Inflation suffers government spending rise: 40% more

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Government has not changed its vocation for rising spending month after month. In Mrch, it nearly hit 40 per cent. This situation is unsustainable and results in greater pressure on prices. What's even worst is that fiscal saving is being lashed, something government considers a pillar of economy. In March, it settled at ARG$2.4 billions, though thanks to ARG$1 billion transferred by Central Bank. Inflation is already affecting consumption and investment, which, in turn, hits collection. The vicious circle is starting.

March primary surplus will settle around ARG$2.4 billions, which would entail an increase of nearly 62 per cent against 2007. However, within this mass of government savings, Treasury includes around ARG$1 billion for profit transfer of Argentine Central Bank (BCRA, in its Spanish acronym). So, almost 42 per cent of surplus is explained by profit transfer by BCRA to Treasury.

This transaction is not strange for Treasury since the arrival of the Kirchner. The only thing is that, during the last years (more precisely as of 2006), transfer schedule has been put forward.

Some slowdown is also observed in government spending increase with respect to 2007, particularly since end of election spending. However, expenditures continue at exorbitant levels, with a nearly 40-per cent rise, not only due to greater spending for public works, but also due to increasing pension spending to curb a wave of lawsuits because of resets. We should add to this subsidy policy growth to sustain the framework of a high rate exchange model, where the inflationary process is damaging its pillars.

Also with respect to revenues, we will see a loss of the so-called extra resources, like fund transfer by pension funds due to last year reform, which offered the possibility of shoring up Treasury's financial result. In view of this, collecting performance of the first quarter of 2008 gets even stronger, despite effect of export tariff rise.


So far 2008, Treasury would have accumulated a primary surplus close to ARG$9 billions. Thus, a third of 2008 total private sector estimated would have been achieved.

It's worth mentioning that annual budget goal aims at 3.5 per cent of GDP of primary fiscal surplus. In this sense, farm export tariffs are crucial to accomplish such goal.

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