Heralding the budget
Today would (should) have been the 142nd anniversary of the Buenos Aires Herald but its last daily edition was a few weeks after its 140th anniversary (on the October 26 of 2016, to be exact), then continuing as a weekly for 39 Fridays until July 28 last year. Anyway with all that has happened since, it is gratifying to see the newspaper still remembered by surprisingly many people, among them the New England economist Dr Hale, who writes:
“If you don’t mind me showing off my acquired knowledge of Argentina a bit, the September 15 date of this coming Saturday has a special local significance at various levels. Firstly, I still recall that it was the foundation date of the Herald – the scene of our first and only meeting in mid-2016 – back in 1876 (the year of Little Big Horn and also the first of the four presidential elections in which the Democrats received more votes than the Republicans but lost, just like last time). How could I not feel nostalgia for a newspaper which is an anagram of my own name? Secondly, the
Herald’s 142nd anniversary will also be the 81st birthday of Fernando de la Rúa, who remains topical today insofar as usually unfair and inaccurate comparisons of this winter’s currency turbulence with the 20012002 meltdown ending his presidency have abounded in recent weeks. But thirdly (and the most central for economic analysis), I’m mindful that September 15 is the traditional deadline for submission of the budget to Congress, which leads me to my main question this week – how do you see the budget and the surrounding negotiations coming along?” My reply: “I see the national and provincial governments as being broadly on the same page, which is more important than five of the 23 provincial governors not showing up on Tuesday or the lack of a formal signature. But this page is not blank – it contains words and letters and numbers with plenty of scope for squabbling over the fine print. The devil is in the detail, as they always say, but this should not hide the underlying consensus – the headline of last Saturday’s column ‘Not seeing the forest for the trees’ might well be more appropriate now than then.
“And what form does that consensus take? Not to put too fine a point on it, fiscal greed. The new export levy earlier this month symbolically kisses goodbye the Mauricio Macri administration’s timid efforts towards the supply-side economics of tax cuts – on the eve of Tuesday’s meeting Macri yielded further ground on such toxic taxes as gross incomes and the stamp tax (which so infuriated your country way back in 1765, Dr Hale), which nevertheless help underpin the recent provincial solvency. The governors still have various gripes like the elimination of their Solidarity Fund cut of soy export duties and the transfer of subsidies in their direction but the bottom line for them is not so much the fiscal cuts (to the tune of 100 billion pesos as their contribution towards zero deficit) as the tax cuts because these almost invariably affect them via federal revenue-sharing – once the latter are disavowed, there is a basis for understanding. Obviously without a budget there is no revenue to share.
“In any case Macri had already cut enough slack with the provinces to permit relatively smooth passage of the 2019 budget. Thanks to various fiscal concessions perhaps typical of a minority government (I’ll spare you the details but can give them to you if you like), the provinces have already collectively arrived at a fiscal surplus of 0.3 percent of gross domestic product – if two-thirds of them were still in the red less than a year ago, only four now remain in deficit (Chaco, Corrientes, Jujuy and, of course, Santa Cruz). The paradox is thus that Argentina’s provinces are a huge part of the fiscal problem (with two-thirds of total public-sector employment, in many cases doubling in the course of this century) but at the same time are closest to a solution as islands of solvency. Nor are the provinces being asked for too much sacrifice from this comfortable position – only a quarter of the 400 billion pesos is being required from their side and almost half of that will fall on Buenos Aires province in the form of subsidy transfers.
“So much for the negotiations – as for the 2019 budget itself, better await the final draft and its progress in Congress.
“A calmer dollar (for much of the week anyway) now gives us leisure to look ahead a bit to the budget. Moreover the government seems to be regaining more control over the agenda – or at least the new Supreme Court helm as from next month (in favour of the most pro-Macri justice) marks almost the first time the subject has been changed from economic woes since the ‘Gloriagate’ Kirchnerite graft scandal broke at the start of last month. In recent weeks that scandal has been fading from the news in a similar proportion to fallout jitters mounting in big business – the two trends are possibly linked because corporate damage control has had some success in keeping certain things out of the news. That scandal plus the increasingly chaotic run-up to next month’s Brazilian elections make the relative calm now prevailing look somewhat temporary and precarious. Economy Minister Nicolás Dujovne is visibly feeling the strain with his midweek health scare.
“The dollar may be quieter for now but not so much prices, which continue to rise (not least for basic foods) yet still have plenty of catching up to do with devaluation – the projected inflation for the entire year is still under half the devaluation thus far (so much for ‘pass through’). And it would seem that the government would like to keep it that way, even at the price of a sharper recession, which has become almost the main weapon to tame inflation – so much so that the unexpectedly high -2.4 percent negative growth forecast inadvertently leaked the other day might almost be wishful thinking in a perverse way.
“All this falls short of covering the week’s news but l cannot spend all my time satisfying your curiosity, Dr Hale. To anybody dissatisfied with this quality of economic analysis in English, I can only say that they should have kept the Herald going into its 143rd year as from today.”
Nor are the provinces being asked for too much sacrifice from this comfortable position – only a quarter of the 400 billion pesos is being required from their side and almost half of that will fall on Buenos Aires province in the form of subsidy transfers.