Cristina spends less than her husband: ARG$7.5 BL surplus

Argentine administration will confirm, in the following days, that fiscal surplus has risen steeply during January, going beyond ARG$3 billions. However, Economy Department is already anticipating that first quarter saving won't hit lower than ARG$7.5 billions, almost 50 per cent more than last year. This will only be possible thanks to fall in spending since December, which is, all the same, high, above 35 per cent annual. Of course that it contrasts with the nearly 60-per cent increase posted three months before presidential elections. Big leap in collection has a strong influence on surplus, which grows at 50 per cent thanks to record soy and wheat prices. Inflation acceleration is also crucial, which raises V.A.T due to higher prices in local consumption. Finally, there will be extra resources coming from private pension transfer to state retirement system.

Surplus pace

This week, Argentine administration will disclose a January fiscal surplus higher than ARG$3 billions, as this newspaper had told in advance two weeks ago.

Yet, the executive gets excited with Treasury Palace outlook: in the first quarter, saving in government finances would exceed ARG$7.5 billions, 47 per cent more than the one posted on the same period of 2007 (ARG$5.08 billions).

Such surplus improvements are basically explained by big collection leap. In January, increase in government revenues touched 49.5 per cent, settling at similar levels in the following months. There are three main reasons strengthening this trend: sharp rise in withholdings income thanks to commodities record prices (only with soy, ARG$10 billions extra would be collected in 2008), inflation growth hitting V.A.T. and new flows linked to workers' contributions to social security, who have moved from private to state-run pension system.

Trends

Argentine Economy Department stresses a number of trends that it will try to observe with respect to government finances:

Fiscal surplus posted each month of 2008 would be higher with respect to the same period of 2007. For example, in January, the higher-than-ARG$3-billion saving almost doubles the ARG$1.63 billion posted on the same month of 2007.

Pace of spending rise will have to be lower than income growth. We are talking about a change in trend with respect to what happened during the entire 2007, when expenditures went beyond revenues.

Although budget forecasts a fiscal surplus of 3.15 per cent of GDP, the bet is to come closer to (and if possible to exceed) 3.5 per cent.

Estimates of what will happen at the onset of 2008 contrast with 2007 close, when the first fiscal deficit of the last five years was announced: nearly ARG$1.2 billion. Payment of Christmas bonuses and pension advance had a strong impact.

There are some aspects which, all the same, cast some shadows. For example, spending level keeps on climbing above 35 per cent and it will be hard to curb it. Last year, during the last three months before presidential elections, it went as far as to exceed 55 per cent.

This is because government needs to keep subsidies at high levels, finance public works and face rises for pensioners and civil servants.

Of course that great collection expansion offers the possibility of not needing to curb spending as much as estimated by the end of 2007.

On the other hand, financial surplus (counted after interest payment) will be close to zero this year, since commitments related to sovereign debt payment are rising sharply. For that reason, despite this expected saving hike, financing needs settle at $6 billions for 2008.

This improvement in government finances do not show, however, on Argentine debt market. The thing is that investors keep a wary eye on INDEC inflation rigging and its effect on CER-adjusted bonds, rather than on government ability to face maturities.