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December 11, 2017
Friday, June 16, 2017

Incompatibly Mending Finances

An International Monetary Fund (IMF) mission arrived here this week to look at the current fiscal situation with Treasury Minister Nicolás Dujovne among others but that might well be the least of his problems. Thanks to the 12-digit tax amnesty haul earlier this year (a world record-breaker rivalled only by Indonesia), the relatively unambitious 2017 fiscal deficit target of 4.2 percent of gross domestic product should take care of itself pretty automatically, even with the odd electioneering splurge. What should worry Dujovne more is the growing volume of criticism of the fiscal deficit and the tax burden, two conflicting pressure fronts which it would be impossible to satisfy simultaneously. The fiscal deficit is not only blasted by orthodox economists on the right but also by many opposition politicians on the left who find a pro-market government’s inability to balance the budget too big a contradiction not to highlight. But at the same time there is a rising chorus from the private sector — the AEA big business association, the auto industry, the Córdoba business chamber and the Argentine-German Chamber of Commerce are just a few of the recent examples — insisting on the urgency of lowering the tax burden if the Argentine economy is to have any chance of being competitive.

These critics would be far more constructive if they addressed both of these problems simultaneously but none of them do. Those who would slash the deficit find it hard enough to come with proposals for spending cuts (which never include the various ways in which business is subsidised) without complicating their task by lowering revenue as well. And those who urge tax cuts never explain how this would be fiscally responsible amid the current deficit levels. Thus far the Mauricio Macri administration has squared this circle by taking on debt of some 46 billion dollars, by far the highest among emerging markets (among whom Argentina does not rank officially quite yet, by the way, although this might change next week) but a surge from 43.5 to 54.8 percent of GDP in just one year would make this strategy only sustainable for the rest of this decade at best. If the IMF is to be true to its strict monetarist traditions, its current mission here should be urging Dujovne to greater solvency and a less cavalier attitude towards incurring debt. Yet as with all the other critics, this advice would be incomplete if not accompanied by analysis of how the fiscal gap could be narrowed without adding to the tax and utility bill burdens on the productive sector.

With continual visits ranging from German Christian Democrat Angela Merkel last week to Portuguese Socialist Antonio Costa this week, Macri might seem to be wowing the world but the bottom line leaves much to be desired.

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Edition No. 5055 - This publication is a property of NEFIR S.A. -RNPI Nº 5343955 - Issn 1852 - 9224 - Te. 4349-1500 - San Juan 141 , (C1063ACY) CABA - Director Perdiodístico: Ricardo Daloia