In June, the International Monetary Fund agreed to loan Argentina US $50 billion in the face of a sharply declining peso.
The deal was not received without controversy, as many in Argentina blame the IMF’s austerity measures for the depth and severity of the county’s 2001-2002 devastating economic crisis. Among Argentine Unions, the IMF is especially unpopular, and the agreement between the government and the international organization led Argentina’s biggest union, the General Confederation of Labour (CGT), to hold a general strike last June 25th.
Today, the CGT doubled down on its position, emphasizing that they will not be quiet in the face of the agreement between the government and the IMF, and will escalate conflicts between unionized workers and the government if necessary. Juan Carlos Schmid, one of the leaders of the CGT, has stated that the agreement will only lead to “infinite conflicts in a country that is already paralyzed and in recession.”
Meanwhile, it is the hope of the Argentine government that the loan will help the country avoid a financial crisis similar to those of the past, and strengthen the peso against the dollar.
As part of the deal, Argentina’s government agreed to accelerate the already existing plans to reduce the country’s fiscal deficit—the funds spent by the government that surpass its revenue.
According to the IMF’s managing director, Christine Lagarde, “This measure will ultimately lessen the government financing needs, put public debt on a downward trajectory and, as President Macri has stated, relieve a burden from Argentina’s back.”
Now, six months into the year, the Ministry of Finance reported that the country ended its second fiscal quarter with a deficit of 0.8 percent of the GDP, exceeding the goal of 1.1 percent.
At a press conference, Treasury Minister Nicolás Dujovne announced that Argentina’s deficit halfway through the year was AR $105.8 billion, less than the AR $148 billion target that had been set by the Treasury. Ultimately, the government managed to save AR $25.3 billion, equivalent to 0.2 percent of GDP.
In a time when good news from Argentina’s government is scarce, it is the hope of many in the Macri administration that this update will help elevate the spirits of citizens and strengthen their trust in the government.
By the end of the year, the government hopes to reduce the total deficit for 2018 to 2.7 percent of the GDP, followed by 1.3 percent in 2019, as was agreed with the International Monetary Fund. Most ambitious of all, however, is the goal for 2020: reaching a fiscal balance. In other words, eliminating the deficit completely.
A significant factor behind the reduced deficits was the government’s imposition of higher taxes, which rose 26.3 percent from the last fiscal year. Meanwhile, while there was an overall growth in government spending, this growth was accompanied by a significant increase in inflation, meaning that, in actuality, there was a real drop in government primary pending of 5.6 percent. According to the Treasury, this constitutes the lowest level of real primary spending since early 2013.
The most significant drops in government spending were in the housing sectors, public works, and water and sewerage, which fell -23.8 percent, -19.9 percent, and -18.3 percent respectively. On the other hand, spending on social benefits, education and public salaries all saw a rise of 29.2 percent, 27.9 percent, and 19.1 percent respectively. Meanwhile, contributions to social security grew 27.4 percent.
“Argentina has been dragging a deficit problem along for decades,” Dujovne stated at the press conference in the Ministry of Finance. “One that has placed us in a position of weakness that manifests itself with a very volatile economy, low productivity and high inflation. It also makes it more difficult than it should be to experience steady growth, lower unemployment and reduce poverty.”