Argentina

Argentina - Water Sector Reform (Vol.1), 1997/09/05, PIC5288, Project Information Document

In 1990, convinced that the only way to improve public enterprise performance is to undertake a radical reform, the Argentine Government launched a massive and ambitious privatization program, encompassing virtually all public services and federally owned enterprises, including the water sector. The Bank fully supported this effort. The ongoing loans shifted their support to preparatory activities for private sector participation. In the water sector, public water agencies of the provinces of Corrientes, Santa Fe, Formosa, Tucuman and Buenos Aires awarded concessions to private operators. Facing massive investment needs and encouraged by the success of the concession awards, many other provinces and municipalities have decided to pursue the privatization strategy for their water and sewerage systems.

Argentina - Water Sector Reform Project (Vol.1), 1999/05/10, 19258, Project Appraisal Document

The program seeks to support water sector reforms in medium-size cities with population of about 50,000, to 500,000, through the introduction of private sector participation in the operation and management of water utilities, adoption of appropriate regulatory frameworks, and institutionalization of tariff policies and tested investment alternatives to reach better poor consumers. While extending the reforms to these new medium-sized cities, the program also supports resolving the emerging issues of the earlier reform process in larger cities: weak economic regulation of utilities, slow expansion of services to the urban poor, and the lack of a well-defined framework to enforce environmental standards. The expectation is that this reform process will put this segment of Argentina's water and sanitation sector on a sound enough footing to attract private sector financing in combination with the appropriate role for the public sector.

The Secretary of Natural Resources and Sustainable Development has confirmed to the Bank that private sector participation (PSP) continues to underpin the government's strategy to improve the quality and efficiency of water and sanitation services in urban and rural areas'. While demand for privatization remains strong, however, the recent experiences in the sector have demonstrated how complex and difficult a process this is. Most provinces and a large number of municipalities and cooperatives are therefore increasingly requesting from the Federal Government technical assistance and financial support to open their utilities for competition, create regulatory agencies and avoid some of the mistakes of the past.

Argentina's ambitious reform program of the water sector which included the 1993 concession for the metropolitan center of Buenos Aires, is under considerable stress and still lacks the institutional capacity to be sustainable. Emerging regulatory issues in Buenos Aires, the low level of investment in the oldest privatized utility of Corrientes (privatized in 1991), and the premature termination of the concession in TucumAn, to name just a few, reflect the nature of the problems that should be urgently addressed by the federal and provincial governments to make this shift to private operation work better. We know from practical experience in Argentina and research by the Bank and elsewhere that the water sector presents some of the greatest challenges in privatization, and that this sector has not been as successful as others, such as telecommunications, gas, transport and electricity. This is both because of the different characteristics of the sector and the trade-offs to be made in realizing social and financial objectives.

The first part of the strategy is to promote private operation and management as the key step in restoring efficiency in the sector. The proposed program, along with what has been done to date, are clear reflections of that strategy. To achieve efficiency and investment goals in the sector the governments intends to maximize competitive forces. In the medium-term, the government expects a majority of water utilities --serving seventy percent of the country's population-- to be opened to for-the-market competition and subject to comparative regulation through Concessions, leases and management contracts. In relation to cooperatives, the government would promote adjustments to their corporate structure and regulatory arrangements to introduce competitive pressures on the utilities. A few relatively well-run publicly managed utilities will remain subject to the same regulatory arrangements as those for privately managed utilities. The government's vision for sector organization is summarized as follows:
* Long-term concessions in cities greater than 50,000, in about 46 urban centers with a total population of about 22 million (including 9.1 million in Buenos Aires).
* Management or lease arrangements for cities between 10,000 and 50,000, in about 100 small cities and towns with a total population of about 3.5 million.

The program reflects the strategic choice already made by the government and supported by the Bank in the past to move from public ownership and management of water and sanitation to a privately led model of operation. While the past privatizations have demonstrated some flaws, the choice of reverting to public operation was not seriously considered, choosing rather to improve on the private model.

Argentina - Cordoba Provincial Reform Loan Project (Vol.1), 2000/07/20, PID9380, Project Information Document

The situation today is vastly different than it was ten years ago despite the need to continue with reforms. Progress has been achieved in many areas. Almost half of the provincial public enterprises were privatized, including 18 out of the 31 provincial and municipal banks. Many provincial utility services are now run by the private sector and eight provinces have transferred their pension funds to the national government. The Bank actively supported these efforts through a series of successful completed operations, including First Provincial Development Project (Ln. 3280), First Provincial Reform Loan (Ln. 3836), Provincial Bank Privatization Loan (Ln. 3878), and Provincial Pension Reform Loan (Ln. 4116). All provinces are also engaged in various ways in improving the delivery of basic health, social protection, and education services, often with the support of complementary loans from the World Bank and IDB.

Argentina - Third Provincial Reform Adjustment Loan Project (Vol.1), 1999/05/12, PID9574, Project Information Document

Progress was achieved in many areas (See 2/). Almost half of the provincial public enterprises had been privatized, 18 out of the 31 provincial and municipal banks were fully privatized, and many others are currently being privatized. Many provincial utility services are now run by the private sector. Many of the distortionary provincial taxes have been removed, and eight provinces have transferred their pension funds to the national government.

Argentina - Provincial Pension Reform Adjustment Loan (Vol.1), 1997/09/05, PIC4901, Project Information Document

Argentina reformed its pension system in mid-1994, when it substituted the old pay-as-you-go system with a new mixed public/private two-pillar structure. The prior system suffered from a very high dependency ratio that was, in turn, caused by widespread evasion, low retirement ages, and lax disability rules. Other problems were the promise of very high indexed pensions relative to wages, and the prevalence of special regimes that allowed for early retirement and encouraged evasion Understandably, the system ran deficits during the 1980s.

Argentina - National Pension Administration Technical Assistance Loan (Vol.1), 1997/09/05, PIC4529, Project Information Document

To deal with this situation, in 1994 the Government introduced a new integrated system, with a publicly-administered basic pension, and an additional pension for which affiliates may choose between a public and a private option. The private option is based on individual capitalization accounts managed by pension fund administrators (Administradoras de Fondos de Jubilaciones y Pensiones - AFJP). This, and other measures such as ceilings on pensions (with gradual reductions for current pensions above the ceilings) and increases in the retirement ages, is expected to eventually lead the pension system to equilibrium.

Argentina - Santa Fe Provincial Reform Loan Project (Vol.1), 2001/01/15, PID10004, Project Information Document

The situation today is vastly different than it was ten years ago despite the need to continue with reforms. Progress has been achieved in many areas. Almost half of the provincial public enterprises were privatized, including 18 out of the 31 provincial and municipal banks. Many provincial utility services are now run by the private sector and eight provinces have transferred their pension funds to the national government. The Bank actively supported these efforts through a series of successful completed operations, including First Provincial Development Project (Ln. 3280), First Provincial Reform Loan (Ln. 3836), Provincial Bank Privatization Loan (Ln. 3878), and Provincial Pension Reform Loan (Ln. 4116). All provinces are also engaged in various ways in improving the delivery of basic health, social protection, and education services, often with the support of complementary loans from the World Bank and IDB.

Policy Memorandum, January 11, 1999

As regards structural policies in the fiscal area, the tax reform was approved largely as proposed. This reform will permit a broadening of the taxable base of the VAT, the introduction of a minimum corporate income tax based on firms' assets, improved transfer-pricing rules for tax purposes, and new rules for the deductibility of interest costs from the income tax. The provinces and the federal government have agreed to limit the coparticipation of the yield of the reform of the various taxes, to provide room for the reduction of employers' social security contributions. At the same time, steps have been taken to strengthen tax administration through the introduction of pre-shipment inspection of imports, improvement in tax audit procedures, upgrading of the information system of the Federal Administration of Public Revenue (AFIP), the introduction of a single presumptive tax (monotributo), a tightening of controls on the printing of VAT invoices, and the speeding up of the resolution of court cases in the area of tax enforcement.

Measures were taken to improve further the public expenditure management information system, and to promote cost effectiveness in public expenditure programs. A Public Ethics Office was set up and a new code of ethics of public employees was drafted. With assistance from the World Bank and the IDB, measures were adopted to improve the efficiency, targeting, monitoring, and control of social programs, and the administrative reform of the National Administration of Social Security (ANSES) was implemented as planned. The government leased most of the national airports in 1998, and completed the preparations for the privatization of the National Mortgage Bank and the sale of its remaining stake in the former state oil company (YPF).

In the financial sector, a new bank surveillance system was introduced, reinforcing external auditing procedures. The payment system was overhauled, by introducing a real time gross settlement system and new automated clearing houses, thereby reducing operating costs and the credit risk implicit in the settlement of financial transactions. As a step in the reform of labor market legislation, a law was approved that reduced dismissal costs, while eliminating most forms of temporary labor contracts with reduced social security contributions. In the area of education, efforts are underway to raise the number of years of mandatory basic general education and improve the standards of secondary education. In the judicial area, a National Judiciary Council has been established to manage the appointment of judges and oversee their activities, and steps are being taken to strengthen the State Attorney and Public Defender Offices, the provincial judicial systems, and the operations of the judiciary in the areas of tax enforcement and execution of bank collaterals and guarantees. Regarding health care, the restructuring of the union-run health organizations (Obras Sociales) and the health insurance system for retirees (PAMI) continued, with assistance from the World Bank and the IDB.

Despite the planned reduction in employers' contributions to social security, federal government revenue is projected to rise slightly faster than GDP in 1999 because of the tax reform and continued efforts to strengthen tax administration. The tax increases included in the tax reform mentioned in paragraph 3 will come into effect on January 1, 1999, but as the reduction in employers' contributions envisaged in the reform will be implemented gradually throughout the year, the reform is expected to result in a net increase of tax revenue in 1999. The government will continue to work with the provinces on the formulation of a proposal to fundamentally reform the tax sharing arrangement, as mandated by the 1994 constitution.

Within the overall expenditure containment effort, special attention will be given to improving the efficiency of social spending. In the education area, a law approved in November 1998 provided additional resources of around Arg$300 million to assist provinces in the implementation of the Federal Education Law of 1993 and the Federal Education Pact of 1994, which were designed to improve the coverage and quality of basic and secondary education. As part of these efforts, the federal government will assist the provinces in the reform of the teachers' labor statute, with a view to raising professional standards while generating savings through productivity gains. With respect to tertiary education, steps will be taken in 1999 to restructure the financing of state universities, with emphasis on cost recovery, and to modernize their budgetary practices. To improve the targeting of social protection programs, the government will merge all food programs of the Secretariat of Social Development under a single management unit, will extend the system to register beneficiaries of social programs (SISFAM) to all social programs, and will review the distribution of, and propose new eligibility criteria for, noncontributory pensions. The pluri-annual budget recently approved by Congress contemplates an increase in social spending from 74 percent of primary spending in 1998 to nearly 75 percent in 2001.

Further steps are required to consolidate the reform of the social security implemented in recent years. In particular, the government will seek to replace the minimum universal benefit (PBU)--which at present entails a commitment to provide a common basic benefit to every pensioner--with a means-tested arrangement consistent with the financial viability of the social security system and that would facilitate the redistribution of resources to the lower-income beneficiaries. The government also intends to strengthen the controls and collection procedures aimed at bringing into the system the segments of the population in the informal economy that still lack social security coverage.

In 1999, the government intends to make further progress in the privatization or leasing of enterprises that remain under government control, together with selling its residual stake in previously privatized public enterprises. In particular, the government expects an early resolution of judiciary challenges that so far have prevented the leasing of telecommunication frequencies, to allow this operation to go through in 1999. Several nuclear and hydroelectric power plants will also be leased in 1999. During the year, the government expects to complete the privatization of the National Mortgage Bank and to sell its remaining stake in YPF and the loan portfolios of liquidated federal banks, such as BANADE. In the case of the last remaining federal commercial bank, the Banco Nación, the government will seek to shift its legal status from a state enterprise to a state-owned corporation, to allow greater disclosure of information on its activities and increased managerial responsibility.

Further initiatives will be taken in the area of labor markets reform, to help improve Argentina's international competitiveness and promote a further decline of unemployment. In addition to the reduction in employers' contributions envisaged in the tax reform, the government will seek to replace special labor statutes with collective bargaining agreements, and introduce enabling regulations for the new law on medium size enterprises. Also, the government will continue to strengthen, in cooperation with the provinces, the enforcement of labor regulations for employers and workers.

In the health care area, during 1999 the government will take steps, with assistance from the World Bank and the IDB, to help develop a competitive managed care market for providing health care services to pensioners, and to reform the operations of the redistribution fund of the labor-managed health care providers (Obras Sociales), which compensates them for the costs of insuring workers with low income. Also, the government will strengthen the regulatory framework for health insurance, including through the introduction of new prudential and consumer protection norms for private health care providers and through the dissemination of information on the basic characteristics and performance of the different Obras Sociales.

Letter of Intent, May 10, 1999

Progress has been, or continues to be made in the implementation of other reforms envisaged in the original program. Measures were put in place further to strengthen tax administration, and a reform of the tax code in being prepared with the intention of presenting it to Congress before November 1999. A substantial package of shares (28 percent) of the National Mortgage Bank was sold in January 1999. The leasing of telecommunications frequencies has been delayed by judicial challenges and is now expected to be completed in the second half of the year.

The government has begun work on an important further reform of the social security system aimed at preventing a deterioration of its finances over the medium term. The proposed reform will include a tightening of eligibility requirements for the basic pension benefit (PBU), a sort of minimum pension, by transforming it from a universal to a means-tested benefit. Draft legislation on this reform will be submitted to Congress by end July 1999.

In the area of labor market reform, as envisaged in the program, the government implemented in early 1999, new regulations for the small-and medium-size enterprise law (Ley PYME) designed to enhance labor flexibility in this area. Also, two special labor statutes ("estatutos especiales", that maintain particular privileges in certain sectors) have been abolished and replaced by arrangements involving negotiations between the relevant parties; most of the remaining statutes are expected to be eliminated in the coming months. In addition, the government intends to submit to Congress in coming months a proposal for a new capitalized severance payment system along the lines recently presented to the World Bank in the context of the SSAL program. The reduction in labor taxes included in the tax reform approved in 1998 is contributing to ameliorate the adverse effects on employment of the current downturn in economic activity. The government intends to keep to the schedule of reductions of employers' social security contributions envisaged in the tax reform approved at the end of 1998, but recognizes that present budgetary constraints do not permit other initiatives to promote employment that would carry an additional cost to the budget.

Memorandum of Economic Policies, February 14, 2000

The effort to contain federal spending in 2000 and beyond will center on streamlining the civil service, including in decentralized entities, and on improving cost effectiveness in the delivery of public services. For this purpose, the government has already eliminated a sizeable number of national secretariats; has implemented significant cuts in personnel with temporary contracts, which had grown rapidly, especially in 1999; and is planning a voluntary separation program and a wide-ranging elimination of existing vacancies. As part of the recently submitted "fiscal emergency" law, it is seeking legal powers to facilitate the redeployment of civil servants. A thorough effort has been initiated within each ministry, under the direction of the Vice-President's office, to identify overlapping spending programs, with a view to eliminating duplication of efforts and reducing costs. The government intends to provide public managers greater responsibility in the allocation of their budgeted resources, together with strengthened accountability for results, and for this purpose intends to improve the available indicators of efficiency and effectiveness of spending programs, building on best international practices in this area. The government is also fully committed to eradicating corruption, increasing transparency and accountability of procurement practices. For this purpose, it is seeking a wide-ranging renegotiation of contracts with its suppliers, and intends to present a new modern federal procurement law.

The government intends to introduce in the next few months a new reform of the social security system aimed at improving the intertemporal solvency of the system. This reform will center on measures to, on the one hand, reduce the prospective deficit of the public (defined-benefits) component of the system, and, on the other hand, increase competition and promote efficiency in the private (defined-contributions) component of it. The steps that the government intends to take to this effect include: (a) increasing gradually over the next ten years the retirement age for women (currently 60 years); (b) seeking to align more closely the contributive base for the self-employed to their actual incomes; (c) reforming the remaining special pension regimes for selected categories of public employees, with a view to improving equity and reducing their cost to the budget, and (d) strengthening the regulatory framework and oversight for the private pension plans (AFJPs), to promote a reduction in the operating costs of the latter and ensure their long term solvency.

In the health area, the government intends to promote the consolidation of existing union-run health organizations, many of which are experiencing financial difficulties, and to stimulate efficiency by fostering more effective competition among the remaining ones, and between them and the private HMOs, following a strengthening of the regulatory and supervisory framework for the latter. As concerns the PAMI--the financial situation and quality of service of which has deteriorated sharply in recent years, requiring emergency federal intervention--the government is committed to enacting quickly comprehensive reforms aimed at ensuring its financial viability and improving the quality and cost effectiveness of its services. As first steps in that direction, the government has required the immediate renegotiation of all contracts with suppliers, reducing unnecessary intermediation, and has cut back significantly non-tenured personnel in the entity. It is also analyzing how best to integrate the PAMI with the rest of the health system as from next year. To promote transparency, the government intends to re-incorporate the operations of PAMI into the federal budget for 2001.

The main objectives of the government's debt management policy during the program period are to smooth and lengthen the maturity profile of the debt, minimize its cost through active liability management, and promote the development of the domestic capital market. An active and transparent dialogue will continue to be carried out with market participants, both at home and abroad, to keep them informed of the government's financing plans as they evolve during the year. It is the authorities' intention to increase, as market conditions permit, the average size of government bond issues, in order to increase their liquidity, and also to maintain an adequate pre-financing cushion. Recourse to short-term financing will continue to be limited, in line with the ceilings established in the program. The government intends to continue the sale of its assets, including remaining shares in privatized financial institutions and enterprises in the energy sector, as well as selected real estate in its patrimony. In 2000, these operations are expected to yield Arg$700 million (0.2 percent of GDP).

In the labor market area, the government considers it necessary to modify the legal and regulatory framework, so as to promote a smooth adaptation of this market to changing patterns of demand and production, and to create the incentives to reduce informality and precariousness in employment. For this purpose the government has recently sent to Congress a new labor legislation reform bill proposing: (a) the gradual elimination over a two-year period of the "ultractividad" clause which extends indefinitely expired labor contracts, in the absence of the parties' agreement on a new contract; (b) a decentralization of labor negotiations, granting contracts at the enterprise level legal predominance over sectoral level agreements; (c) the creation of arbitration and mediation services; (d) allowing for the negotiated modification of labor agreements in cases where the economic stability of the firm is threatened; (e) an extension of the probation period for newly recruited workers to six months; and (f) steps to streamline labor registration procedures and modify the existing presumptive taxation system for microenterprises, to extend it to sectors (such as low-income self-employed, and domestic workers), which are currently characterized by high degrees of informality.

Letter of Intent and Memorandum of Economic Policies, September 5, 2000

The economy has continued to adjust to the external shocks it suffered in recent years through declining domestic costs and prices. Unit labor costs continue to fall, boosting the competitiveness of Argentine industry. Consumer prices declined by 0.9 percent year-on-year by July 2000, while wholesale prices increased by 4.1 percent over the same period, pointing to an increase in the relative price of tradable goods. By end-June 2000, the real effective exchange rate (CPI-weighted) stood 1.7 percent below its level a year earlier.

The slower than projected recovery of domestic demand and the decline in consumer prices led to a shortfall in tax revenues vis-à-vis the program of Arg$600 million during the first five months of 2000. To ensure that the announced fiscal targets would be met, the government, together with modifying the schedule for payments of the income tax (a measure estimated to yield about Arg$320 million additional revenues for the year), announced an important package of spending cuts (estimated to save about Arg$600 million on an annual basis), including a 12-15 percent cut in salaries of civil servants earning more than Arg$1,000 per month, the restructuring of some public entities, and a rationalization of certain privileged pension benefits. These measures, along with higher nontax revenue than envisaged in the original program, and a high rate of participation in the tax amnesty announced earlier in the year, made it possible to ensure compliance with the end-June ceiling on the overall deficit of the federal government. The end-June cumulative ceilings on the primary expenditure of the Federal Government, and on the change in its total debt were also met.

Important progress has been made in a number of structural reform areas. An especially important achievement in this respect was the approval by Congress of the labor reform in May. This law lengthens the probation period for newly-recruited workers from one to three months (six months by agreement); provides for the gradual elimination of the ultractividad clause that currently extends expired labor contracts indefinitely, until modified by mutual agreement; and stipulates the predominance of collective agreements at the enterprise level over sectoral ones. The law aims to promote a better adaptation of the labor market to changing patterns of demand and production, and reduce informality and precariousness in employment.

The government has submitted a social security reform bill to Congress aimed at improving the intertemporal solvency of the system and broadening its coverage. This reform entails awarding a pension to senior citizens of more than 70 years of age who do not have other sources of income, the redefinition of the universal pension allowance (PBU), and a progressive benefit schedule for women who retire at 60-65 years of age. Additionally, the government intends to take steps to align more closely the contributive base for the self employed to their actual income, to reform over the medium term the special pension regimes for selected categories of public employees, and to strengthen the regulatory framework for the private pension plans to increase competition and reduce operating costs.

The government is also reforming the health care system, with a view to increasing solidarity and improving efficiency. In June, the government issued a decree promoting the consolidation of existing union-run health organizations (obras sociales) and fostering more effective competition among the remaining ones, and between them and the private HMOs, effective January 1, 2001. Under the new system, all health care providers will offer basic coverage, and contributions to the Solidarity Fund (which will subsidize provision of benefits for the poor and for catastrophic illness) will be generalized, based on individual income levels. The government is also implementing its program aimed at ensuring the financial viability of the health system for retirees (PAMI), while improving the quality and cost effectiveness of its services. Since the beginning of this year, contracts with suppliers have been renegotiated; its arrears have been significantly reduced; unnecessary intermediation has been eliminated; and non-tenured personnel has been significantly cut back. To further promote transparency, the government will re-incorporate the operations of PAMI into the federal budget in 2001.

The government is also establishing a framework for delivering higher quality, and more cost-effective, public services by bringing in the private sector to develop basic infrastructure. This includes the establishment of a fund with government assets to help provide guarantees to, and lower the financial costs for, the private contractors entrusted with the construction of public infrastructure and/or provision of public services. Under this scheme, private contractors would undertake the construction, maintenance, and operation of public infrastructure, and lease it to the government upon completion.

Letter of Intent, December 21, 2000

With a view to strengthening the intertemporal solvency and equity of the pension system, the government replaced a draft law submitted to congress in June with a new proposal for reform of the system. The new draft bill proposes to: (a) replace the basic universal pension benefit (PBU) with a sliding-scale supplementary benefit (PS) for new pensions lower than Arg$600 per month; (b) introduce a minimum benefit of Arg$100 per month for all citizens of more than 78 years of age who do not have other sources of income; (c) introduce incentives for women to postpone retirement until 65 years, by progressively increasing the age at which they will qualify for the supplementary benefit; and (d) eliminate the option of joining the public pension system for new entrants into the labor force. The government attaches great importance to the rapid approval and early implementation of the key elements of this reform, given their role in ensuring the medium term solvency of the pension system, and sustainability of the overall fiscal position. The Social Security Agency (ANSES) has been intervened in mid-November, with a view to streamlining it and increasing the transparency and efficiency of its operations. The government intends to seek the support of the World Bank in this task. The government has tabled legislation aimed at strengthening competition among private pension funds, reducing administration costs in these funds, and improving their supervision. The government also intends to review the system of family allowances, with a view to streamlining it and reducing the scope for fraud.

The deregulation of the union-run health organizations (obras sociales), which aims at promoting competition and increasing efficiency in the provision of health care, will become effective on January 1, 2001. Under the new regime, individuals will be able to choose their health providers among the obras sociales and the private HMOs. All health care providers will be required to offer a basic menu of services at a low per capita premium. They will be allowed to offer additional services for additional voluntary contributions. A redistributive solidarity Fund, funded with mandatory contributions related to the level of income of participants in the system, will be used to finance the automatic subsidy for contributors whose payroll deductions do not cover the basic capita, and for the purchase of insurance for high-cost illnesses. The health system for retirees (PAMI) which was intervened last January is being restructured, and steps are being taken to increase its accountability and transparency of operations. To this end, PAMI is being required to obtain the government's approval of its budget, its staffing policy, and its borrowing operations, and will be made subject to the same control and auditing mechanisms that apply to the rest of the public administration. PAMI is also being required to submit monthly reports on its financial position and budgetary execution.

Letter of Intent, Memorandum of Economic Policies, and Technical Memorandum of Understanding, May 3, 2001

The government is proceeding with the reform of the public administration with a view to streamlining its activities, eliminating redundant entities and programs, reducing overlapping and duplication of functions across administrative units and levels of government, strengthening controls over procurement practices and the cost-effectiveness of spending programs, and boosting efficiency and the quality of services provided by the public administration. The special powers obtained by the Executive to act in these areas will result in a sharp acceleration of this process.

In late 2000, the government issued two decrees to reform the pension system and the health organizations (Obras Sociales). As described in the MEP of December 12, 2000 these reforms aim at strengthening the intertemporal solvency and equity of the pension system, and open up the health organizations to competition, while promoting efficiency in the provision of health care. Both decrees have since been challenged in the courts and the government has suspended them from going into effect to help advance a negotiated solution to these challenges, and to prevent inequities resulting from an uneven implementation of the decrees. The government is committed to both initiatives as they represent essential building blocs to improve economic efficiency and fiscal sustainability in the medium term. The decrees are expected eventually to be upheld by the courts. Nevertheless, the government sees now a possibility to obtain agreement in Congress on a draft law to reform the pension system that would not only obey the principles underlying the questioned decree but would improve upon it on several key aspects. The government intends to introduce this draft legislation to congress in the coming months. The restructuring of the health system for retirees (PAMI) is proceeding well and the transfers (including PAMI's own revenue) from the Treasury to PAMI are limited at US$200 million a month, as was envisaged in the restructuring program.