For a long time it was the eloquent sign of “Present state” and today he seems to be sitting in the dock. Public spending is pointed out as responsible for the chronic instability of the Argentine economy: the shortcut of financing the increasingly frequent imbalances with monetary emission, especially, ended up associating each peso spent with the main culprit of the lack of control in prices before in the benefits granted.
finite numbers. However, the equation is not as simple as it seems in times of chainsaws to cut expenses and reestablish lost balances. The Economist Nadin Argañarazpresident of Argentine Institute of Fiscal Analysis (IARAF) points out that it is a mistake to only talk about public spending as a percentage of GDP because in times when it falls (for example, this year with the drought) said variable grows autonomously. “It is better to observe the evolution of public spending per inhabitant or in real terms than the direct relationship with the product because in this way it is very tied to the ups and downs of the economy, so typical in the Argentine case and is no longer a useful measurement to take. economic policy decisions,” he explains. The IARAF is analyzing this data in three different links: spending, tax collection and a subsequent analysis of possible paths to close the fiscal gap once and for all.
Argañaraz points out that the adjustment has already been made, but in the worst way: without a comprehensive rethinking or a systemic vision, with a 19% drop in national primary public spending, especially from 2017 to now with a very sensitive adjustment variable: pension spending. It was not the only one since only three items grew in this period in real terms: social programs (almost tripled), energy subsidies (to avoid increases in public service rates) and national public works. For this reason, he considers that the drop in per capita spending is as visible as it is unsustainable, at least to recover the level at the beginning of this downward slide, in 2017. In his opinion, given the drop in income and the stagnation of economic activity , the only alternative to compensate is a combination of more collection and specific spending cuts to achieve fiscal balance without waiting for a jump in income to level it out by itself. It aims, for example, to attack “tax spending” (tax exemptions for companies and individuals, special regimes such as Fuegian, specific rates, etc. that add up to 4% of GDP as a whole. But he clarifies that the discussion of how to raise more deserves a debate that is being postponed because it would directly affect the general balance and the interests of the population.
The snow ball. For its part, George Hilleconomist IDESA, warns about resorting to financing fiscal imbalances with short-term debt. The interest paid by the Leliqs, logically, rises more than the CPI, so a transfer of income takes place. “In 2017, with annual inflation of 25%, pension spending was 9.6% of GDP. In 2022, inflation rose to 95% and pension spending fell to 7.6% of GDP. That is to say, with the acceleration of inflation, there was an adjustment in pensions of around 2% of GDP.”, brand. The reason is that pensions adjust according to indices prepared taking into account past dynamics, so, in an eventual stabilization, inertia would raise pension spending above inflation. It would no longer be the main adjustment variable and we would have to look for ways to cut the rest of the spending just to address this expected consequence. In his opinion, the lesson of these years is that it is not a good practice to continue making “cash” by delaying retirements because at some point the situation turns around. And it also shows that a true anti-inflationary plan implies a true retirement reform, in the future. “The pension issue is like moving an ocean liner, the impacts come within 10 years, due to the impact on acquired rights and sometimes even govern from the entry into the labor market of new workers, so the real effect is much more far”. He cites as an example the case of Uruguay, where the repeal of special regimes only applies for the future.
local magnifying glass. Much of the intention to cut spending is identified with public employees in oversized plants, with salaries higher than those in the market and with functions that are not always very precise. The truth is that the bulk of public employment is in local governments and especially in the provinces, which must offer education (teachers), health (medical professionals), security (police) and justice (courts). Even though there may be cases of relaxation and privileges in working conditions, they are functions that they cannot do without. Only 40% of the total officials are national (which includes universities and state companies). “All this is a challenge for the coming government because human resources management requires professionalism and establishing priorities,” Colina concludes.
Other flanks. Public companies also involve a continuous drain of funds. According to data from the Ministry of Economy that were reflected in the latest IMF report, until last May, the group of state companies required assistance of US$5,378 million, almost 130% more than two years ago., which reflects the growth of expenses and the fall of its income in times of strong relative price changes. To cite an example, in Patricia Bullrich’s government proposals, she promises that Aerolíneas Argentinas (which together with Trenes Argentinos are the main demanders of funds) will no longer be subsidized by the State. Other less effective proposals point to a reorganization of these companies into a kind of holding company, to rationalize positions and expenses and produce a slow weaning of the Treasury.
But a political leg also appears in this figure: 50% of the deficit was taken by ENARSA, which cushioned the impact of the rise in international energy prices and service bills for companies and individuals. The path to tariff honesty (reducing the gap between the cost of the service and coverage by the tariff that the consulting firm Ecolatina calculates at 2% of GDP) At the same time, this red will decrease, it will make household electricity and gas bills more expensive and put pressure on production costs with inflation that, even with successful stabilization, will not be able to drop below double digits annually for next year.
Finally, in an economy with a nominal value that cannot go below 130% annually, other vectors arise that increase the need for financing and the consequent monetary issue, such as the repurchase of Treasury bonds in the secondary market from January to August implied a net emission of around 1.2% of GDP between January and August. IERAL estimates that all these vectors intended to cover the Treasury’s financing need generated a monetary expansion that amounts to 4.3% of GDP. A sea of numbers that can confuse when it comes to where to apply the scalpel. As long as political conviction has reached the conclusion that balance in public accounts is now desirable.
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