Balancing the budget, a dubious aim in an electoral year

The aims of economy ministers in Argentina invariably tend to clash with political needs at any given time.

Such antecedents pose a question-mark over Economy Minister Martín Guzmán’s stated aim of seeking "fiscal order."

His declaration seemed more like a message directed to the markets and, above all, the International Monetary Fund (IMF) with whose chief Kristalina Georgieva Guzmán is totally in sync.

The minister not only spoke of starting to lower the fiscal deficit of 1.7 trillion pesos from the pandemic year of 2020 but also cutting the Treasury’s needs for Central Bank assistance.

One of the keys of this strategy is reducing the subsidies in public utilities, i.e. authorising increases for electricity and, above all, gas.

The problem is that the ultra-Kirchnerite sector within the Frente de Todos coalition (which is increasingly gaining ground within the Alberto Fernández administration, as again proven by the change at the helm of YPF) is seeking to chisel away any policies which might scare off voters.

The strategy of ordering Argentina’s accounts will require strong political support from the Casa Rosada, which Guzmán seems to have, and also a certain benevolence from a pandemic that has been merciless until now, causing over 47,000 deaths and obliging multi-billion expenditures on the part of the Treasury.

If it had not been for the state funds destined to pay income and wage supplements such as the IFE (Ingreso Familiar de Emergencia) and ATP (Asistencia al Trabajo y la Producción) payments, the fiscal deficit would have been half, according to the projections of private consultants.

Many of those subsidies would not be necessary this year if the vaccination campaign begins to pick up pace (both President Alberto Fernández and Vice-President Cristina Fernández de Kirchner have already received their first dose of Russia’s Sputnik V shot).

The other prop of Guzmán’s ambitious plan to order accounts is a massive reduction of interest payments on the foreign debt which Argentina will have this year following the bond swaps.

Last year the fiscal deficit shot up to 2.2 trillion pesos if these interest rates are included, half a trillion more than what will not need to be faced this year, thus improving the public accounts.

Another factor feeding Guzmán’s optimism is that a pickup in revenue in the later months of last year prevented the deficit from sliding yet further.

One of the doubts in the business world is that when the time comes to negotiate a new Extended Fund Facility agreement (EFF), the IMF will not demand a greater fiscal deficit than that projected by the Economy Ministry.

For now it is 4.5 percent of a gross domestic product which has been falling heavily in recent years. The Economy Ministry maintains that projection, warning that the sanitary situation is still highly unpredictable.

"We might have to face expenditures not contained in the Budget," they admit.

Unforeseen expenditures could include a new phase of IFE (which the government has ruled out for now) and a new programme of ATP, but the goal of reducing the fiscal deficit hinges on public utility pricing.

Guzmán’s intention is to keep energy subsidies down to 1.7 percent of GDP (1.9 percent including the Gas Plan), with transport around 0.5 percent. Market analysts maintain that these will need increases, which are expected to trigger tensions within the ruling coalition.

Meanwhile the surge in food prices last year, well above the average, raises more doubts as to whether the objective of keeping inflation below 30 percent this year can be met.