Local Bank Financial Constraints and Firm Access to External Finance

financing observed in panel 1 of Figure 2 suggests that some program waves might have beentimed to supply liquidity to the banking system during deposit shortages. The amount offinancing provided to banks through the program peaked during 1995 and 1996, which coincidewith the aftermath of the Tequila Crisis and a period of massive deposits drains from theArgentine banking system.To deal with this issue I exploit the fact that there was a surge in program financing in 1999that was unrelated to banking sector liquidity. The government was compelled by the IDB tofinish spending resources allocated by the program during 1999. Compliance with thisrequirement was made necessary to qualify for future IDB funding. As a result, all the resourcesremaining in the MYPES budget were lent to banks in four waves from December 1998through November 1999 (waves 9 through 12 in panel 2 of Figure 2). The four waves in rapidsuccession during the one year period were required to accommodate a contractual clause in theMYPES program. The clause established that resources had to be allocated in 12 installments,and only 8 had been used by mid 1998.Using program financing provided during this ‘administrative rush’ period to estimate β 0 hastwo advantages that are corroborated in the results section. First, the timing and amount of thefinancing waves were unrelated to liquidity needs of the banking system during that period. Infact, total deposits grew steadily and outpaced output and lending throughout the entire periodthrough 2001. And second, the program provides four shocks to bank sources of capital (net ofreserve requirements) within a short period of time during which macroeconomic and bankingsector conditions did not vary substantially. Thus, the preferred estimates of β 0 will be obtainedusing the final four waves of the program as a source of variation of bank sources of capital.15