The government used creative accounting to arrive at a deficit of 2.4% of GDP.

This is a technical report on how Sergio Massa managed to fulfill the agreement with the IMF at the end of last year.

The work contains very careful words but the conclusions are resounding and with a bleak outlook regarding the government’s chances of achieving a reduction in the fiscal deficit in the election year.

Concepts like “creative accounting”“accounting trick” or “cosmetics” make clear the fiscal actions of the government in the second part of last year when the jump in inflation allowed the Treasury to cover up an important adjustment in the accounts, the one that Cristina Kirchner had questioned at the former minister Martin Guzman.

The consultant’s report balances (Diego Bossio/Martín Rapetti) maintains that in 2022 the primary fiscal deficit was reduced by 0.7% of GDP and thus the government managed to exceed the goal with the IMF by obtaining a deficit result of 2.4% of GDP.

He adds that there are two determining reasons for the drop in spending that were “the cut in social benefits and the low execution of energy subsidies“. In other words, the adjustment in real terms of retirement and pensions and kick forward energy subsidies together with the segmented increase in electricity, gas and transportation rates.

In the case of retirements the work points out that “were -in real terms- 12% lower” than the previous year and “family allowances fell, deflated, 42%.”

The transfer of funds to subsidize rates fell 79% although, he clarifies, that part of this reduction was generated in the “rate segmentation and the reduction of production costs.”

The fiscal adjustment was strong, especially in the second part of 2022 when inflation shot up to aim at 94.8% per year and eroded retirement and other social benefits.

A question revolves around whether the government will be able to comply this election year with the fiscal deficit target of 1.9% of GDP which would imply a greater adjustment in public spending and a higher level of collection. Will there be more creative accounting or the like?

The answer is pending but it is worth analyzing some indications.

Forecasts agree that as a result of the drought fewer dollars will enter from agricultural exports. The question revolves around the scope and the decrease in the amount of income.

Estimates of losses due to drought range from US$ 8,000 million until US$ 15,000 million and also the minister Sergio Massa has already resorted to two silver bullets (dollar soybeans 1 and 2) that would have advanced the income of foreign exchange from exports and has at stake the repurchase of global bonds that could be carried US$ 1,000 million of the reserves of the Central Bank.

In the last rounds, the Central Bank sold more dollars than it bought while the market maintained its upward trend of the blue dollar and the exchange rate gap.

The blue at $386 records an increase of 23% since the beginning of the year and it marks the level of uncertainty around the government’s ability to manage the exchange market, which during the week demonstrated marches and counter-marches in politics to face the possibility of excess pesos circling the market.

The Central Bank first increased the overnight repo rate for the mutual funds to place their liquid surpluses, but after a few hours it had to moderate that increase due to the banks claim because that implied a threat to the collection of funds via remunerated checking accounts.

Paradoxically, this episode brought to light the labyrinth of the peso market which, given the surpluses in companies and the lack of demand from the private sector, has the Central as the Big Brother that sees everything and tries to contain the leaks and leaks towards a highly capped exchange market.

The Central Bank issues pesos through a window that goes to a market that seeks to avoid them by placing them in a fixed term or common investment funds that at the end of the day will lend them to the Central Bank in pass operations for 24 hours or Liquidity Letters that Thus, they accumulate liabilities (exceeding $1.6 trillion) that accrue monthly interest that averages 6% per month. The mountain of weights it continues to grow and grows bigger in the face of an economy that tends to slow down.

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