MercoPress. South Atlantic News Agency

Argentine economy rolling ahead, but watch spending

A private consulting firm estimates that Argentina's primary surplus will reach this year 19,000 million pesos which is equivalent to 3,6% of GDP, a slight drop from 2004, but ensures that the “fiscal front is cleared” for the rest of the year.

However Ecolatina claims that the recent demands from the International Monetary Fund to reform the tax system are "incongruent" since they are simultaneously asking for a higher surplus and the elimination of the "retentions" on commodities export sales and the cheque tax. "These taxes represent 18,4% of total revenue, if we eliminate them the positive fiscal balance disappears", says Ecolatina's weekly financial report.

Further on the report points out that revenue has a clear and growing tendency, and expect for the last few months, it has been expanding at a faster rate than overall government spending since the beginning of 2003. Ecolatina which was founded by current Finance Minister Roberto Lavagna estimates total revenue in 2005 to reach 113.500 million pesos (approx. 41 billion US dollars). However, Ecolatina warns that "current and primary expenditure for the last five months has been expanding faster than revenue", since total expenditure is estimated to increase 17,5%.

"The recent acceleration in spending must be followed closely, particularly those outlays that are not strictly social or investments, to avoid eroding the government's capacity to honour its financial obligations", writes Ecolatina.

The report is also optimistic about the second half of the year with revenue from all taxes remaining steady or increasing, since the economy is expected to expand 7%. "Formal job creation is also estimated to remain steady the rest of 2005", plus a general recovery of real salaries and the gradual elimination of extraordinary contributions to the pensions funds.

Ecolatina estimates Argentine exports in 2005 to expand 12% compared to the previous year and imports 28%, a clear sign that domestic industry, demand and investment keep expanding.

Early in the week the Argentine Statistics and Census Institute reported that the Argentine economy in April expanded 9,8% over the same month in 2004 and 0,6% over March 2005, surpassing for the first time in seven years the highest activity index which was 124,2 in 1998 and now stands at 125,3 and growing.

Compared to 2004 the Argentine economy expanded 8,7% in January; 8,2% in February and 7,2% in March while growth over the previous month was 0,4% in January; 0 in February and 0,5% in March. The Argentina economy has been growing non stop for 29 months since December 2002. Industrial activity in May surged 8% compared to a year ago and in the first five months of this year 8,1% compared to the five months in 2004.

Among the more dynamic sectors are the automobile industry 28,5%; non metallic minerals (cement) 19%; rubber, 16,1%; food and beverage 10%; textiles 8,1%; steel and metal industries, 6,3%; chemicals and petrochemicals 5,3%; oil and refined fuels 1,7%; paper and pulp 1,4%.