses are not the result of privatization, merely a revelation of poor past performance. Potential privatizers should, however, be re-assured that in every case to date provinces have created a salable entity from the ashes of the public provincial bank. After their privatization, moreover, these new banks appear to function on par with well-established private banks (at least with respect to NW/TL). As demonstrated in the next section, the decreased risk of government re-capitalizations will more than compensate the province for any short-term fiscal pain borne of exposing existing losses; the Fondo Fiduciario, moreover, stands ready to assist in transforming those obligations from short-term to long-term. III THE COST OF NOT PRIVATIZING Based on the figures in Section II, we derive counter-factual estimates of the cost of re- capitalizing typical public provincial banks over the next century under a variety of scenarios. In scenario 1 we assume that the simulated public provincial bank loses NW/TL at the average rate for all public provincial banks (except Buenos Aires) for the whole period, namely 9%. We 16 assume that the province re-capitalizes the simulated bank every three years so that its ratio of net worth to total assets is 11.5%, the level dictated by Argentine prudential regulations. We also assume that nominal liabilities grow at a rate of 11% per year, the average rate for public provincial banks during the period. For a bank with 25,000,000 pesos in reported net worth, a level very close to the median for public provincial banks (except Buenos Aires) from 1994-96, the nominal re-capitalization payments would total over 205.5 billion pesos if it remained in public hands.17 Clearly, we need to discount these nominal payments in some fashion. From a fiscal perspective, an important question is the size of the re-capitalization payments relative to total provincial revenues. To approximate that ratio into the future, the discount rate should at least capture the increase in nominal revenues attributable to price effects. If we assume that provincial governments discount future pesos at the annual inflation rate, and that the average annual inflation rates for 1994 and 1995 are indicative of future inflation, an appropriate discount factor would be 16 Again, the qualitative results of the re-capitalization simulations presented here are not overly sensitive to the duration of the re-capitalization cycle. We get very similar results, for example, if we assume that the province re-capitalizes its bank every five years. 17 In this section, we calculate re-capitalization payments over the next hundred years. For most of the discounting scenarios presented here, the present value of payments received after that year is quite close to zero. The discounted re-capitalization payments, therefore, should be seen as reasonable estimates of the full fiscal cost of refusing to privatize a public provincial bank. -15- ANNEX II roughly 3% per year, in line with expected international inflation levels." Although a government discount rate that accounts only for inflation was suggested by Pigou some fifty years ago, most researchers now recognize that an appropriate discount rate should also account for the inflation- adjusted opportunity cost of capital. The question is whose opportunity cost should be used. A strong argument can be made that, because the government must divert resources from the private sector through taxes to pay for re-capitalizations, the appropriate discount is the private sector's opportunity cost of capital. While no single rate is, perhaps, an adequate composite of private rates, recent data indicates that the interest rate on peso loans is presently 10%.19 Another school of thought holds that, since the government often borrows to finance its deficit, the appropriate rate is the one at which it can borrow. In the U.S., a reasonable proxy is the Treasury Bill rate. For Argentina, money markets rates (which in the U.S. case are typically slightly higher than the 30- day T-Bill rate), are currently 6%, which might suggest a lower discount rate than 10%.20 In practice, however, the World Bank uses a 10% discount on many of its long-term projects in Argentina. Given the other rates, that one seems a reasonable estimate. 18 World Bank estimates for future inflation are 2.5-3%. Consumer prices in Argentina rose at a rate of 4.3% in 1994 and 3.3% in 1995. It is true that inflation was much higher earlier in the period (172% in 1991, 24.6% in 1992, 10.6% in 1993). One might, therefore, argue that our discount rate is too low. However, as the discount rate increases to reflect steep inflation, so too should the rate of increase in nominal liabilities. Similar qualitative results obtain with respect to discounted re-capitalization payments when we increase both rates. International Monetary Fund, International Financial Statistics (IFS), May, 1997. 20 Ibid. The money market rate reported here is an average rate on loans denominated in national currency of up to 15 days between domestic financial institutions. It is not necessarily clear that this intermarket rate for private banking institutions should always be higher than Argentina's "T-Bill" rate. The rate is included here because it is one of the only rates published in the IFS. -16- ANNEX II Table 3: Estimates of the Costs of Re-Capitalizing a Typical Public Provincial Bank Scenario 1: Ratio of Net Worth to Assets in Year 1: .115 (Arg. Requirement) Net Worth in Year 1: 25,000,000 Loss Rate in Ratio of Net Worth to Liabilities: .090 (Sample Mean, Prov) Rate of Growth in Nominal Liabilities: .113 (Sanple Mean, 1996) Year Net Total Total Implied Nominal PV PV Worth Assets Liabil. Asset Re-Cap. Re-Cap. Re-Cap. Growth Payment Payment Payment During 10% disc 15% disc millions millions millions Cycle millions millions millions (1) (2) (3) (4) (5) (6) (7) (8) 1 25 217 192 .020 0 0 0 3 -11.9 226 238 .020 42.9 29.3 24.5 6 -14.8 280 295 .020 53.1 27.2 20.0 9 -18.3 347 366 .020 65.8 25.3 16.3 12 -22.6 430 453 .020 81.5 23.6 13.2 96 -9092.0 172747 181839 .020 32731.0 3.2 .04 99 -11262.8 213994 225257 .020 35881.6 2.6 .03 Total I I 1 1 205515 383 132 Scenario 2: Same as 1, except Loss Rate in Ratio of Net Worth to Total Liabilities is .08 (Sample Mean for Public provincial banks except Buenos Aires, excluding the years with the highest and the lowest loss rates) 99 -6765.7 225257 218491 .031 31901.8 2.3 .03 Total 182721 340 117 Scenario3: Same as 1, except Loss Rate in Ratio of Net Worth to Total Liabilities is .0627 (Sample Mean for Public provincial banks except Buenos Aires, excluding year with highest average loss rates) 99 994.7 225257 226251 .049 25034.2 1.8 .021 Total 143386 267 92 Scenario 4: Same as 1, except Loss Rate in Ratio of Net Worth to Total Liabilities is .125 99 -27031 198226 225257 -.018 49835 3.61 .04 Total _ 285438 531 183 The discounted re-payment flows in column 7 (10%) should be a reasonable estimate of the present value of future re-capitalizations. For Scenario 1, the 10% rate implies a discounted payment stream of 383 million pesos. Recall that the simulated bank's total assets were only 217 million pesos at the start of the period (column 3). To put that 383 million peso figure into better perspective, note that the average size of the residual entities created to date has been about 46% of -17- ANNEX II the pre-privatization assets, 66% of liabilities (Table 4).2 If the simulated bank were typical of the privatized provincial banks created to date, we would expect a residual entity of 125.8 million pesos in liabilities, 100.2 million in assets. In general, the costs associated with capitalizing the privatized entity and its sales price were quite small in comparison with the size of the residual entity (See Section IV for details). Ignoring those factors for the moment, if the province recovered none of the assets of the simulated residual entity, and paid off all its liabilities immediately, the costs would be less than one-third of the estimates of discounted re-capitalization costs Even a province that discounted future pesos at a rate as high as 15% would save 6 million pesos if it recovered nothing from its residual entity. From a fiscal perspective, the choice is clear, even when a province manages the residual entity as poorly as is possible. In practice, however, provinces may be able to recover a significant portion of the residual entities' assets, and may negotiate their way out of some liabilities (See Section IV for the experiences to date). In those cases, the choice to privatize should be even clearer. 21 These figures exclude data from Santiago del Estero due to measurement problems. That privatization was finalized in September, 1996. The Fondo Fiduciario data for the residual entity are dated July 31, 1996, and should, therefore, be an accurate reflection of assets and liabilities at the close of the sale. The asset and liability figures from the Central Bank for 1995 for Santiago del Estero are much smaller than those in the residual entity. Inflation in 1995 was relatively low, so it seems implausible that nominal assets and liabilities could have increased so much as to permit a residual entity larger than the old public provincial bank. - 18 - ANNEX H Table 4: Residual Entities as a Percentage of Pre-Privatization Assets/Liabilities Residual Year Assets Assets as a % Liabilities Liab. as a % entity Created of Assets in of Liab. in Year Prior to Year Prior to millions Priv. millions Priv. (1) (2) (3) (4) (5) (6) Chaco 1995 245.3 54.0 233.1 56.8 Formosa 1995 135.7 36.7 244.9 83.4 Mendoza 1996 666.6 61.2 666.6 71.4 Misiones 1995 144.2 28.6 331.8 66.0 Prev. Social 1996 292.1 49.7 292.1 56.4 Rio Negro 1996 49.2 24.6 47.4 26.2 Salta 1996 91.6 73.3 73.4 74.2 San Juan 1996 78.6 34.2 175.3 66.9 San Luis 1996 29.7 31.6 81.8 90.1 Sant del Est 1996 199.6 *81.1 227.3 *84.4 Tucuman 1996 261.7 66.7 262.9 70.2 Average 199.5 49.2 239.7 67.8 Avg. Exclud. 46.1 66.1 Sant del Est I I I I I Notes: Prey Social is the foner Banco de Prevision Social de La Provincia de Mendoza; Sant del Est is the former Banco de La Provincia de Santiago del Estero. Source: Fondo Fiduciario. Assets in the year prior to privatization (used to construct data in columns 4 and 6) come from B.C.R.A. balance sheet data. *The asset data for Santiago del Estero implied that their residual entity was 135% of pre-privatization assets, an obviously unrealistic estimate. The figures reported here for Santiago del Estero are, therefore, based on their reported assets in the year of their privatization (1996). See footnote 21 for further discussion of the Santiago del Estero data. Simulated re-capitalization costs are large not only in comparison with the residual entity, but also with respect to the overall fiscal situation. In 1996, the average expenditures for the provinces that had privatized their banks was 720 million pesos; their average deficit was 21 million (Table 5). The 383 million pesos, therefore, represent over half of yearly government expenditures. In every third year, re-capitalization payments of 20-30 million pesos would more than double the typical 1996 deficit. Even under the assumption that the province manages the residual entity as poorly as possible, the savings from privatization (257 million pesos) would amount to a third of yearly government expenditures and could finance 1996 deficits for over twelve years.22 In short, the potential fiscal savings associated with privatization are large, even with counter-factual re-capitalization estimates designed to be conservative. Had we used a discount factor of 5%, for example, the discounted re-capitalization stream would have been 4.2 billion pesos - six years of provincial expenditures, enough to finance the equivalent of a 20 million peso deficit (in 1996) for some two hundred years. 22 The comparisons with 1996 deficits are for illustrative purposes only. Deficits were, however, relatively small in that year. The average 1995 deficit for privatizers was 140 million pesos; in 1994 it was 84 million. It is unclear to us whether the 1996 deficits or those from prior years are better estimates of future deficits. -19- ANNEX II Table 5: Fiscal Situation of Provinces in 1996 Sample Avg. Expenditures Avg. Revenues Deficits (million of pesos) (millions of pesos) (millions of pesos) 1. All Provinces 2,195.2 2,263.3 68.1 2. Provinces Except 1,075.0 1,105.2 30.2 Buenos Aires 3. Provinces that have 698.8 719.9 21.2 Privatized provincial banks Source: Ministry of Economy (National Directorate for Fiscal Coordination with the Provinces) One might argue that public provincial bank quality has improved, or that the remaining banks are of higher quality than those that have already privatized, and thus the 9% loss rate in NWITL overstates future losses. One initial response would be that the typical progression of NW/TL from 1991-96 for the banks in provinces that have begun but not completed the privatization process is quite similar to that for the remaining public provincial banks (See Figure 4). It is not obvious, therefore, that remaining candidates for privatization are necessarily of a higher quality than those that have agreed to privatize. More importantly, if the remaining public provincial banks are better ones (and thus have lower loss rates), their quality should be reflected in a smaller residual entity. Their discounted re-capitalization payments may be smaller than for the early privatizers but, because these payments are offset by the liabilities of a much smaller residual entity, privatization will also make sense for them - unless, of course, these banks are of such high quality that they experience no losses in the future. The data on net worth and NW/TL, and that presented in Section V on operating income and costs, however, make that proposition especially dubious.24 On the other hand, because it includes data for the disintermediation years at the beginning of the period, the average loss rate may overstate future losses for privatizers and non-privatizers alike. In scenario 2 we use the mean loss rate for public provincial banks for the period, excluding the years with the highest and lowest average NWIfL loss rates (8%), perhaps a more stable estimate of future losses. Under our standard discounting assumption (10%), that loss rate implies re-capitalization payments of 340 million pesos, still much larger than the 125 million pesos in liabilities faced by the simulated residual entity. Under a 15% discounting assumption, the re- capitalization stream would total 117 million pesos, Even under that scenario, the province could recover only a small percentage of assets and still come out ahead by privatizing. If we assume the 23 See regressions in Section IV on the relationship between public provincial bank portfolio quality and the size of the residual entity. 24 Leaving Buenos Aires aside, those public provincial banks that have not begun the privatization process did have slightly better pre-privatization performance than those that eventually privatized. However, the disparities are not particularly striking. Non-privatizers had an average nominal net worth of 66 million pesos, and experienced declines in nominal net worth of 853,000 pesos per year and in NWffL of 8.2% per year. Their nominal assets grew at a rate of 31.8%. A quick comparison with the figures in Table 1 indicates that non-privatizers are much more similar to public provincial banks that eventually privatized than they are to the private banks. -20- ANNEX II Pigouvian 5% discount rate, the present value of re-capitalization payments totals an astronomical 3.7 billion pesos. Table 6: Summary of Re-Capitalization Simulations Assumed Loss Rate 5% Discount 10% Discount 15% Discount (NWITL) (millions pesos) (millions pesos) (millions pesos) 6.27% 2,908 267 92 8% 3,706 340 117 9% 4,168 383 132 12.5% 5,789 531 183 If we exclude only the 1991 data, the average loss rate dips to 6.3%. Using that loss rate and the 10% discount rate, the present value of future re-capitalization payments is 267 million pesos. With a 15% discount rate, the present value of future re-capitalizations is 92 million pesos, about seventy-five percent of the liabilities of the residual entity. In other words, assuming a low loss rate and a very high discount rate, a province that collected on only 25% of its residual assets and negotiated its way out of 5% of its liabilities would come out ahead by privatizing. Using a 5% discount rate and the 6.3% loss rate, the present value of future re-capitalization would be 2.9 billion pesos. Recall, also, that in their last year of public operation banks typically underwent a substantial post-audit decline in NW/TL indicating, perhaps, that that ratio had been declining at a rate faster than the balance sheet data had indicated. The "true" rate could, therefore, be greater than 9%. Under scenario 4, we assume a loss rate of 12.5%. Re-capitalization payments discounted at 10% would total 5.3 billion pesos. In other words, things could conceivably be much worse than the estimates presented here for those provinces that choose not to privatize. Indeed, based on the available data, even the most intransigent opponent of privatization would find it difficult (if not impossible) to argue that the fiscal costs associated with maintaining a public provincial bank are not substantial. IV THE PRIVATIZATION PROCESS AND ITS FISCAL IMPLICATIONS The crucial question facing a policy maker contemplating privatization is the quality of the bank's portfolio - which, in practice, determines the size of the residual entity. Although a poor portfolio largely reflects past performance, and thus has nothing to do with the privatization process per se, opponents are likely to hold privatization culpable for the residual entity, at least in the court of public opinion. The experience to date offers important clues as to the size of the problem that a fiture privatizer might expect. In all cases to date, the purchaser of the privatized entity did not assume ownership of all pre-privatization assets and liabilities. While from an economic perspective a negative price for the entire public provincial bank would have been acceptable, political reality and the buyer's desire to "start afresh" dictated that a residual entity be created to ensure a positive price for the privatized entity. Though the individual cases varied, the basic strategy was to first shift attractive assets to the privatized entity, and then match those assets with public provincial bank liabilities. Liabilities were added up to the point that left the privatized entity with sufficient net worth. The key determinant of the size of the residual entity was, therefore, the attractiveness of the public -21- ANNEX II provincial bank's assets. Indeed, the data indicate that the percentage of pre-privatization assets that were relegated to the residual entity depended largely on the quality of the loan portfolio (Table 7). Table 7: Size of Residual Entities Bank % of Pre-Priv. % of Pre-Priv. % non- % Normal Physical Assets Liabil. performing Pre-Priv. Assets as % Pre-Priv. of Pre-Priv. (1994) (1994) Assets Chaco 54.0 51.3 **32.6 **52.6 8.9 Formosa 36.7 66.2 4.0 79.4 2.5 Mendoza 61.2 61.2 20.2 49.5 0.3 Misiones 28.6 65.8 12.5 71.6 5.3 Prv Soc Men 49.7 49.7 34.2 43.4 1.0 Rio Negro 24.6 23.7 47.3 28.4 1.2 Salta 73.3 58.7 75.9 7.5 4.5 San Juan 34.2 76.4 23.1 68.8 1.5 San Luis 31.6 87.1 12.9 80.9 35.5 Sant del Est *81.1 *84.4 ***71.8 ***13.8 3.7 Tucuman 66.7 67.0 53.4 43.8 4.6 Sources: See Table 4 with regard to % of pre-privatization assets and liabilities in the residual entity. The % non- performing and the % normal loans data comes from B.C.R.A. balance sheets. Data on physical assets comes from Fondo Fiduciario balance sheets for residual entities at the time of privatization. * Calculations described in Table 4. 1993 data were used. By 1994, the effects of privatization were evident in Chaco's portfolio quality data. *** 1993 data were used. No data were available for 1994. A simple regression shows the relation between the variables:25 % Assets = 27.8 + .548 (% non-performing) + .798 (% physical assets) (t-stat) (2.53) (2.49) (0.39) N=9, Adj R-Squared .352 (% non-performing) is the percentage of total loans in the worst two B.C.R.A. loan classifications.26 The physical asset variable is the percentage of pre-privatization assets that ended up in residual entity balance sheets under the heading "bienes de uso." Many of the public provincial banks had an abundance of branches and buildings that purchasers might have preferred 25 t-statistics in parentheses. The observation for San Luis was dropped from the estimation because the physical assets reported in its residual entity balance sheet implied an implausibly high percentage of those assets in its portfolio (Table 7). 26 B.C.R.A. changed its loan classification guidelines in 1994 so that the bottom three categories -- those with problems and deficient coverage, those with high risk of borrower insolvency and recovery difficulty, and those deemed unrecoverable -- are now considered non-performing ("bad credits"). The portfolio quality data used in the regressions discussed in this section are for loans classified under the old guidelines. -22- ANNEX H not to own (so they would not have to re-sell them later). The dependent variable is the percentage of pre-privatization assets shifted to the residual entity (see Table 4). These results show that the worse the public provincial bank's portfolio, the larger the residual entity. Although not reported here, the qualitative result is similar when % normal loans replaces % non-performing in the regression -- a high percentage of normal loans implies a smaller residual entity. These results are for portfolio quality measured prior to privatization -- before the light of a pre-privatization audit has shone upon the bank's portfolio. Similar qualitative results obtain, however, when post-audit portfolio quality replaces the pre-audit measures in the regression. The only difference is that the pre-audit coefficient is somewhat larger than the post- audit measure, indicating yet again that problems will likely be more severe than indicated prior to the pre-privatization audit. The results for physical assets are less compelling. Although the coefficient is positive, it is not statistically significant at conventional levels. Given so few observations, however, provincial policy makers should probably consider the possibility that, all else equal, a large share of physical assets may increase the size of their residual entity substantially. Physical assets may, moreover, require a substantially different liquidation strategy than financial ones. The data indicate that the eventual owners of the privatized provincial banks preferred performing assets, which largely dictated the size of the residual entity. Once the privatized assets were specified and matching liabilities were selected, the provinces were left with their residual entities. In some cases the net worth of the public provincial bank was negative at the time of privatization, which meant that residual liabilities were larger than residual assets (Table 4). No matter how much residual asset recovery occurs in those cases, the provinces face net losses.27 In the two worst cases (Formosa and Misiones), residual liabilities exceeded assets by 100-200 million pesos. Those losses are substantial but, as the simulation results indicated, privatization is still the appropriate choice from a fiscal perspective, even when there is no asset recovery to help defray liabilities. For Misiones and Formosa, banks whose assets were roughly twice the size of the simulated bank in Section m, the discounted re-capitalization stream would total well over 500 million pesos, substantially more than the 200-350 million pesos they face in residual liabilities. While residual asset recovery will, hopefully, proceed quickly, it is inconceivable that it could proceed so quickly (and on such advantageous terms to liquidators) as to cover most residual liabilities -- even in those cases where assets exceed liabilities. As a result, provinces needed some way to meet a substantial portion of their residual obligations immediately. As noted above, in an effort to address this difficulty, the Argentinean Government and the World Bank developed the Fondo Fiduciario, a part of the federal government that extends loans to provinces that have privatized their provincial banks. The provinces use the loan proceeds to pay off obligations. In this way, some short-term obligations are converted to longer terms. From a political perspective, financing obligations in this way was quite clever, as the yearly loan payments due to the Fondo are less eye-catching than short-term obligation payments would have been. Assuming the terms of the loans are reasonable, the re-financing should, of course, make little difference from an economic (je, present value) perspective. 27 Again, these are not losses that can be attributed to privatization but rather reflect the poor past performance of the public provincial bank. -23- ANNEX II The Fondo Fiduciario's experience to date is summarized in Table 8. For the smaller residual entities (below 200 million pesos in liabilities), Fondo Fiduciario loans typically covered well over half of their liabilities. For medium-sized residual entities (200-300 million pesos), Fondo loans met roughly one-third of their obligations. For the two largest residual entities, these loans covered less than a quarter of total liabilities. Clearly, those provinces with the largest residual liabilities will have the most pressure to re-coup residual assets quickly, as they were able to re-finance a relatively small portion of their obligations through the Fondo. It is also interesting to note that, in each case, at least half of the loan proceeds went to retire obligations to two creditors -- B.C.R.A. and Banco de la Nacion. In many cases, 80-90% of the proceeds went to those creditors. Although the data provided by Fondo Fiduciario does not indicate why or when the former public provincial banks incurred these debts, it appears that, at some point in the past, both B.C.R.A. and Banco de la Nacion were important sources of liquidity for them. Table 8: Fondo Fiduciario Assistance Bank Residual Total Loan Undisbursed Debts Paid to Debts Paid to Liabilities from FF as of 2/4/97 B.C.R.A. Banco De La Nacion millions millions2 _ Chaco 233.1 78.0 0 78.0 0 Entre Rios n.a. 78.0 0 45.3 0 Formosa 244.9 80.0 0 32.2 37.7 Jujuy n.a. 50.0 33.3 16.6 0 Mendoza 666.6 160.0 0 89.7 70.3 Prv Soc Men 292.1 100.0 0 79.3 20.7 Misiones 331.8 78.0 0 20.2 47.6 Rio Negro 47.4 80.0 0 32.3 11.5 Salta 73.4 50.0 0 16.7 9.5 San Juan 175.3 78.0 0 43.7 34.3 San Luis 81.8 50.0 0 21.0 0 Santa Fe n.a. 160.0 160.0 n.a. n.a. Sant del Est 227.3 50.0 33.3 3.0 0.0 Tucuman 262.9 80.0 25.0 53.6 18.1 Source: Fondo Fiduciario Although the data in Table 8 indicate that some provinces have been able to re-finance almost all of their obligations through the Fondo, in the majority of cases there will be a substantial amount of un-financed liabilities. In these cases, the short-term fiscal implications of privatization will depend largely on the province's ability to negotiate its way out of liabilities and to recover provincial assets. There is little available evidence on the provinces' experiences to date. The Fondo Fiduciario had balance sheets for only three residual entities both at their inception and at some point later (when asset recovery and liability retirement should have already begun). Unfortunately, the balance sheet data for these three cases do not give any indications as to the terms on which the assets were recovered or liabilities retired. That is, assets may have been recovered at a rate of pennies on the dollar, while liabilities may have been retired at face value. 28 Fondo Fiduciario loans data are reported in U.S. dollars. Residual liability data are reported in pesos. Since the exchange rate is pegged so that a peso is worth a dollar, this presents little problem. -24- ANNEX II We know that in many cases the province gave the owner of the privatized entity a contract to collect residual assets. As noted in the introduction, the private owners receive a higher percentage of face value for recovering assets of lower quality (i.e., loans for which re-payment problems have been most chronic). To the extent that residual balance sheets reflect the face value of assets, such contracts make it impossible for the province to receive compensation for the full value of its residual assets. This is not, of course, to imply that these contracts are a bad deal for provinces -- indeed, it is likely that private entities with the appropriate incentives are best equipped to re-coup assets. Rather, we merely point out that, in many cases, the upper bound on asset collection may be somewhat lower than what is reflected in residual balance sheets. Given so little data, analyzing the effect of the liquidation contracts on asset recovery is beyond the scope of this paper. In the future, however, such an analysis may be possible, although it would require very detailed data on the quality of the assets recovered, the terms of each liquidation contract, and the terms on which credits were re-paid. For now, however, we simply summarize the experiences for the three cases for which we have data (Table 9). In all three cases some progress appears to have been made on asset recovery. Formosa and Salta have 20-25% fewer assets in their residual entities than they did at inception.29 In the most impressive case, Chaco has eliminated 110 million in assets, about 45% of their original assets. While, again, it should be emphasized that we can infer nothing about the terms on which credits were re-paid based on our data, it does appear that provinces are whittling away at their residual assets. On the liabilities side, the differences between cases are even more pronounced. Again, Chaco has made the most progress -- liabilities declined from 233 million pesos at inception to 78 million as of June 30, 1996. The 78 million borrowed from the Fondo to pay off debts to B.C.R.A. is reflected in the steep drop in obligations to other financial intermediaries. Chaco presumably used proceeds from asset recovery to retire much of their other liabilities. That experience stands out in stark contrast to Formosa, where residual liabilities appear to have increased since inception. It does, however, seem quite probable that the $80 million loan from the Fondo was not yet reflected in the June 30, 1996 balance sheet. Most of that loan was earmarked for debts to B.C.R.A. and Banco de la Nacion. We expect, therefore, that Formosa's liabilities to other financial intermediaries will soon decline dramatically. Moreover, as their asset recovery efforts gain speed, they should be able to retire even more liabilities. Salta appears to be in a similar position. Despite their $50 million loan from the Fondo (of which $25 million was earmarked for B.C.R.A. and Banco de la Nacion), overall obligations remain at their inception levels. Presumably Fondo Fiduciario loans and improved asset recovery will be reflected in subsequent balance sheets. Unlike Formosa, Salta appears to be in a position to cover almost all of its residual liabilities through Fondo loans and asset recovery. 29 Formosa's case is a bit strange in that, although there has been an overall decline in residual assets, their balance sheets indicate increases for certain categories of assets. Presumably, this merely reflects a re-classification of existing assets rather than the addition of new ones. 30 In Formosa's case, the balance sheet data from 9/31/95 probably did not adequately reflect all eventual residual liabilities at inception. -25- ANNEX I Table 9: Residual Entity Experience to Date (00s of pesos) Chaco Formosa Salta Inception After Inception After Inception After 11/3/94 6/30/96 9/31/95 6/30/96 10/31/95 9/30/96 Assets Liquid Assets 5,147 14 - 3,230 1,588 904 Public Bonds 144,354 67,229 873 606 - - Loans 61,917 48,760 100,513 64,531 59,845 43,144 Intermed Loans 4,587 1,964 13,843 15,458 11,528 4,804 Partic. in Firms 3,018 697 - 3,023 529 51 Other Credits 683 187 852 14,569 2,932 2,092 Physical Assets 21,865 13,254 3,395 - 8,870 8,783 Other Assets 3,697 3,368 3,485 - 4,124 4,113 Intangible Ass. - - 7,552 - 1,178 997 Un-Assigned - - 5,232 11,224 1,214 1,554 Total Assets 245,269 135,474 135,745 111,813 91,628 66,441 Liabilities Deposits 18,411 10,683 75,911 96,741 12,376 20,221 Intermed Oblig. 157,942 14,365 102,362 140,128 25,855 16,658 Other Oblig. 29,531 39,019 8,566 42,904 23,082 27,837 Provisions 27,239 14,402 57,431 300 8,229 8,213 Unassigned - - 586 7 3,898 (206) Total Liabil. 233,123 78,470 244,856 279,089 73,440 72,723 Source: Fondo Fiduciario In short, although it is clearly too early to know for certain, work-outs of the residual entities appear to be progressing, if somewhat slower than the World Bank and Argentina's federal government may have envisaged. Presumably, these work-outs will substantially ease the short- term fiscal burdens that accompany privatization, although a detailed analysis of this awaits additional data. At the least, the regressions in this section should be one tool (albeit crude) for estimating the eventual size of the residual entity for those provinces considering privatization. Given a rough estimate of residual liabilities, provinces can calculate the largest negative fiscal impact that privatization could conceivably entail by subtracting those liabilities and any resources used to capitalize the privatized bank from the price paid for the privatized entity. As displayed in Table 10, the capitalization costs and the sales price of the residual entity have typically been quite small, at least in comparison with the residual entity's liabilities. 31 Because the province could presumably sell them, the eventual fiscal implications of any shares it holds in the privatized entity are likely to be negligible. However, there is an opportunity cost associated with not selling them that should probably be considered among the costs of privatization. -26- ANNEX II Table 10: Total Fiscal Costs Associated With Privatization Under Various Residual Asset Recovery Scenarios Province Amount Value of Total Total Total Total Total Paid for Privat. Liabil. of Assets of Fiscal Fiscal Fiscal Privat. Shares Residual Residual Costs of Costs of Costs of Entity Retained Entity Entity Privati- Privati- Privati- by Prov. zation: zation: zation: (millions (millions (millions (millions 0% Asset 20% Asset 50% Asset pesos) pesos) pesos) pesos) Recovery Recovery Recovery (6) (7) (1) (2) (3) (4) (5) Chaco 6.3 2.9 233.1 245.3 229.7 180.6 107.0 Ent Rios 15.1 -- n.a. n.a. n.a. n.a. n.a. Formosa 9.3 4.0 244.9 135.7 239.6 212.4 171.7 Mendoza 20.1 0.6 666.6 666.6 647.1 513.8 313.8 PS Mend 8.2 0.2 292.1 292.1 284.1 225.7 138.0 Misiones 9.1 0.0 331.8 144.2 322.7 293.9 250.6 R Negro 10.2 1.8 47.4 49.2 39.0 29.2 14.4 Salta 4.4 1.1 73.4 91.6 70.1 51.8 24.3 San Juan 11.3 3.8 175.3 78.6 167.8 152.1 128.5 San Luis 5.4 0.0 81.8 29.7 76.5 70.5 61.6 Sant Est 6.7 0.0 227.3 199.6 220.7 180.7 120.9 Tucuman 10.3 2.6 262.9 261.7 255.2 202.9 124.4 Notes: n.a.- not applicable. In the Entre Rios privatization, no residual entity was created. As computed, here, the total cost estimates here are not meaningful for that case. PS Mend is the former Prevision social de Mendoza; R Negro is Rio Negro; and Sant Est is Santiago del Estero. The value of shares left in public hands is an indication of the capitalization costs borne by the province. Most of the amounts paid for privatized entities went back to the new private banks either in the form of capital integrated or as deposits made by the provincial government. These small amounts should not, therefore, be seen as necessarily having improved the fiscal situation of the provinces. Source: Fondo Fiduciario. Table 10 summarizes the total fiscal costs associated with privatization for individual provinces. The total potential short-term costs associated with privatization are equal to the sum of any capitalization costs borne by the province and residual entity liabilities, minus the price paid for the privatized entity (column 5). There were, however, other incremental costs associated with privatization such as fees paid to advisors, auditors, and investment bankers. Those costs were presumably quite small in comparison with the others and are, therefore, left out of the analysis. Final privatization costs will depend on the extent to which provinces recover residual assets. Column 6 lists total privatization costs assuming that 20% of residual assets are recovered; Column 7 assumes a 50% recovery rate. Clearly, total costs will be quite sensitive to the success of the recovery effort. The total cost estimates in Table 10 assume that the province pays off all of the residual liabilities. To the extent that they are able to negotiate their way out of some liabilities, the total cost figures in columns 5-7 should be reduced. The bulk of the short-term fiscal implications will, therefore, derive from the terms on which the residual entity is liquidated. The Fondo Fiduciario loan data, moreover, should be some guide as to the post-privatization financing assistance that provinces might expect. -27- ANNEX II V PRIVATIZED PROVINCIAL BANKS: INDICATORS OF FUTURE SOLVENCY Owners of privatized provincial banks should face the same incentives that all private bankers in Argentina do. To the extent that prudential regulations and bank supervision are adequate, and all indications are that both have improved substantially in the 1990s, neither privatized nor private banks should be so crisis-prone as to pose a bail-out risk to the Government, especially when one considers Argentina's present system of deposit insurance. That system is partly privately managed and imposes high premia (.36-.72% of deposits, depending on the class of deposit) by international standards on member banks. In Denmark, another country with privately managed deposit insurance, premia payments are only .2% of deposits. In Colombia premia are .15% of deposits; in Mexico they are .3% -- and coverage per depositor is unlimited.32 Membership in Argentina's program, moreover, is compulsory. In a country with a strong private deposit insurance program, provinces that privatized their banks should have little compulsion to bail out those institutions if they get into trouble.33 Of course, owners of privatized provincial banks may not perceive themselves to be in the same position as other private bankers, which could affect their future performance. After all, most received a contract to continue providing banking services to the province as part of their sales agreement. As banker to the provincial government, privatized provincial banks maintain a privileged place within the banking industry -- a place that may distort incentives and thus their operations. In this section, therefore, we compare privatized provincial banks with well-established private ones to determine whether their operations are similar. What post-privatization data there are strongly suggest that, despite their services contracts with the provinces, privatized provincial banks have changed their operations substantially. Their similarities with private banks are now far more pronounced than their similarities with the remaining public provincial banks. Importantly, although we cannot quantify the social welfare benefits, the data in this section give strong indications that credit allocation is improving, While the focus of this paper is on fiscal benefits -- which appear to be substantial -- it is quite likely that the most important benefit of these privatizations is the economic growth that should derive from improved credit allocation. Indeed, these benefits probably would make it wise to privatize even if the fiscal calculus did not favor privatization. V.1 Operating Income and Costs One indication of the inefficiency of public provincial banks is their low ratio of operating income to administrative costs. From 1993-96 the typical public provincial bank generated only .77 pesos in total income (net financial income and income from services) for every peso spent on 32 Details regarding deposit insurance programs are drawn from, Alexander Kyei, "Deposit Protection Arrangements: A Survey," IMF Working Paper No. WP/95/134 , Monetary and Exchange Affairs Department, Dec., 1995, and Samuel Talley and Ignacio Mas, "Deposit Insurance in Developing Countries," World Bank Policy Research and External Affairs Working Paper No, 548, 1990. We recognize, however, that systemic bank crises do occur, and that governments often intervene to prevent financial system collapse. See Gerard Caprio, Jr. and Daniela Klingebiel, "Bank Insolvencies: Cross Country Experience," World Bank, April, 1996. However, it should also be noted that, in the event of systemic crisis, the bail-out responsibility likely devolves to the federal rather the provincial governments. -28- ANNEX II administrative costs (Table 11).4 The typical private bank, by contrast, generated 1.44 pesos in income for every peso incurred in costs. Encouragingly, the typical privatized provincial bank generated 1.41 pesos in income per peso of cost. There was, however, a difference between privatized and private banks in the composition of income. About two-thirds of private bank income was financial income, only a third came from services. For privatized provincial banks, over half of their income was generated through services. To some extent, this must reflect their unique relationship with the provincial government. As described below, however, that relationship is not overly reflected in credit allocation decisions -- neither private nor privatized provincial banks lend much to the public sector. Ignoring the type of income, the overall figures in Table 11 indicate that privatized provincial banks generate income as efficiently as do large private banks. 34 This figure enables us to estimate future-recapitalization costs in another way. The typical public provincial bank incurred 60 million pesos in annual administrative costs from 1993-6. If total income was only 77% of costs, this implies an annual operating loss of 13.8 million pesos per year. If we assume that in the long run the provincial government must cover all losses to keep its bank in business, the total fiscal cost of keeping the typical bank afloat would be 276 million 1996 pesos -- that is, the present value of injecting 13.8 million into the bank every year assuming a 5% discount rate. The estimate is in line with those in Section m based on loss rates in net worth. -29- ANNEX H Table 11: Ratios of Income to Cost Financial Income from Total Income/Administrative Services/Administrative Income/Administrative Costs Costs Costs Mean Mean Mean Overall: Private .915 .529 1.44 Provincial .375 .402 .778 Privatized .669 .736 1.41 1994: Private .764 .543 1.307 Provincial .524 .386 .911 Privatized .413 .798 1.211 1995: Private .883 .494 1.377 Provincial .245 .339 .584 Privatized .633 .751 1.385 1996: Private 1.088 .506 1.595 Provincial -.026 .425 .399 Privatized .758 .742 1.501 Data Source: B.C.R.A. Notes: The privatized sample includes only those banks that had completed their privatization as of March, 1996. Only these cases provided at least six months of post-privatization data on income and costs. The cases include Chaco, Corrientes, Entre Rios, Formosa, La Rioja, Misiones, Rio Negro, and Salta. The private sample includes the ten largest private banks in Argentina as of 1996. All public provincial banks are included in the provincial sample, including pre-privatization observations for the eight banks in the privatized sample. In those years where data were available for only a sub-sample of months for a given bank, the data were annualized. For example, for Salta in 1996, costs and income data were totaled over the six months for which data were available, and then multiplied by two. One might wonder whether the encouraging results for privatized provincial banks are reflective primarily of timing. That is, the private bank data covers 1993-96, while the privatized data comes mainly from 1995-6. To the extent that 1995 and 1996 were better years in banking than were 1993-4, the income/cost comparisons between the two groups may be misleading. Table 11 offers income and cost data broken down by year. They indicate that privatized and private banks generated comparable levels of total income per peso of cost for each of the three years for which data for privatized provincial banks was available (94-6). Privatized provincial banks did generate a higher share of income through services than did private banks in each of the three years but, in terms of efficiency in generating total income, privatized provincial banks were As noted above, this proposition is highly dubious as the Tequila Crisis occurred late in the period. The qualitative differences between private, provincial, and privatized banks are not, therefore, attributable to timing effects. -30- ANNEX II remarkably similar to their well-established private competitors. In each of the three years, public provincial banks did far worse than the other two types -- in no year did their financial and service income outpace their administrative costs. In short, the qualitative comparisons between the three groups hold up when we control for potential timing effects. Most encouraging, perhaps, total income outpaced administrative costs by a wide margin for the typical privatized and private bank in each year, which should inspire some confidence in the future solvency of these institutions. Table 12: Ratios of Income to Costs Before and after Privatization Financial Income/ Income from Total Income/ Date Administrative Costs Services/ Administrative Costs Finalized Administrative Costs Mean Mean Mean Chaco Before -.379 .173 -.206 Dec. 95 After .683 .683 1.366 Entre Rios Before -.161 .461 .300 Jan. 95 After .726 .521 1.247 Formosa Before -1.589 .270 -1.319 Nov. 95 After .318 .733 1.051 Misiones Before -.530 .333 -.197 Jan. 96 After .475 .890 1.364 Rio Negro Before .333 .472 .805 Mar. 96 After .610 .524 1.134 Salta Before 3.090 .289 3.379 Mar. 96 After 2.381 .842 3.223 Data Source: B.C.R.A. Notes: The data on income and costs cover only 1993-96. Since Corrientes privatized in 1992, no pre-privatization data was available. For La Rioja, which privatized in 1994, pre-privatization data was not available because the bank had suspended operations in 1993. This leaves only the six cases listed above. The improved performance of the typical public provincial bank is not, moreover, a result driven by only one or two observations. One indication of the result's stability is that the median privatized provincial bank in Table 12 had a ratio of total income to cost quite close to the mean value. A more telling indication, perhaps, comes from before and after comparisons for those privatized provincial banks for which data is available. In every instance in which the ratio of total -31- ANNEX II income to administrative costs was less than one prior to privatization, the post-privatization ratio was greater than one. In other words, each public provincial bank that was losing money prior to privatization was making operating profits after.16 While the ratio of service income to administrative costs has increased in each case after privatization, the ratio of financial income to costs has typically increased even more dramatically. It appears, therefore, that the banks' post- privatization loan portfolios are far more commercially oriented than were their pre-privatization portfolios. Credit allocation data presented in the next sub-section helps bear that conjecture out. V.2 Credit Allocation Portfolio composition data for privatized, provincial, and private banks in June, 1996 are presented in Table 13. While time series data on portfolio composition would, perhaps, better illustrate the evolution of privatized provincial bank credit allocation over time, the snapshot presented here is also telling. Privatized provincial banks have come to look more like private banks than they do public provincial banks in terms of portfolio quality. In general, regardless of the industry, the percent of total credits rated good was highest among the private banks. However, the better established privatized provincial banks (those that privatized prior to April, 1996) did barely eclipse the private banks on one measure -- the percentage of good credits to the government services sector (99.9 versus 99.6%). With respect to good credit allocated to families and to construction, the earliest privatizers approached the private bank percentages (77.2 versus 84.9% for family loans; 83.3 versus 91.8% for construction). Recall, moreover, that the private bank sample contains only the ten largest in Argentina, presumably among the best banks in the country. That the privatized provincial banks now have comparable portfolio is impressive.38 The percentage of good credit in other sectors (primary production, manufacturing, utilities, trade, and other services) was still somewhat lower for the early privatizers than for private banks as of 1996. In general, however, early privatizers had substantially higher good credit percentages than did either public provincial banks, recent privatizers (since June, 1996), or those that had begun but not completed privatization ("beginners"). Public provincial banks did have slightly higher good credit percentages than early privatizers in terms of primary production and utilities. Utilities, however, comprised less than .3% of the portfolio of public provincial banks and early privatizers. More importantly, the good credit percentages for the public provincial banks may be overstated. We know, for example, that banks in their final year under public management have typically undergone a substantial post-audit decline in terms of nominal assets, net worth, and NW/TL (Table 1, Figure 5-Figure 7). That decline is probably reflected in the 36 In one case (Salta) the ratio of total income to administrative costs was well above one before and after privatization. There may be measurement problems with the Salta data as their total income/cost ratio exceeded three, far larger than for any other bank. Salta's loss rate data, moreover, was typical of that for public provincial banks (-.104) and their NW/TL ratio has followed the typical privatization cycle to this point. It difficult to believe that the same bank could lose net worth at a rapid rate while generating operating profits as efficiently as the figures in Table 12 would indicate. We did also have credit allocation data for December, 1995. However, for the five categories of banks in Table 13 the qualitative differences between that data and the 1996 data were not great. As a result, we present only the 1996 data. Of course, because all new loans are good loans, it will more telling to observe privatized provincial banks' portfolio quality in coming years. They do, however, appear to be starting on very solid footing. -32- ANNEX II extremely low percentages of good credits in Table 13 for recent and beginning privatizers -- banks that have undergone pre-privatization audits but have not benefited from the improved portfolio quality resulting from the creation of a residual entity for non-performing assets. Table 13: Credit Allocation by Industry, 1996 Bank Primary Manuf. Const. Utilities Trade Gov't Other Family Type Prod. Srvcs. Srvcs. Loans Pov. Avg % 11.6 20.2 4.0 0.2 12.8 17.6 7.2 15.6 %Good 52.2 41.9 53.8 75.2 43.2 93.9 63.8 71.9 (n=8) EstPrv Avg % 7.2 6.4 5.8 .06 15.4 11.8 6.2 11.8 %Good 45.7 63.2 83.3 69.4 57.1 99.9 66.3 77.2 (n=8) RecPrv Avg % 15.6 11.4 11.6 .04 20.4 10.2 14.6 6.2 %Good 18.8 11.2 22.4 18.4 13.1 82.7 29.6 55.1 (n=6) Intlrv Avg% 11.8 12.6 5.6 .22 28.8 14.8 7.0 15.0 %Good 25.7 37.2 25.3 83.8 32.0 80.7 35.1 59.9 (n=5) Pivate Avg% 6.8 23.0 4.4 3.2 10.4 4.4 10.8 25.2 %Good 90.3 90.1 91.8 99.4 83.1 99.6 91.2 84.9 (n= 10) I_--_I__ I___--_I___--_6- - ___ --______ Data Source: B.C.R.A. Notes: Prov covers those eight public provincial banks that have taken no steps toward privatization (Buenos Aires, Chubut, Cordoba, Social de Cordoba, La Pampa, Neuquen, Santafesino de Inversion, and Cofirene Banco de Inversion). EstPrv covers better established privatized provincial banks - those that had completed privatization as of March, 1996 (Chaco, Corrientes, Entre Rios, Formosa, La Rioja, Misiones, Rio Negro, and Salta). RecPrv covers recently privatized provincial banks, those that completed their privatizations in the last half of 1996 (Mendoza, Prevision Social de Mendoza, San Juan, San Luis, Santiago del Estero, and Tucuman). BegPrv covers those banks that have begun but not completed the privatization process (Catamarca, Jujuy, Santa Cruz, Santa Fe, and Tierra del Fuego). Private includes the ten largest private banks in Argentina in 1996. The columns of each row do not sum to one because we have omitted a catch-all category called "other loans." The figures for beginning and recent privatizers are, therefore, probably more reflective of the actual situation of the remaining public provincial banks than are those in Table 13. In addition, the provincial figures presented include Buenos Aires, a case apart from the others. When the Buenos Aires data are removed, the percentage of good credits in each category drops by about 5%. In short, after appropriate adjustments to the provincial figures for Buenos Aires and for potential overstatements, the percentages of good credits trail those for the earliest privatizers by an even more substantial amount. It is fair to conclude that, as of 1996, the earliest privatizers have much higher quality portfolios than do the remaining public provincial banks. Whether those privatizers can maintain that quality is an important question. Indications to this point are, however, positive. Of the early privatizers, nearly half have been private for at least two years -- the averages in Table 13, therefore, reflect some ability to maintain the portfolio quality inherited after purging residual assets and liabilities. In addition, the operating income and cost data -33- ANNEX II presented above is quite encouraging. At the very least, beginning and recent privatizers can take heart that, in the cases to date, the provinces have been able to create a privatized entity whose portfolio quality approaches that of the top private banks. With respect to the composition of the banks' portfolios, conclusions are more difficult to draw. To some extent, the portfolio composition of these banks depends on the resource endowments of the province in which it resides. It is difficult, therefore, to argue that the industrial composition of the private bank portfolios is inherently superior to that of the other banks, and that we should expect privatized provincial banks to create similar portfolios over time. We might, however, expect less credit to be allocated to the government sector after quasi-political incentives have been replaced by purely economic ones after privatization. Indeed, the data indicate that the remaining public provincial banks have the highest share of their portfolios concentrated in government services (17.6%), followed by beginning privatizers (14.8%). Recent and early privatizers allocate a little more than 10% of their portfolios to government services, while private banks devote a little less than 5% of theirs to the sector. It appears that credit to the public sector does decline in importance after privatization, and that this portfolio shift does coincide with improved portfolio quality. That conclusion is confirmed in the more detailed portfolio quality analysis in Table 14. Not only do good credits as a percentage of total credit increase after privatization, bad credits -- those in the bottom B.C.R.A. classifications -- also decline. Privatization does not, therefore, merely entail a shift from mediocre credit to good credit, it also helps root out the most glaring problems in a bank's portfolio. Because Argentina changed its credit classifications in 1994, the data in Table 14 are presented only for 1994-96. 3 Table 14: Portfolio Quality by Bank Type 1994-6 Bank Type Normal Bad Credits N Credit to Credits (Mean %) Public (Mean %) Sector (Mean %) Provincial 48.0 33.4 51 19.5 Privatized Last Yr Pub 46.0 40.0 10 22.4 lst Yr Priv 84.8 7.7 5 21.2 2nd Yr Priv 66.9 18.1 3 13.1 Private 87.1 6.4 34 1.2 Data Source: B.C.RA. Notes: Bank types are those described in Table 1. Normal and Bad credit data are presented for 1994-96 because B.C.R.A. changed its credit classifications in 1994 (as described above). The changes did not affect measurement of credit to the public sector, those figures are for 1991-96. The figures for provincial and private banks indicate that the more stringent post-1994 guidelines increased the percentage of bad credits and decreased the share of normal credits. The qualitative comparisons between bank types are, however, the same for both periods. -34- ANNEX II The data in Table 14 for privatizers are broken down by year of privatization, which helps us trace the evolution of portfolio quality more precisely than was possible for the cross-sectional data presented in Table 13. The post-audit dip in portfolio quality for privatizers in their last year of public operations is suggested by their large percentage of bad credits relative to those for public provincial banks. There is, however, little disparity between public provincial banks and privatizers in the last year of public operation with respect to normal credits suggesting, perhaps, that while the pre-privatization audits uncover major problems, they don't result in a major reduction in the share of normal credits after the public provincial bank has become a privatized entity.4 Pre-privatization audit dip or no, banks in their first and second years of private operation enjoyed substantially higher portfolio quality than did public provincial banks. In fact, for 1994- 96, privatized banks in their first year under private management had portfolios on par with the ten largest private banks. The private banks averaged 87.1% normal credits and 6.4% bad credits. The figures for privatized banks in their first year under private management were 84.8% normal, 7.7% bad. For 1991-94 the comparison between privatized banks in their first year of private operation and private banks is also very close. For privatizers in their second year under of private operations the comparison with private banks is less close, but the number of observations is especially small and those that had already been through their second year of private operation i.e.. had privatized earliest) may have been the most troubled banks at the outset. Their portfolio quality was, however, substantially higher than public provincial banks'. Improved credit quality does appear to coincide with reduced credit allocation to the public sector. Public sector credit was 13.1% of total credit for third-year privatizers as opposed to 19.5% for public provincial banks.41 The 13.1% is, however, a far cry from the 1.2% for private banks, and privatized banks in their first year under private management had a whopping 21.2% of total credit devoted to the public sector. The figures are, however, somewhat misleading. Although the share of credit to the public sector has typically been higher for privatized banks in the first year under private management than for public provincial banks, nominal public credit has typically decreased substantially after the creation of the residual entity. The individual cases make it much clearer that those provinces that have achieved public credit percentages comparable to those for the private banks now enjoy higher portfolio quality. Table 15 presents public sector credit data before and after privatization for the eight banks that privatized prior to April, 1996. With the exception of Entre Rios, the others all created privatized entities that now have substantially lower nominal credit to the public sector. Interestingly, the banks that now have the highest shares of bad credits are those that had the highest shares of public credit prior to privatization -- La Rioja and Corrientes had over 90% of their pre-privatization credit devoted to the public sector; their share of bad credits in 1996 was quite high (30%). In those cases, the lack of an established private borrowing clientele appears to have had a negative 40 This may not be surprising. Normal credits are those loans for which all payments have been on schedule -- a circumstance that may be readily observable with or without a rigorous audit. 41 It is unclear how credit allocated to government services (Table 13) differs from credit to the public sector (Table 14). The industrial credit breakdown for 1996 comes from a different source than the balance sheet data used to create Table 14. The figures in the two tables suggest that the definitions must be similar. -35- ANNEX II effect on the privatized entity.42 For the rest of the privatizers, post-privatization public shares did not exceed 15% -- except, of course, for Entre Rios, the one case where nominal credit to the public sector remained roughly at its pre-privatization level. In other words, in those cases where the pre-privatization share of credit to the public sector was not near 100%, and where there was a substantial reduction in nominal public credit, portfolio quality (as measured by the share of bad credits) has improved substantially. In fact, the average share of bad credits for the five banks in this category is a little over 5%, slightly lower than for the private bank sample from 1994-96.43 Table 15: Credit to the Public Sector, Before and After Privatization Bank Credit to Public Credit to Public Credit to Credit to Bad Credits Sector, Pre- Sector, Post- Public Sector, Public Sector, as a Privatization Privatization Pre- Post- Percentage of (Millions of (Millions of Privatization Privatization Total Pesos) Pesos) (% of Total) (% of Total) 1996 Chaco 379,892 (1994) 223(1996) 46.5 0.4 13.8 Corrientes 378,469 (1992) 1,458 (1996) 90.9 15.6 35.2 Entre Rios 115,389 (1994) 108,281 (1996) 17.0 23.8 21.7 Formosa 54,065 (1994) 0 (1996) 20.7 0.0 0.0 La Rioja 379,083 (1991) 0(1996) 95.8 0.0 28.4 Misiones 164,681 (1994) 38,234 (1996) 33.6 58.6 5.0 Rio Negro 158,419 (1992) 7,555 (1996) 18.8 9.2 9.1 Salta 33,227 (1995) 15 (1996) 19.5 0.0 0.0 Source: B.C.R.A. To summarize, the available data indicate that privatized provincial banks are far more similar to the Argentina's ten largest private banks than they are to public provincial banks. First, they appear to be operating as profitably and efficiently as the private banks as indicated by their ratios of operating income to costs. In addition, their composition of operating income has shifted slightly towards net financial income as opposed to income from services. Although the private banks continue to generate a higher share of their income through financial income, the privatized provincial banks are gaining ground. The improved situation of the privatized provincial banks is also reflected in their portfolio quality. Their percentage of bad credits is much lower than that for public provincial banks, and their percentage of normal credits is much higher. These improvements in portfolio quality, moreover, have coincided with a decreased emphasis on public credit. All of this augers well for the future solvency of these banks. More importantly, perhaps, the data suggest that credit allocation is improving as a result of privatization. Although the social welfare effects of improved credit allocation are difficult to quantify, these may be privatization's most important legacy. Given all these benefits, one wonders why all provinces do not rush to privatize. We explore that question in the next section. 42 Again, we note that return of Corrientes to public hands makes that case a peculiar one from which to draw inferences. 43 Admittedly, the low shares of bad credit for some banks in Table 15 may merely reflect that all bad credits passed to the residual entity. Their "steady-state" bad credit shares may be a bit higher. -36- ANNEX II VI THE POLITICAL ECONOMY OF PUBLIC PROVINCIAL BANK PRIVATIZATION. Although other players, for example the Federal Government, the Central Bank of Argentina and international donors might be able to indirectly influence the privatization decision, the final choice is made by the provincial government. The privatization of provincial banks, therefore, offers a unique opportunity to study the political economy of privatization in a relatively homogeneous institutional setting (at least relative to cross-country comparisons). The results should have implications not only for Argentina's remaining provincial banks, but also for other countries that have state-owned banks frequently in need of re-capitalization. The political economy of bank privatization might also offer interesting insights into the likely outcomes of forthcoming, and possible, bank privatizations in Argentina. In particular, it will help us judge whether we can expect future provincial bank privatizations to be similar to those we have already observed. If the decision to privatize is primarily driven by provincial politics or is a response to an exogenous crisis, then the outcomes of future privatizations might be quite similar to the outcomes observed to date. However, if the decision to privatize is affected by characteristics of the provincial banks, future outcomes might be quite different. For example, if the worst provincial banks were more likely to be privatized than better banks we would expect the observed size of the residual entities (which Section IV shows depends upon the quality of the provincial bank's portfolio) to be smaller for future privatizations. The decision to privatize the provincial bank is modeled as a function of three types of variables - the quality of the bank, the fiscal situation of the provincial government and the political party in control of the provincial legislature and executive." We find that worse performing banks were more likely to be privatized than better performing banks, that provincial governments facing tight fiscal constraints were more likely to privatize their public provincial banks, and that, in general, governors who did not belong to the Partido Justicialista (PJ) were less likely to privatize their province's public provincial banks. One important point about the method of estimation is that it allows the probability of privatization to vary over time. This will help control for exogenous shocks which increase the probability that each provinces would privatize. This is useful because over this period there were changes in national laws and institutions and economic shocks that might have affected the probability of privatization for all provinces (e.g. the Tequila Crisis, changes in reserve requirements and the new Charter of the Central Bank of Argentina enacted in September 1992).4s 1. Provincial Politics. President Menem and his party, the Partido Justicialista (PJ), is often seen as more sympathetic towards privatization than other parties. The model includes dummy variables indicating whether the PJ controls both the provincial congress and the governorship and whether either the Union Civica Radical (UCR) or another single independent party could The econometric methodology is described in depth in an appendix. 45 Results discussed in this section are from regressions includind the Banco de Provincia de Buenos Aires. However, results from regressions which omit this bank are virtually identical to results from regressions which include it (compare Table 23 and Table 25). Several experts at the Central Bank noted that this bank has peculiar characteristics that might make its privatization less likely than other public provincial banks'. See Footnote 58. -37- ANNEX II block privatization at either the congressional or executive level." In practice, when a party other than PJ has a majority in either the Chamber of Deputies or the Senate, the governor belongs to that party also. The "omitted" category is therefore provincial governments with a PJ governor where either PJ does not have a majority in both chambers or, for unicameral legislatures, that no single party has a majority in the single chamber. In the terminology of Bureaucrats in Business, these variables affect the political feasibility of reform - whether opponents are able to block privatization. The main econometric result is that when either the UCR or a single independent party can block the privatization of the public provincial bank, privatization is far less likely. In fact, the privatization rate when an opposition party can block privatization is less than one fifth the privatization rate when they can not.48 Further, UCR governors appear no more or less likely than other independent governors to privatize the public provincial banks. The other main result is that provinces where the governor and both houses are controlled by the PJ do not appear any more, or less, likely to privatize than provinces where the PJ does not have an absolute majority in both houses. 2. Bank Quality Variables. Several measures of bank performance are included in the model. Table 16 shows that banks that were privatized earlier (banks for whom the privatization process started before the Tequila Crisis of December 1994) tended to be worse performers in 1992 (prior to privatization) than those privatized later or not all. Likewise, late privatizers appeared, in 1992, to be performing less well than those not privatized at all. All indicators of bank performance in the econometric analysis support this conclusion -- the worst performing public provincial banks are the most likely to be privatized. This result is consistent with the hypothesis that those provinces with the worst performing banks were less able, or willing, to support them. Table 17 shows that the hazard rate for privatization is very sensitive to bank performance. A 1% increase in net worth over liabilities decreases the hazard rate for privatization by 3%, and a 1% increase in "normal loans" as a share of total loans decreases the hazard rate for privatization by over 4%. In contrast, a 1% increase in the provincial deficit (as a share of revenues) increases the hazard rate for privatization by only 0.7%.49 "As noted, in provinces with both a Chamber of Deputies and a Senate, the PJ control implies that the PJ controls both the Chamber and the Senate. In those cases, the ability of the UCR or another party to block privatization only requires control of one chamber. From this point onwards, for ease of exposition, we shall write as if all provinces have two houses. For provinces with only one chamber, the omitted category is provinces with a PJ governor where no party has a majority in the chamber of deputies. 47 Chapter 4 in World Bank (1995). Bureaucrats in Business. Oxford: Oxford University Press. 48 Technically, the hazard rate when an opposition party can block is less than one fifth the hazard rate when they can not. See Table 24. 49 Elasticities (calculated at the means of all variables) are the elasticities of the hazard rate (the rate at which banks are privatized after time t given that they were not privatized prior to time t) with respect to the independent variables. -38- ANNEX II Table 16: Median 1992 Performance Indicators for Early, Late and Non-Privatized Provincial Banks Group No. of Net Worth "Normal" Loans to Public Income over Bank divided by Loans as Share Sector as Share Administrative s Net of Total Loans of Total Loans Costs Liabilities Privatized Prior to Dec. 4 0.082 0.474 0.205 0.99 1994*** PrivatizedAfter Dec. 13 0.191 0.625 0.174 1.19 1994 Not Privatized By Dec. 7 0.217 0.702 0.135 1.12 1996. * "Normal" Loans are Loans that are not overdue. ** All data is for June 1992 (prior to any privatizations) except for income over administrative costs which is for June 1993." This last variable is omitted from the econometric analysis because it is not available for the entire period. *** Omits Corrientes since this bank was privatized in 1991, and we want to use pre-privatization data. However, including Corrientes makes all performance measures worse for early privatizers. Table 17: Elasticities of Estimated Hazard Rate with Respect to Continuous Independent Variables Elasticity 95% Confidence Interval Net worth Over liabilities -3.03** (-5.27, -0.78) .blic loans as percent of all loans. 1 .08 . (0.13, 2.03) Total "normal" loans as percent of all loans -4 37" (-7.03, -1.71) IProvicial government deficit as percent of revenues 0.73"F (0.15, 1.31) + Elasticities are calculated at the means of all variables ++ Coefficient estimates are from Table 23, Column 2. 5o The privatization process for Corrientes started in October 1991, however this province is omitted from all analysis due to missing data in 1990 and 1991. -39- ANNEX II 3. Government Deficit. Bureaucrats in Business found that economic crises, which make it more difficult for the government to subsidize loss-making state-owned enterprises appeared to increase the likelihood of privatization (by increasing the political desirability of 0.18. privatization). Governments facing 0.16 " unpleasant choices regarding tax 0.14- increases or spending cuts might see 0.12- privatization as the least unattractive 0 oa option. Similar reasoning suggests that 008 provincial governments facing large fiscal to 0.08. deficits might be more likely to privatize 0.06 than provinces with otherwise sound 0.04 finances. Table 18 shows that cross- 0.02 sectional evidence does not strongly 0 support this conclusion. There is little 1992 1993 1994 1995 1996 difference between the 1992 fiscal Year deficits for provinces that started the privatization process prior to December Figure 8: Median Deficit as % of Revenues. 1994, those that started the process after December 1994, and those that did not privatize at all.si However, in the econometric analysis, after controlling for the political and bank performance variables we do find that high fiscal deficits (as a percentage of revenues) increase the probability of privatization. This result may be primarily caused by time series variation in deficits. Figure 8 shows that average deficits varied greatly over this period (from 4.5% of revenues in 1996 to 17% in 1995), peaking in 1995. As noted earlier, the privatization rate is less sensitive to fiscal deficits than it is to bank performance. Table 18: Median Deficits as Share of Revenues for 1992 Group No. of Banks Deficits as Share of Revenues Bank Privatization Process Started Prior to Dec. 1994 4 0.0487 Bank Privatization Process Started After Dec. 1994 13 0. 0480 Bank Privatization Process Not Started By Dec. 1996. 7 0.0513 4. Figure 9 on page 752 shows that the probability of privatization appears to have increased in mid to late 1995. One possible explanation is that the Tequila Crisis, and the resulting liquidity crunch that public provincial banks had to face, might have changed the political calculations regarding bank privatization for provincial politicians. Many public provincial banks lost deposits immediately following the crisis, which might have dramatically decreased how attractive public provincial banks appeared. As noted in Appendix I, the loss in deposits is not well captured by the bank quality variables used in this section. This result is consistent 51 We used 1992 fiscal data because we want to compare deficits prior to any privatizations. This is important because the act of privatization might affect the provinces' deficits (for example by ending the need to finance recapitalization). -40- ANNEX II with the hypothesis in Bureaucrats in Business that exogenous shocks can increase the political desirability of privatization.52 Another plausible explanation is that provinces' decision were influenced by privatization outcomes in other provinces. As the number of privatized provincial banks increased, pressure to privatize surviving public provincial banks also increased. This section suggests several possible policy recommendations. It demonstrates the importance of bank performance on the probability of privatization - poor performance makes privatization much more likely. Since the rigorous audits that followed the decision to privatize (and preceded the break-up of the public provincial bank into a privatized provincial bank and a residual entity), often revealed that the public provincial bank was performing worse than previously believed, more rigorous auditing of remaining public provincial banks might increase pressure to privatize.53 A further implication, for other countries considering bank privatization, is that investing money to improve publicly owned banks prior to privatizations, to make them more attractive to potential buyers, might have the unfortunate side-effect of reducing political pressure to privatize. 52Bureaucrats in Business, Chapter 4. s3 This, of course, assumes that provincial politicians, and the public, are unaware of the bank's true performance. If, based upon privatizations in other provinces, they already suspect that the bank is performing far worse than its performance suggests, this might have little effect. -41- ANNEX II VII CONCLUSIONS. In provinces with public provincial banks, policy makers are confronted with two options. They can simply refuse to privatize. However, the public provincial bank privatizations to date indicate that, from a fiscal perspective, the decision to maintain a public provincial bank is a costly one. Loss rates for public provincial banks are much higher than for other types and imply substantial future fiscal burdens to maintain the solvency and liquidity of these institutions. The other option, privatization, may be unappealing for policy makers who view the world using a short time horizon. That horizon is, however, exactly the wrong one from which to view this decision. Rather than pass the buck onto the next group in office, the courageous policy maker should root out the problems caused by public provincial banks that mis-allocate credit and are frequently in need of re-capitalization. Based on the experience to date, these policy makers should expect to pass through the following steps: (1) Pre-Privatization Audit: Expect the losses hidden in these banks to be larger than what had been indicated in prior audits. (2) Creation of Residual Entity: Expect the residual entity to comprise a large share of the assets and liabilities of the old public provincial bank if the quality of its loan portfolio was low. (3) Sale of the Privatized Entity: Based on the experience to date, do not expect the price paid for the residual entity to be large, at least in comparison with the assets and liabilities in the residual entity. (4) Managing Short-term Liabilities: If the residual entity is large, the province will be confronted with substantial short-term liabilities. With assistance from Fondo Fiduciario loans and an aggressive asset recovery strategy, however, provinces should hopefully be able to navigate their way through short-term difficulty. It should be noted that it is too early to tell whether residual entity liquidations are proceeding well. Further analysis in this area is warranted as data becomes available. (5) Maintaining Perspective: Policy makers that make (or have made) the tough decision to privatize should take heart that the data strongly indicate that the costs of privatization are smaller than the costs of future re-capitalization, even if the near-term management of the residual entity does not go well. The data on post-privatization performance, moreover, indicate that the future solvency of these banks is enhanced by privatizing them, although the time series is not long enough to permit us to draw especially strong conclusions in that regard. No doubt, the regulatory environment into which these banks were sold will also affect their future solvency. To the extent that sound, incentive compatible prudential regulations are in place at the time of privatization (and, in Argentina's case that appears to be true), the future performance of privatized banks is likely to be better. Finally, the data also indicate that provincial policy makers are rational actors. The World Bank and the Argentinean federal government should, therefore, expect to make most progress on bank privatization when poor bank performance threatens to exacerbate an already desperate provincial fiscal situation and when political constraints do not bind policy makers too tightly. -42- ANNEX II These political economy results should help formalize notions that those involved in the privatization process already understand in a first-hand, intuitive manner. -43 - ANNEX II Appendix I Table 2 in Context: An Overview of the Tequila Crisis The effects of the crisis are, admittedly, only imperfectly captured in the data in Table 2. The data offered in this Appendix, which describe the crisis in finer detail, are not, however, at all incongruous with the Table 2 data, and all the data comes from the same source (B.C.R.A.). Operating profits (Table 19) for the private financial system were sub-par year in 1995, the key crisis year. However, although profits were only about a third their 1994 level, they actually remained positive in 1995, and surpassed that level in 1996. Net interest income actually increased in 1995, an indication, perhaps, of the "good" banks' ability to weather the crisis well. In fact, income taxes were higher for the private financial system in 1995 than they were in 1994. For more marginal banks, however, the crisis was far more difficult to survive. Their situation is summarized in the "charges for under-coverage," a measure of the shortfall in required provisions. As portfolio quality deteriorated (and thus required provisions increased), that cost category increased by roughly 60% for the private financial system from 1994 to 1995. In 1996 it declined but remained well above its pre-crisis level. These data conform well with those in Table 11 on operating income and costs. There, privatized provincial banks and the top ten private banks (good banks) all increased their ratio of operating income to cost in 1995 and 1996. By contrast, the remaining public provincial banks experienced sharp declines in their income/cost ratios in 1995, and remained at very low levels into 1996. Clearly, the data from Table, Table 11, and Table Al.1 indicate that (1) not all banks suffered equally in the crisis, and (2) the public provincial banks were among the hardest hit, certainly the most negatively affected group among the bank types analyzed in this paper. -44- ANNEX II Table 19: Private Bank Operating Profits 1994 1995 1996 (millions of (millions of (through Oct.) pesos) pesos) (millions of pesos) Income Net Income from Interest 2,930 3,097 2,187 Income from Services 2,171 2,048 1,784 Income from other Assets -43 426 627 Costs Administrative Costs -3,945 -3,998 -3,298 Charges for Under-Coverage -818 -1,350 -1,127 Taxes (Income and Other) -350 -501 -505 Dividends and Other 307 353 607 Profits +252 +76 +276 Source: B.C.R.A., Boletin Monetario and Financiero, December, 1996. Although the difficulties faced by marginal banks are hinted at in the public provincial bank data in Table 2, important details are summarized in the balance sheet of the private financial system (Table 20). One clue that marginal banks required assistance during the crisis is the increase in loans to the financial sector. In both nominal terms and as a percentage of total loans, financial sector loans became a more important part of the private system's portfolio in 1995, a trend that continued into 1996. Another clue is that loans to the public sector increased so dramatically from 1994 to 1996, more than tripling their 1994 level. While we have no sectoral breakdown of public sector loans, it seems likely that at least some of the increase went to troubled public banks. Certainly, the public provincial bank data offered throughout this paper suggests that they were likely candidates for assistance. -45- ANNEX II Table 20: Private Banks - Indicators of Financial Health Dec. 1994 Dec. 1995 Oct. 1996 (millions of (millions of (millions of pesos) pesos) pesos) Assets Total Assets 48,326 55,175 71,279 Total Loans 34,100 33,571 38,020 Loans to the Financial Sector 2,336 2,384 2,797 Loans to the Private Sector 31,261 30,385 33,378 Loans to the Public Sector 503 803 1,845 Liquid Assets 5,338 3,888 4,520 Liabilities Total Liabilities 41,769 48,113 63,664 Total Deposits 28,523 27,190 33,829 Obligations to BCRA 307 1,019 739 Other Obligations 12,436 20,008 28,843 External Credit Lines 3,239 4,567 4,669 Net Worth 6,557 7,062 7,615 Portfolio Quality % Non-Performing 7.5 11.7 13.2 % Unrecoverable 2.1 3.4 5.9 % Provisions 4.1 6.8 8.9 Source: B.C.R.A., Boletin Monetario and Financiero, December, 1996. On the liabilities side, the balance sheet of the private financial system offers additional clues as to how the crisis was managed. Deposits may had fled weaker banks at an alarming rate, but the overall system experienced only a 5% decline in nominal deposits from 1994 to 1995.54 Presumably, stronger banks were the recipients of many of these deposits. Although the data in Table 2 do not display it, the % change in liabilities was, in fact, positive for the ten largest private banks in 1995 and 1996. As deposits fled weaker banks, however, they appear to have been replaced by other liabilities. In particular, obligations to B.C.R.A. increased substantially from 1994 to 1995. Those obligations declined substantially in 1996 suggesting that many of them were short-term loans designed to preserve the liquidity of these institutions during the crisis. Both external credit lines and the nebulous "other obligations" also increased substantially from 1994 to 1996. Without a finer breakdown of those two categories, it is difficult to know how much of the increase in these liabilities reflected short-term loans from stronger to weaker banks. Based on these figures, it seems reasonable to assume, that B.C.R.A. was not alone in the rescue effort. We do, however, have detailed data on deposit flight from the public provincial banks. As noted in 54 The data in Table 21 indicate substantial deposit outflow occurred between December, 1994 and January, 1995. Comparing data from December, 1994 and December, 1995 may understate the strain on the financial system to the extent that recovery had begun in late 1995. -46- ANNEX H other parts of the paper (see especially section VI), it appears that it was largely this liquidity crunch that compelled many provinces to privatize. Table 21: Deposit Flight from Public Provincial Banks During the Tequila Crisis Public Provincial Deposits as of Change in Deposits Percent Change in Bank 1/31/95 from 12/94 to 1/95 Deposits from 12/94 (millions of pesos) (millions of pesos) to 1/95 Buenos Aires 3,085 +71.0 +3.2 Salta 50 +10.1 +10.6 San Luis 99 +0.9 -19.5 Rio Negro 151 -8.8 -17.1 Jujuy 88 -15.2 -29.3 Formosa 89 -34.8 -25.3 Santa Fe 632 -39.0 -15.4 Chubut 179 -47.2 -20.4 San Juan 170 -54.8 -30.2 Social de Cordoba 268 -56.0 -14.7 La Pampa 368 -60.5 -18.6 Cordoba 926 -111.4 -14.2 Neuquen 180 -113.2 -39.6 Mendoza 528 -137.9 -21.7 Source: World Bank. Interestingly, because the financial system was in fact rescued by B.C.R.A. and the stronger private banks, the net worth data in Table 2 are not particularly reflective of the crisis. As noted, the stronger banks experienced increases in their loan portfolios and their liabilities (through increased deposits), and managed to maintain, if not increase, their operating profits. It should come as little surprise, therefore, that their net worth increased during this period (Table 2). For the weaker banks, the rescue efforts were sufficient to maintain their net worth -- albeit after substantial juggling. Deposit flight was met with rescue loans that preserved their solvency liquidity and kept liabilities near their pre-crisis levels. As portfolio quality deteriorated, these banks were also forced to increase provisions to remain in compliance with Argentina's prudential regulations. At least some increased provisions also probably came from rescue loans but the increased liabilities were not so substantial as to severely deplete net worth -- at least for the public provincial banks. For the public provincial banks in their last year of public operations, however, the results were quite different. In no year did the losses in net worth or NW/TL for banks in this situation ever come close to those in 1995. It is likely that those banks, which were slated for sale and thus not in need of rescue, were most reflective of the effect of the crisis on weaker banks. The contrast with the data for remaining public provincial banks is, perhaps, a good indication of the effectiveness of the rescue efforts. Given the losses in net worth for the weaker banks and the gains for the stronger ones, the net effect of the crisis on the net worth of the private financial system was not great. In fact, nominal net worth increased and net worth as a percentage of loans declined only slightly. The strain on the system is, however, apparent in the sharp decline in liquid assets in the financial system in 1995. In 1996 there was some recovery on that measure, but jittery depositors certainly -47- ANNEX II 55 appear to have caused the system to bend (but not break) in 1995. Other indications of the lingering strain on the system are the steady increases in non-performing and unrecoverable loans and the corresponding increase in provisions as percentages of the overall portfolio (Table 20). The data in Table 2 indicate that the ten largest private banks and the privatized provincial banks have increased their nominal net worth, and have lost least in terms of NW/TL in 1996, which suggests that the brunt of deteriorating portfolio quality was suffered by the weaker banks. Indeed, it is the public provincial banks that continue to experience post-crisis losses in nominal net worth and the most rapid declines in NW/TL. In short, because they capture the differential impact of the crisis on different types of banks, the data in Table 2 appear to square well with those presented here and in other parts of the paper. To be sure, the 1995 changes in net worth for public provincial banks may have been more dramatic had there been no rescue efforts, but the qualitative distinctions between bank types are still evident. 5s The implementation of a new deposit insurance system in 1995 also probably had a calming effect on depositors. -48- ANNEX II Appendix II Econometric Modeling of Political Economy of Privatization. The timing of privatization is estimated, using Cox's proportional hazard model, as a function of the quality of the provincial bank, the political affiliation of the key decision-makers, and the fiscal situation of the province. 5 The hazard rate -- which is, loosely, the rate at which banks are privatized after time t given that they were not privatized prior to time t -- is:57 A (t) = 20 (t) elxl+*+lkxk Ao (t) is the "baseline" hazard function, p is the parameter vector, and x is the vector of covariates (e.g. the bank quality variables). The baseline hazard function, a (non-parametric) function of time, allows the probability that the bank will be privatized to change over time. This will help control for changes in national laws or institutions and exogenous shocks that affected the entire banking sector which (proportionally) affect the privatization decisions of all provinces (e.g. the Tequila Crisis, changes in reserve requirements and the new Charter of the Central Bank of Argentina enacted in September 1992). In the results, a positive coefficient indicates that an increase in that variable increases the probability of privatization - for example, the positive sign on percent of loans to the public sector indicates that a greater public portfolio increases the probability of privatization. A negative sign would indicate the reverse. s6 Cox, D. (1972) "Regression Models and Life Tables." Journal of the Royal Statistical Society B, 34, p.187-220. Other sources include Kalbfleisch, J and Ross L. Prentice (1980) The Statistical Analysis of Failure Time Data. New York: John Wiley and Sons; and Greene, W. (1997) Econometric Analysis 3rd ed. New York: Macmillan. The time of privatization is when the law enabling privatization was passed. This point, which is the start of a process which often lasted several years, is relevant because this is when the political decision to privatize is being made. -49- ANNEX II Table 22: Independent Variables in the Estimation. Variable Comments Does the PJ control A dummy variable indicating that the Partido Justicialista (President the assembly and the Menem's party) controls both the Governorship and provincial executive? (1=yes, Congress. If the provincial congress is bicameral, this indicates that 0=no) both the Senate and the Chamber of Deputies are controlled by the PJ. Can either the UCR or A dummy variable indicating that the Union Civica Radical (UCR) or a independents block? single independent party controls at least one chamber of the provincial (1=yes, O=no) Congress or the Governorship. In practice, since when either the UCR or a single independent party controls either chamber the governor also belongs to that party, this indicates that the governor is either a member of the UCR or an in dependent p .t .Z .. .: ............ .............t e .... ................ n......Pen n........p.... ....................................................................................... Can UCR block in the A dummy variable indicating that the Union Civica Radical controls (at assembly or the least one chamber of) the provincial Congress or the Governorship? In executive? (1=yes, practice, when the UCR controls either the Chamber of Deputies or the 0=no.) Senate, the governor also belongs to that party. Can independents A dummy variable indicating that a single independent party control block in the assembly either (at least one chamber of ) the provincial Congress or the or the executive? Governorship? In practice, when either a single independent party (1=yes, 0=no) controls either the Chamber of Deputies or the Senate, the governor also ..... . s t that party Bank Net Worth over The bank's net worth over its liabilities (lagged six months). Liabilities % of Bank Loans to Percent of the bank's loans made to the public sector (lagged six Public Sector mns % of Bank Loans Percent of the bank's loans that are not overdue. (lagged six months). considered "normal" The definition of bad loans and reserve requirement against loans (either definition) changed in 1994. Therefore, we include an extra term allowing the coefficients on this term to chajc when .the definition changed. Government Deficit as Government deficit as percent of total revenues (lagged one year). Share of Revenues Government deficits are positive and surpluses are negative. This is used, rather than deficit as share of provincial GDP because good meaure oproincalGDP were not available. Change in Net Worth The change in the banks net worth over its liabilities (lagged six over Liabilities months). An increase in net worth is.p Can the Governor Run A v one if the siting governor is (constitutionally) for Re-Election? able to run for re-election. (I=yes, O=no) I_____________________I_________ Table 22 describes the variables included in the analysis. In the estimation, bank quality variables are lagged one period. After the decision to privatize was made performance variables, such as net worth and portfolio quality variables, suffered a sharp decline. Rather than being the result of an actual change in performance, this decline appears to have been caused by a more careful audit of bank assets (perhaps intended to help the province separate the bank into a privatized provincial bank and a residual entity). If this decline simply reflects more rigorous auditing, rather than an actual change in performance, the results would be biased if bank quality variables were not lagged. -50- ANNEX II Results from the estimation are shown in Table 23.,5 Coefficients on the lagged bank quality variables are statistically significant (at least at a 5% level). s9 All variables confirm that worse performing public provincial banks are more likely to be privatized, all other things being equal, than better performing banks. The coefficient on net worth over liabilities is negative indicating that banks with higher net worth are less likely to be privatized. The coefficient on the percent of loans that are not overdue is also negative. This indicates that the more 'normal' loans the bank has, the less likely it is to be privatized. The spline, which allows the coefficient to take different values after the change in definitions and reserve requirements, is statistically significant with a positive sign. Banks with a high percentage of loans to the public sector are more likely to be privatized than banks with a low percentage of loans to the public sector. An additional variable included in the analysis is the change in net worth over liabilities. This variable is included to test whether privatization is more, or less, likely when the performance of the bank is declining. Although the negative coefficient indicates that privatization is less likely when the bank's performance is improving, the coefficient is highly insignificant. Dropping this insignificant variable does not affect results (see Col. (3), Table 23). The coefficient on fiscal deficit as a share of revenues is positive and statistically significant throughout the analysis at least a five percent level. The positive coefficient indicates that provincial governments facing large fiscal deficits are more likely to privatize their public provincial banks than those facing smaller deficits. This result is consistent with findings in Bureaucrats in Business which suggests that reform is more likely when the government is facing a fiscal crisis -- provincial governments facing large deficits are less willing to subsidize public provincial banks.6' Of the political variables, only the coefficient on whether independents can block privatization is statistically significant at conventional levels. However, the coefficients on the blocking variables for both the UCR and independents have the expected negative signs -- indicating that if either party can block privatization, privatization becomes less likely -- and have similar magnitudes. A Wald test of the null hypothesis that the two coefficients are equal fails to reject the null, indicating that UCR and independent governors appear equally likely to block privatization.62 Column (2) of Table 23 shows results when the coefficients are constrained to be equal. The coefficient on the blocking variable is statistically significant, indicating that 5S Experts at the Central Bank noted that the 1853 Pacto San Jose de Flores, a pact between the province of Buenos Aires and the Federal government, which predates the Central Bank, means that the Central Bank has no instruments to control the Banco de Provincia de Buenos Aires. They suggested that this gives this public provincial bank a special status which makes privatization unlikely. However, our results are similar whether Provincia de Buenos Aires is included or not. Table 25 shows results with the Banco de Provincia de Buenos Aires omitted. 59 The independent variables in this model change, at most, every six months. Government deficit data is only available on a yearly basis, bank quality variables are available for June and December of each year. 60 A Wald test of the null hypothesis that the sum of the two coefficients is zero is rejected at conventional levels (Q2(1) = 5.84). 61 Chapter 4 in Bureaucrats in Business. 62 The X2 (1) statistic is 0.02. -51- ANNEX II privatization is less likely when the governor is either a member of the UCR or an independent party. The other political variable, a dummy variable indicating that President Menem's Partido Justicialista controls both the provincial congress and the governorship, is statistically insignificant throughout the analysis. This indicates that privatization is no more or less likely with a PJ governor and a PJ majority in (both houses of) the provincial congress, then when there is a PJ governor but the PJ party does not have a majority in (both houses of) congress. Table 23: Proportional Hazard Model for Bank Privatization (Buenos Aires Included) (1) (2) (3) (4) Proportional Hazard Model (Montly Data) Prov. de Buenos Aires Included Yes Yes Yes Yes ofBanks 23 23 23 17 ... .f Privaaions 16 16 16 12 # of Months at Risk of Privatization 1010 1010 1010 825 Does the PJ control the assembly and the -0.732 -0.625 -0.598 -1.156 executive? (1=yes,O=no) (-0.91) (-0.78) (-0.75) (-1.02) Can either UCR or independents block? -1.865** -1.822** -3.070** (1=yes ,0=no) (-2.19) . - 19.....02 Can UCR block in the assembly or the -1.466 executive? (1=yes,0=no) (-1.53) Can independents block in the assembly -2.553** or the executive? (1=yes,0-no) (-1.92) Bank net worth over liabilities -16.989** -16.622** -17.09** -13.631** (-2.63) (-2.64) (-2.83) (-1.99) %.o bank loans to public sector 5.368** 5.645** 5.552** 2.134 (2.09) (2.22) (2.20) (047) %ofbank loans considered "normal" -7.321** -7.289** -7.423** -7.441** (either de.inition) (-3.34) (-3.22) (-3.32) (-2.45) % of bank loans considered - "normal" 2.807** 2.499* 2.514* 2.975* (old.definition) (2.04) (1.90) (1.90) (1.92) Government deficit as share of revenues 8,016** 8.038** 8.018** 8.842** (2 44) (4...... 6) (2.46 (2.40) Change in net worth over liability -2.841 -2.080 (-0.35) (-0.27) Can the governor run for re-election? -1.605 (l=yes, 0-no) (-1.36) Log Likelihood -25.56 -25.84 -25.88 -16.11 As a final exercise, we include a dummy variable indicating whether the governor can run for re-election or not (Column (4), Table 23). Laws concerning whether the governor can be re- elected vary from province to province -- some have term limits while others do not. 63 Results are similar in terms of both size and statistical significance when this variable is omitted. 64 Recalling that if there is not a PJ governor then the dummy variable indicating that either the UCR or an independent party can block is one. There were no cases where the UCR or an independent party controlled the provincial legislature and the governor was either PJ or a member of a different party. -52- ANNEX II Unfortunately, we were not able to obtain details on provincial laws for all provinces -- this variable is omitted from the earlier analysis because it reduces the size of the sample quite considerably. The negative coefficient indicates that privatization is less likely in those provinces where the governor can not seek an additional term. Other than the coefficient on the share of loans made to the public sector, the other coefficients remain statistically significant. The coefficient on whether the governor can run for an additional term is not statistically significant at conventional levels.s Table 24: Effects of Political Variables on Hazard Rates. (From Col. (2), Table 23). Effect on 95% Conf. Int. Hazard Rate Does the PJ control the assembly and the executive? 0.535 (0.112,2.556) Can either UCR Or independents block privatization? 0.155 (0.029,0.824) Table 24 shows the effects of changes in the dummy variables on estimated hazard rates. The point estimate of the effect on the hazard rate of an independent or UCR governor is 0.16 - indicating that the rate at which public provincial banks are privatized with an independent or UCR governor is approximately one sixth the rate with a PJ governor. However, the confidence interval is quite large. The effect of the PJ controlling both the position of governor and the assembly is statistically insignificant and the confidence interval is very large. As a final exercise, Figure 9 shows the estimates of the base hazard rate for each period 66 that at least one bank was privatized. This rate is essentially the rate at which surviving public 67 provincial banks will be privatized after controlling for all independent variables. The larger the base hazard rate, the more likely privatization is for any surviving public provincial bank. The estimates of the base hazard are close to one for after late 1995, but appears to be lower for the periods before early 1995. Although it is hard to reach any strong conclusions based upon Figure 9 (partly because the estimation BaseHazrd atefor nvaiza,ontechnique does not produce confidence Base Hazard Rate for Privatization intervals for the point estimates), the I ofigure suggests that after controlling 0.9- for bank quality, provincial fiscal