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Montevideo, September 21st 2018 - 16:15 UTC

Argentina finances improving: half year primary deficit drops to 0.8% of GDP

Friday, July 20th 2018 - 07:21 UTC
Full article 11 comments
“The fulfillment of these goals (agreed with the IMF) is irreversible,” Treasury Minister Nicolas Dujovne said at a press conference. “The fulfillment of these goals (agreed with the IMF) is irreversible,” Treasury Minister Nicolas Dujovne said at a press conference.
A run on the peso earlier this year prompted the administration of president Macri to turn to the IMF A run on the peso earlier this year prompted the administration of president Macri to turn to the IMF
As part of the IMF deal, Argentina lowered its primary deficit target to 1.3% of GDP in 2019, down from 2.2% previously As part of the IMF deal, Argentina lowered its primary deficit target to 1.3% of GDP in 2019, down from 2.2% previously

Argentina posted a primary fiscal deficit of 105.8 billion pesos (US$3.7 billion), or 0.8% of gross domestic product (GDP) in the first half of 2018, government data showed on Thursday, down 26.7% from the same period last year.

 The total financial deficit including debt interest payments was down 1.7% from last year at 251.2 billion pesos, or 1.9% of GDP, as Argentina seeks to strengthen its finances as part of its US$ 50 billion financing agreement with the International Monetary Fund (IMF).

“The fulfillment of these goals is irreversible,” Treasury Minister Nicolas Dujovne said at a press conference.

A run on the peso earlier this year due to a selloff in emerging market assets and concern about President Mauricio Macri’s government’s ability to fight inflation prompted Argentina to turn to the IMF. Dujovne had already slashed the 2018 primary deficit target to 2.7% of GDP, from 3.2% previously, in an attempt to calm markets.

As part of the IMF deal, Argentina lowered its primary deficit target to 1.3% of GDP in 2019, down from 2.2% previously.

Officials have said they may delay implementing elements of a tax reform approved last year if spending cuts prove insufficient to reach deficit targets, but Dujovne said he hoped negotiations with opposition parties that control congress would lead to other ways to cut the deficit.

“It would be counterproductive to take a step back on structural reforms,” he said. “Argentina needs the private sector to develop and create jobs, and raising taxes is not the most appropriate measure to achieve that.”

Dujovne also acknowledged that the 29.5% year-on-year inflation reported in June was above the 29% level that would trigger a consultation with IMF staff on the government’s plans to fight inflation, but said it was not a “formal process” and the government needed only to “explain its view as to why” inflation exceeded the target.

Inflation above 32% would require a consultation with the IMF’s executive board, which could withhold further disbursements. In June, the Argentine government posted a primary deficit of 56.7 billion pesos and a financial deficit of 88.9 billion pesos, the data showed. The cuts in the first half were driven by a 19.9% reduction in capital spending, led by declines in spending on transportation infrastructure and housing.

 

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  • Jack Bauer

    @EM
    AFAIK,“ fiscal 'deficit' ” is basically defined as when total government expenditure exceeds total revenue....so “lowering” the fiscal deficit“ would presumably a step in the right direction...but you think it isn't, and state it ”comes at the expense of economic activity“... You also mention that ”One of the sectors most heavily impacted will be public works”...not too clear, so would you care to explain ? and also say what you mean by 'public works'...Tks.

    Jul 21st, 2018 - 07:40 pm +1
  • Zaphod Beeblebrox

    JB,

    “AFAIK,“ fiscal 'deficit' ” is basically defined as when total government expenditure exceeds total revenue....so “lowering” the fiscal deficit“ would presumably a step in the right direction”

    Yes, you'd think so.

    “...but [Reekie thinks] it isn't, and state it ”comes at the expense of economic activity“... [Reekie also mentions] that ”One of the sectors most heavily impacted will be public works”...not too clear, so would you care to explain ? and also say what you mean by 'public works'”

    I don't know but I expect that “public works” (which I would define as maintenance and upgrading of the infrastructure-roads, railways, public buildings, power supplies etc. but Reekie may differ) is not the sort of activity that impacts GDP since it doesn't generate a direct profit. It just makes it easier for businesses to generate profits. I think what Reekie is trying to say that if the government slows its road-building plans then the economic activity of road builders is reduced. However, if I am correct that this sort of activity doesn't impact GDP I wonder if it even counts as “economic activity” although it would impact secondary economic activity from the provision of materials, equipment and services etc. Also, isn't most of this work done on a contract basis?

    I don't know, since I am not an economist. But I know that any “good news” from the Macri government gets spun into bad news by Reekie. E.g. He has recently clarified that devalued peso=bad. Overvalued peso=bad. Floating currency=bad. Intervention in currency by Macri=bad. I know that any change will result in economic winners and losers, but Reekie definitely seems like a glass is half empty type of guy. ;-)

    Jul 24th, 2018 - 05:43 pm 0
  • DemonTree

    Lowering the fiscal deficit is good, but not so much if this is the result: http://en.mercopress.com/2018/07/25/argentina-s-stats-office-data-reveals-recession-is-round-the-corner

    Also, EM has been complaining for years that Macri had been borrowing to cover everyday expenses, rather than for infrastructure projects that might help the economy grow in the longer term. So I'm guessing he's unhappy they have been cancelled, not unhappy they were planned.

    Jul 25th, 2018 - 11:09 am 0
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