It is clear that the chainsaw and blender of the Government of Javier Milei involved a adjustment shock almost unprecedented, which put the public accounts on track at the cost of sinking spending on retirement and pensions, public works and transfers to the provinces, among other items. Despite this, Luis Caputo It also appeals to a significant dose of creative tax accounting Without which it could fail to meet its financial equilibrium objective in 2024: The design of the title most used by the Ministry of Finance in its tenders will allow you to avoid paying more than $4 trillion in interest this year, which will go to swell the Treasury’s debt stock.
Strictly speaking, it is simply an accounting trick. The most relevant instrument that the Government chose to carry it out is the LECAP. These are short-term debt securities that capitalize interest monthlyThat is, these interests are not paid month by month but rather are incorporated into the capital owedwhich is only paid when the bill expires. LEFI (the bills issued by the Treasury to replace the Central Bank’s passive repurchase agreements) have a similar structure and a similar impact on public accounts.
Nothing changes for the creditor, but The Government is allowed not to record this money in the interest payable sheet that forms part of the financial fiscal result (primary result less interest expense on the debt), but rather record it as new capital owed. Given the magnitude of the placements of this type of Treasury debt instruments, boosted by the migration of debt from the BCRA, this accounting game becomes a fundamental tool for Javier Milei and Luis Caputo to be able to bring out the Excel of the fiscal-financial balance at the end of the year.
Surplus and debt management
A report from the Economic Studies Department of Banco Provincia projected the impact that the use of this strategy will have on the 2024 accounts: he calculated that, only from the current LECAP stock (not counting that of the LEFI), The interest for 2024 that will be charged to the Treasury debt stock will exceed $4 trillionthat is, it will represent around 0.7% of GDP.
“Accordingly, since we estimate that the financial surplus would remain somewhat below $0.5 trillion in the annual cumulative, The calculation of LECAP interest would take this number into negative territory, or would force primary spending to be adjusted by 10% more than what has already been cut. (3 percentage points more for the annual cumulative, that is, 10% more than the 30.5% year-on-year drop observed in January-July; a percentage that would moderate in the coming months),” the report stated.
The Congressional Budget Office (CBO) has already begun to take into account the sharp increase in the amount of capitalized interest on LECAPs over the past few months. In July, this factor contributed $1.25 trillion to the growth of the public debt stock, almost double that of June ($672 billion).
The adjustment and tax news of September
For now, September brings with it certain questions about the fiscal plan, particularly on the revenue side. This Monday, the new fiscal plan came into effect. retroactive effect of the PAIS tax rate on imports of goods and freight: it fell from 17.5% to 7.5%, the level it had before Javier Milei decided to increase it last December. This is the tax that grew the most this year and that helped the most to avoid (along with the withholdings) that the collapse of the collection was even greater. According to projections from Analyticaby the end of the year will involve give up $1.5 billionBanco Provincia estimated that it would be $1.4 billion or 0.25% of GDP.
Above all, it remains to be seen to what extent this is offset by the Re-implementation of the income tax on workers and money launderingAccording to the Bapro report, 70% of the resources lost due to the PAIS tax would be offset by Profits, by increases in energy and transportation rates and by the removal of subsidies for buses in the AMBA (CABA and Integrated Ticket lines).
“The remaining 30% could be covered, for example, with resources from money laundering and the new Personal Property regime. However, if the latter does not meet expectations, a plan B could be used: accelerating the increase in the fuel tax. In a maximum scenario, the measure could contribute around an additional 0.14% of GDP, helping to close the fiscal gap opened by the drop in the cost of importing,” he said.
In this way, a zero financial deficit in 2024 seems within reach. Although not without resorting to the accounting tricks of floating debt and interest capitalization. “If these interests were accounted for within financial payments, the Treasury’s overall surplus would be substantially reduced, and could even be reversed,” the report concluded.
Source: Ambito
