Spending soars again

Public spending grew almost 50 per cent in July, mainly boosted by expenditures to face energy crisis (like fuel oil purchase and extension and maintenance of power stations) and also to pay more subsidies to transportation and pension rises, amid electoral campaign. As most of these expenses must be kept for some time, Argentine administration will continue using the highly-prized fiscal saving, the axis of its economic policy. July surplus hit ARG$2.5 billions, though swelled by collection and private pension transfer to state system. The year 2008 will undoubtedly force a serious adjustment so as to take fiscal saving back again to 3 per cent of GDP. Naturally, this issue worries investors.

Miguel Peirano

July fiscal surplus, which reached to ARG$2.57 billions, stressed two clear concepts: first, collection and income from pension reform hold public saving; and, secondly, current public spending keeps on soaring due to pension and salary increases, energy crisis and transfers for electoral campaign. So much so that primary spending (before debt interest payment) has grown almost 50 per cent.

According to data disclosed yesterday by Argentine Economy Ministry, headed by Miguel Peirano, July surplus has exceeded by 488.4 millions (23.4 per cent) the one observed during the same month of 2006. However, this result of public finances resulted as a consequence of a ARG$5.58-billion resource increase and from sharp rise in primary spending (ARG$5.09 billions).

After analysing these data, Treasury Secretary, managed by Carlos Mosse, admitted that half of income growth originated in Social Securities Contributions due to pension reform, which posted ARG$1.54 billion from private system transfer to the state. Thanks to this, Argentine administration has already accumulated more than ARG$4 billions in three months.

Other taxes

Meanwhile, the remaining rise happened in other tax revenues, mainly V.T.A., Income Tax and Foreign Trade, from the ARG$17.47-billion collection Federal Tax Revenue Agency obtained last month, which caused a 37.7-per cent rise.

Outlook changes completely when analysing public spending development in July, which is divided in the following chapters:

Social Security benefits: due to interannual difference in salaries and to benefits from advanced pension and moratorium, spending rose 51 per cent, moving from 2006's ARG$2.73 billions to 2007's ARG$4.13 billions.

Transfers to private sector: they have risen sharply due to greater aid to Cammesa for fuel oil purchase and capital expenditures aimed at real investment in works linked to maintenance and extension of power generators and loans to the Electric Unified Fund.

Greater subsidies to transportation.

The last three chapters are translated into increase of "Current transfers to private sector", which moved from ARG$1.54 billion in 2006 to ARG42.66 billions in July 2007. This 72-per cent hike is the most important increase so far 2007.

In terms of accumulation, during the first seven months of the year, primary surplus reached to ARG$16.9 billions, 25.2 per cent above level initially planned for the same period. Such figure proved to be higher than the ARG$ 2.22 billions posted in 2006 (15.1 per cent). That amount was achieved with a ARG$26.3-billion resource increase. In theory, this trend should let government end 2007 with an accumulated surplus of more than 3.2 per cent of GDP (0.2 percentage point higher than budgeted). However, if deducting pension reform revenues, public saving would plunge to no more than 2.5 per cent of GDP.