At least deputies ceased to be ghost employees for the first time in over two months last Wednesday when they passed two government bills with comfortable majorities, but the legislation neither serves as an electoral game-changer nor qualifies as the structural reforms sought by the outside world. Tweaking the “fiscal innocence” régime boils down to a tax whitewash which washes whiter and thus further complicates the uphill challenge of holding up the revenue end of a sacrosanct budgetary balance in a sluggish economy. The reform of the Central Bank charter is not an epic milestone as presented – rather than transforming the entire history of Argentine monetary policy, it basically serves as a reversal of a populist 2012 law giving the Treasury free rein to raid Central Bank reserves and may in turn be reversed by the same mechanisms whereby it was approved this week.
The reform does indeed prohibit the Central Bank from financing the Treasury to cover its deficit but leaves a back door by allowing public debt bonds to be included in the statutory reserve requirements. The revised charter also enhanced the independence of the Central Bank on paper by requiring a two-thirds majority in both houses of Congress to remove the governor and directors. The problem is that this serves to perpetuate the current governor, who happens to be the business partner of Economy Minister Luis Caputo – nor were the current Central Bank authorities appointed via even a simple majority in one house of a Congress, which will now need to find an almost impossible unanimity to remove them. Should next year’s elections go against the government, Argentina would be between a rock and a hard place in maintaining a monetary policy rejected at the polls or jettisoning a Central Bank Independence considered a cornerstone of developed economies.
This reform comes against a deeper backdrop of almost half the population in debt which has reached apparently unpayable levels in around a third of the cases – the question thus becomes: Which comes first, the internal or the external debt? Some of the arrears can be easily explained by people living irresponsibly beyond their means but in no way all – many were lured into the credit forming an intrinsic part of the modern economy which a Javier Milei Presidency seemed to promise, only to fall afoul of the interest rates jacked up to counter last year’s pre-midterm run on the currency. Milei’s logic lies precisely in avoiding any such run next year by blocking off Central Bank reserves for foreign debt payments. It is also true that relief for family debts is an extremely slippery slope if people start running away with the idea that the state will pay any bills piling up but nor can the government wash its hands of any responsibility.
At least the revision of the fiscal innocence legislation places certain restrictions on the access of public officials missing in the previous version (presumably as a result of the Manuel Adorni scandal). But while bringing some money back into the system, such whitewashes always run the risk of tax evasion continuing until the next one comes along, as they invariably seem to do (with at least two during Kirchnerite presidencies).
This legislation marks scant advance towards the structural reforms always prominent in negotiations with the International Monetary Fund (IMF). These are usually summarised as the triad of labour, pension and tax reforms (although perhaps more attention should be paid to a neglected infrastructure). Thus far there has only been a diluted labour reform yet to yield any results of note (not helped by the government giving priority to capital-intensive export sectors over the labour-intensive). Index-linked pensions account for around 40 percent of the national budget and thus form a huge part of the problem posed by sagging revenues – difficult to advance with even the removal of such noxious levies as export duties or the cheque tax, never mind major tax reform, when confronted with such a burden. Nor do whitewashes giving direct taxation a break help to improve a system unduly weighted towards indirect taxation.
To look on the bright side, as pointed out at the start of this editorial, at least Congress has ended a long hibernation with its next stop presumably the 2027 Budget due in a fortnight’s time – it remains to be seen how much more legislation they process before being paralysed by an election campaign beginning months in advance. Meanwhile the country remains in a limbo with progress and crisis both absent.
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