Pressures to reduce the deficit

The strategy to reach zero deficit, by the Ministry of Economy, has had a significant difficulty with the recent numbers of the fiscal situation for the year 2023. In the initial information to reach fiscal balance, the starting point was a financial deficit (including payment of interest) of 5.0% in 2023, and from there policies were summarized to improve income and reduce expenses, many of them included in DNU 70/23 and in the so-called Omnibus Law.

But in the final data for 2023, the National Public Sector exhibited a primary deficit of 2.9% of GDP, and a financial deficit of 6.1% of GDP. These figures mean that the adjustment would have to be one point greater, to reach the zero deficit proposed by the Minister of Economy, Luis Caputo. This additional point responds to the greater expense generated in 2023 by the payment of interest on the public debt, mainly to the IMF, which significantly raised its interest rates. Indeed, the difference between the primary deficit and the financial deficit is the interest on the debt, which reached 3.2% of GDP in 2023, when it was 1.8% the previous year.

A reduction in the fiscal deficit of 6% of GDP in a single year is something unheard of worldwide. No country has made such an adjustment in such a short time. The counterpart would be a very sharp drop in production and a sharp worsening of social conditions, an aspect that is already being observed in just five weeks since the Government took office.

Such reduction of the deficit is further complicated by the announcement, last Friday, of the withdrawal of the fiscal chapter of the so-called “Omnibus Law”, since this means that the greatest weight of the adjustment will be applied to expenses, further intensifying the recession. . With a greater recession, tax revenues will fall in real terms, and this will generate more pressure to cut more expenses to reach fiscal balance, in a process of negative feedback to a level that becomes unrealizable.

There is an issue that cannot be ignored: the IMF, like most orthodox analysts, has always demanded primary equilibrium, that is, without considering interest payments. This Government decides to go for more, in a decision that we could define as excessive, reaching the search for financial balance, that is, with interests included. In these times of high interest rates it means, I reiterate, an additional cut of 3.2% of GDP, a sacrifice for society that is not even endorsed by the most conspicuous defenders of neoliberalism.

In this environment, we must analyze last Friday’s announcements, which attempted to show a government that is dialogue-oriented and conciliatory, but that, ultimately, by persevering in achieving fiscal balance, aims to comply with what Minister Caputo expressed days ago, who reported that he and his team met to “delineate all the provincial items that will be cut immediately if any of the economic articles (of the Omnibus Law) are rejected.” And he clarified that “it is not a threat, it is a response to all Argentines who wonder what would happen if Congress did not approve the law: I confirm that we are also going to meet the fiscal goal, which will mean that the provinces will have fewer resources.” ”.

So, the question is how far are they going to reduce games to try to meet that chimerical objective? How far is the rope of confrontation going to be tightened with the other two powers, and with the representative, republican and federal form of our Nation?

In these aspects, there is a special interest of the Government in approving the Omnibus Law, and the withdrawal of the fiscal package contributes to this objective. Because beyond the different changes that have been agreed with the “dialogue” opposition, and that could be voted on in the next session in Deputies, the central point of the project is found in the first four articles, which could obtain sanction. They refer to the delegated powers, which have undergone some changes, the main one being to reduce the delegation period to one year, extendable for another year with the agreement of Congress, when in the original it was proposed for four years. However, such a reduction does not represent, in my opinion, progress. In the first year of the delegated powers, the Executive could reverse the vast majority of the changes agreed with the “dialogue” opposition. The importance assigned to reaching zero fiscal deficit and the limitations that this search implies were already discussed at the beginning of this note, which increases the possibility of future DNUs to further cut expenses, at the cost of, most likely, the curtailment of rights. Not to mention privatizations: they are at the discretion of the Executive, as expressed in the majority opinion.

In summary, it is essential to pay attention to the issue of delegated powers and in as many matters as proposed by the bill that, if it were to be validated by Congress, could generate a strong cut in its functions, weakening, together with the adjustment policies, the representative, republican and federal form of our Nation.