MercoPress. South Atlantic News Agency

Argentina estimates 4% growtn, 7% inflation in 2007

Emphasizing on a high exchange rate and a hefty budget surplus, Argentina's Economy Minister Felisa Miceli presented this week the 2007 federal budget in Congress with estimates of 4% growth and 7% inflation.

"A high exchange rate and budget surpluses are the basic pillars of the economic model", said Minister Miceli who added that Argentina has a long history of significant fiscal deficits and it has been only in the last few years that the country has had a sustained primary surplus.

"And the current surpluses are not fortuitous, but a target to achieve and thus honour the financial commitments acquired", said Miceli.

According to the estimates the primary budget surplus for 2007 is 3.14% of GDP compared to this year's 3.26%. Similarly the exchange rate will be in the range of 3.13 pesos to the US dollar compared to 3.05 pesos currently.

However in spite of the government's comfortable majority and tentative date of late November for final approval, the opposition is promising a strong battle in disagreement with some of the numbers and the fact that earlier this year the Kirchner administration was able to confirm budgetary "super-powers", giving it greater leeway to spend the money.

"The most outstanding issue of this budget, as in previous ones, is the lack of sincerity. The takeover growth push from this year to 2007, is already 3 to 4%, and if the estimated growth of 4% next year is to be believed the country faces a huge recession", said Deputy Miguel Angel Giubergia, vicepresident of the Lower House Budget and Finance Committee.

"The game of the government is to downplay growth estimates 6% in 2006 when it will be above 8% and 4% next year when we can guess 6%, which then gives huge resources to dispose of discretionally. We're talking of at least 5 billion US dollars and next year is an electoral year", said Giubergia.

Anticipating criticism Ms Miceli said that in the event of extra resources from the budget because of a greater growth rate, "we'll act with absolute responsibility; they will be invested in social security, education and government salaries".

Members of the opposition also criticized the lack of a tax reform which would help Argentina avoid the full impact of world financial and commodities prices' volatility. With a strong US dollar, the Kirchner administration is heavily taxing all commodities' exports, which together with the so called "tax-check" in the financial system have become "pillars" for the tax revenue office.

The budget's total resources are estimated in the equivalent of 47 billion US dollars, up 14.5% over this year and outlays 44.3 billion US dollars which represents a 15.5% increase. In spite of the important savings, opposition members point out to the fact that outlays are growing faster than revenue, and overall the budget expands faster than the economy.

Miceli said the increase in expenditure is earmarked mostly for education, pensions and infrastructure. Opposition claims social expenditure have been virtually frozen at current levels and investment in infrastructure is set to continue soaring in an electoral year plus the fact the government has greater discretionary powers as to where and how to spend.

"Superpowers have taken most of the specific weight of the budget as an instrument to influence economic policy", argued Deputy Jorge Sarghini.

However Ms Miceli insists that next year social services expenditure will increase from approximately 22 to 26 billion US dollars.

Finally the budget allows the Executive to continue with the process of "normalizing" public debt, which could be forecasting that Argentina in the coming months could be making a significant repayment to the Paris Club (government to government loans). Debt repayment estimates for 2007 are in the range of 4.75 billon US dollars compared to the 4.23 billion for this year.

Ms Miceli ended announcing that this week Argentina will have reached a level of international reserves in the order of 28 billion US dollars, which is equivalent to the figure at the end of 2005, when Argentina cancelled all its debt with the International Monetary Fund, an estimated 10 billion US dollars.