If there is something that always had a platform in many Argentine provinces, it was the denunciation of centralism by the governments in power. Even though for more than half of the 40 years of the new democratic period they have been governed by rulers who emerged from the deep Interior (the decade of Carlos Menem and the 12 years of Néstor and Cristina Kirchner). This is what the governor of La Rioja, at the end of the year, and the governor of Chubut, now, demand: that from the Casa Rosada they contemplate their situation and open the tap of specific and discretionary funds to face their urgent commitments.
The check. But what ended up overturning the equation of those most in need of financial oxygen was the change of political sign of the government, first and the inexorable advance of the calendar. The maturities of debts previously contracted for various purposes began to “fall”, but many of them, in reality, to pay current expenses and that in this way they evaded an ordering of the provincial public sector.
The economist of IDESA Jorge Colina points out the new political framework as relevant to explain this sudden “tax rebellion.” “The provinces in general did not have incentives to clean up their public accounts when the president was of the same political color because they always assumed that they would receive something and what is happening now, for the first time in Argentine history, is that no province is the same line as the President“, Explain.
If something characterized the shift in economic policy of the last two decades, it was the substantial increase in public spending without the corresponding correlation in its financing. The jump that was consolidated year after year was almost 15% of GDP but was basically made up of three factors: the increase in energy and transportation subsidies, discretionary allocations to the provinces and the deficit of the pension system. Regarding these three aspects, the official “chainsaw” has passed or is about to, because the tools it has are not all under your complete control and some have a delay in their application. In this, the inflationary acceleration affected primarily pension spending. According to IDESA calculations, of the reduction in national public spending that occurred last January, in real terms $3.8 billion were in “social benefits” (66% in retirements), $1.2 billion in public employment and $0.4 billion in transfers to the provinces. That is, in their opinion, for now they are taking the softest part of the adjustment.
Colina points out that, in general, the provinces showed balanced fiscal accounts thanks to inflation because they receive both national and provincial tax resources that grow with inflation while the main expense (salaries) grows behind inflation, so with the inflationary acceleration were able to balance their accounts. But they encounter the problem that they have no remainder to pay the capital owed.
The adjustment. Nadin Argañarazpresident of IARAFpoints out that, in effect, the total transfers to the provinces During January they were the lowest in the last 31 years: they fell 83% compared to 2023 and 81% compared to the 1993-2024 average, measured in real terms. In February, total automatic transfers to provinces and CABA would have fallen by 19.5% in real terms year-on-year, meaning that in the first two months the year-on-year drop would have been 15.5%..
In his opinion, the provinces started this year with a loss in co-participation caused by the income tax reform at the end of 2023, which implies for all of them a proportional decrease in co-participation. But there is a greater incidence in those jurisdictions where a greater portion of their income originates from co-participation. In addition, there is the recession, a drop in billing that occurred in December, January, probably also in February and that will continue in the short term. National collection falls, therefore, co-participation and also own collection -Gross Income, the main provincial tax-. “In my opinion, when one looks at the whole it is possible that the provinces have left the primary surplus with which it is estimated they ended last year.”he concludes.
By the way, the economist Fernando Marull highlights the fact that not all provinces have the same financing structure: while, on average, 8% of each jurisdiction’s income corresponds to discretionary transfers, some reached 21% (La Rioja) and 20% (Jujuy), while the least dependent ones are below 5% (CABA, 3%; Chubut, 4%; San Luis and Neuquén, 4%). Hence, lowering the lever in this area is not the same for everyone.
Far from a sensation, the slowdown in inflation (the consulting firm C&T estimated the rise in the CPI in February at 16.3%), although marked, does not yet confirm that the objective of reaching the end of the second quarter with a monthly digit and reserves that allow the dismantling of the exchange rate. March, a month traditionally with more seasonal inflation, will also have increases in public service rates and April in transportation rates. Successive rearrangements that conspire with the need to find another anchor of stability other than the deflation of devaluation expectations in the short term.
Doubt, once again, surrounds the sustainability of such a fiscal and monetary adjustment, which the provinces try to avoid, especially those in which their disorder in their accounts was postponing the adoption of substantive solutions. The case of Chubut, which despite having large oil resources and a small population, never fully recovered from the fiscal chaos left by the Das Neves-Arcioni administration and which today explodes when debt maturities arrive. In the midst of the heat of the “counter centralism” battle, the current governor Ignacio Torres invited the Province of Buenos Aires to join the “federal” boycott. His eventual ally has little to do with what actually explains this rispidity: the failure of the federal tax sharing system that is still indebted to a regulatory law that had to be passed within two years according to the 1994 Constitution. The Buenos Aires Minister of Economy warned that the main culprit of the permanent crisis of the largest Argentine province is the asymmetry between what it contributes (38% of the collection) and what it receives (20%). They are tickling the Buenos Aires lion who, for now, is still not putting up a serious fight. But the deepening of the crisis could lead him to kick the board with a cliffhanger ending.
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