Sharp brake on public spending in 2008

Argentine Planning Minister Julio De Vido

Public spending will post a lower-than-15-per cent growth in 2008, entailing a drastic reduction with respect to 2007. This will be included in 2008 Budget program Argentine administration will send on Friday to Congress. On the other hand, revenues will increase at a 16-per cent pace, though collection in charge of Argentine Tax Revenue Agency (AFIP, in its Spanish acronym) will do so at more than 19 per cent.

In this way, with budget revenues growing more than expenditures, the economic team is trying to cause fiscal surplus to hit 3.15 per cent of GDP. This year, real surplus would settle below 2.7 per cent. However, in accounting terms, it will be higher due to extra revenues coming from pension reform.

One of the departments hardest hit by spending growth cut is Planning Ministry managed by Julio De Vido. Scissors will be mainly used to trim subsidies. It won't be easy to fulfil so, taking into account that we are talking about one of the areas expanding the most so far 2007. During the last months, for example, subsidies to energy as well as to farming sector have multiplied. However, government has proposed a spending growth above average (20 per cent) for Health and Education Departments.

Deterioration

Spending has been expanding at an around 45-per cent pace so far 2007, while income does so at 35 per cent, which has deteriorated public saving level.

Further information to be included in 2008 Budget program is provided below:

GDP growth will reach to 4 per cent. Although GDP increase is underestimated again, Argentine economy will expand quite less in 2008. Specially if we take into account that spending would grow less and that public saving recovery would trigger, in turn, lower demand expansion. Of course that if growth proves to be greater, there will be more available resources than budgeted.

Dollar will settle between ARG$3.20 and ARG$3.22. This was the estimate made to calculate resources coming from withholdings. Market expects Argentine administration to back marginal dollar rises so as to avoid losing competitiveness due to inflation.

As regards price hike, retail inflation is expected to hit 7 per cent. However, increase of implicit prices arising from GDP estimate would be more real, since it shows a 10.1-per cent rise. As a consequence, nominal GDP would climb 14.5 per cent in 2008 (taking into account real hike and inflation effect).

Meanwhile, trade surplus would hover around $10 billions. To achieve so, it will be necessary to keep exported commodities' price at high levels and, at the same time, to reduce imports. Argentine administration will endeavour to curb Chinese imports in the following months, though liquid fuel purchase to mitigate energy crisis effects has a strong impact.