Argentina's Finance Ministry finally released its fiscal results for the 2015 period, which showed a deficit amounting to more than 5% of GDP. The figure is likely to be subject to much controversy and discussion, as the government of president Mauricio Macri introduced new methodology to calculate its figures.
The results could also re-ignite a feud between Finance Ministry Alfonso Prat-Gay and former Economy minister Axel Kicillof, who clashed in January over the magnitude of the financial difficulties that president Macri’s administration inherited from former head of state Cristina Fernández.
The government said that 291 billion pesos were registered as a deficit in 2015, 1.6 percentage points more of GDP when compared to the 3.8% of GDP in 2014.
Income grew by 287 billion pesos throughout 2015, while expenses were up 410 billion pesos, resulting in an additional loss of 123 billion pesos in the yearly comparison.
The Macri administration says that the deficit inherited will make it hard to achieve its target of reducing inflation rapidly, as it forces the Central Bank to finance the Treasury by printing more pesos. Macri promised to reduce inflation gradually in the next four years.
In January however, Prat-Gay had said that the Let’s Change administration was facing the challenge of turning around a deficit that amounted to 7.1% of GDP.
According to the Minister’s adviser, Vladimir Werning, “the difference is because Prat-Gay at the time included the cost of the transition, to paint a clear picture of what our starting point was”.
That 7.1% deficit however included some of Macri’s campaign promises as part of the “inheritance” that his administration had to reverse, prompting accusations of distortion from Kicillof.
The former minister however claims that the deficit was even lower than 5% of GDP under his administration. His contrasting position is a result of a crucial difference in the new methodology used to calculate the figure, which was made official by Prat-Gay’s Ministry.
The government’s new way excludes cash transfers from Central Bank’s utilities or from the ANSES social security agency’s FGS sustainability funds from the Treasury’s accounting results.
“Starting in December 2015, (the results) will reflect some adjustments with the goal of eliminating accounting practices that, in the past, have contributed to distorted fiscal results,” the Finance Ministry’s press release said.
The ministry said that the transfer of Central Bank utilities were ultimately financed by the printing of money, leading to increased inflation statistics. It also argued that ANSES’ funds should be kept separately as a matter of financial prudence.
In contrast, Kicillof argues that such changes are not justified, since the previous methodology was in line with the recommendations of organisms such as the International Monetary Fund (IMF).
Kicillof said last month that under the old methodology the deficit only amounted to 2.3% of GDP, and that Prat-Gay was trying to play it up in order to implement an austerity program.
The Finance Ministry also filed its fiscal results for January, which showed a marked improvement from a year ago, but economists think it will be hard to sustain.
Only 548 million pesos were in the red in January 2016, a deficit almost 90% smaller than in 2015. Much of that improvement however comes from an abnormally high January income tax collection figures, explained by the massive profits reaped by banks and individual investors through the controversial dollar future contracts sales over the last months of the Kirchnerite administration.
February’s tax collection figures were already poorer than January’s, and cuts to income tax could exacerbate that, making the deficit grow. Prat-Gay has said that he is planning to reduce the deficit to 4.8% of GDP by the end of this year, 3.3% by 2017, 1.1% by 2018 and 0.3% by 2019.