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From debt and mega-subsidies, fiscal problems in 2009 are predicted
Perfil
July 06, 2008

By Carmen Lopez Imizcoz

Nestor Kirchner publicly acknowledged that the origin of the export taxes is to collect in order to comply with foreign obligations. It reveals the worry by the government over administrating fiscal accounts, in particular for next year. For they will still impact not only important maturities on debt but also the lower revenues as a consequence of the drop in economic activity as an effect of the conflict with the farm sector and the clear impact of exemptions on the capital gains tax and the shower of subsidies and compensations upon the economy.

"With what are we going to pay the foreign obligations of the Argentine people if the government suspends Resolution 125 as the farm sector and the opposition demand?" asked N stor Kirchner last Thursday at an event at the Metallurgist Laborers Union (UOM). Thus, in a fiery speech, applauded by the union leadership, Kirchner acknowledged for the first time the reasons at the heart of the sliding-scale export tax scheme.

He continued speaking: "You will see many Deputies these days, not speaking of those of the opposition, that say that export taxes have to be suspended, and I say: if they are suspended, with what will we pay the foreign obligations of the Argentine people, with what will we pay for hospitals, for health?" he insisted. "They believe that we are swimming in a fiscal paradise (but) we are pulling together a little money here and a little money there " he said, before defending President Cristina.

The fiscal surplus, which was one of the pillars of the K-model, fell into crisis. As has the economic plan born in the devaluation of 2002. But on the fiscal flank, day to day, and yesterday again with the sanctioning of the complex export tax system, the resources of the State have fallen into the eye of the storm.

The public accounts reflect more surpluses "on paper" than genuine solvency and, if this year follows as analysts think it will, the situation could become complicated next March.

"There isn't a deficit because it doesn't include adjustable pensions, they appropriated the savings from the capitalization regime and, in the first months of this year, they counted as Treasury revenues the utilities of the Central Bank," said Jorge Colina, of IDESA. In this context, the push for export taxes left in evidence a symptom of fiscal weakness.

According to the latest official data about the national public sector's financial state, the fiscal surplus in the first five months of the year was 12 billion pesos. That's to say: in only six months it surpassed the level of the fiscal surplus for all of last year (9.3 billion) by 30%. According to IDESA, it's also because of spending that will be made with higher intensity in the second half, "don't let this be the so-called result in the midst of the farm sector crisis, rising subsidies and the certain deceleration of the economy."

Thus, the data would suggest that the fiscal surplus has been maintained thanks to transitory sustenance actions. In the exit from the 2002 crisis the "liquification" of spending, mostly salaries and pensions, played a fundamental role.

In 2006, the "liquification" of pensions for higher inflation was maintained, as the main sustainer of the public sector surplus was a gift from ANSeS. During 2007, the transfer of savings from the capitalization regime to the public distribution regime was decisive.

Pensions. This year, the "liquification" of pensions and retirement funds continued having a high impact on public finances. IDESA estimates that if ANSeS complied with the adjustability provided in the Constitution, the public spending would increase some 8 billion pesos. These "savings" by delaying pensions are counted as a surplus. However, the accumulation of court rulings against ANSeS indicated that this is treated as a mere postponement of an expense that will have to be dealt with.

Also, the public accounts this year were benefited by the strong rise in international commodities prices, which swelled revenues through export taxes and transfers that were made from the Central Bank to the Treasury for some 1.5 billion pesos.

This way, the government still showed its how was in order. However, "this doesn't signify fiscal solvency because they are accustomed to having actions of transitory impact and because, in the majority of cases, they have very negative social and productive consequences associated with them," Colina said.

If the fiscal health is so compromised, the analysts consulted by PERFIL agree that regarding next year, if the high growth rates don't return, it will be clear.

Foreign Debt. This year, the maturities on debt servicing come to 4.6% of GDP. It includes some US$4 billion in interest and some US$10.5 billion in principal. Along with the GDP coupon and the purchase of excess bonds, the maturities come to US$16.6 billion, of which US$6.95 billion needs financing.