Argentina's Macri quietly drops austerity with $5 bn for social security and $7 bn for public works.
Argentine Finance Minister Alfonso Prat-Gay announced that the federal government will be easing the deep budget cuts enacted since President Mauricio Macri took office six months ago, with decrees opening the door for more spending on social security and public works.
The moves come after the Central Bank cut interest rates and eased its contractionary monetary policy somewhat, and seem to confirm that Macri's right-wing economic cabinet is wary of causing a sustained recession through continued austerity. Monthly budget figures for May, released on Tuesday, show that the federal deficit for that month grew to 24 billion pesos ($1.7 billion) - four times as much as a year earlier.
Following months of spending cuts in key areas such as infrastructure, a decree issued yesterday allocated close to 100 billion pesos ($7 billion) for public works over the next four years. Although only a small fraction of those funds will be used this year, the decree also anticipates that more funds would be distributed over the coming months.
The paralysis in public works has been one of the main factors of the current economic slowdown, with an estimated 155,000 jobs lost since Macri took office and a loss in average purchasing power of at least 11%. The recession has been exacerbated by a rise in inflation rates from 20% to 45% since Macri decreed a 40% devaluation in December.
The Macri administration had already begun reversing course on austerity in April, when it announced a 30 billion-peso ($2 billion) increase in social spending in response to a Catholic University report that the number of poor had risen by at least two million in just four months. Yesterday's decree provides for an additional 76 billion pesos ($5.3 billion) for social security this year, which includes these commitments as well as a significant raise in benefits for high-contribution seniors.
Capital spending - mainly infrastructure construction and maintenance - also rose sharply in May, though it still remained below 2015 levels in real terms. A 25% nominal increase of over the same time last year still left capital spending 13% less than a year earlier; but it was a marked reversal from April, when a 6% nominal cut translated into a 33% cut in real terms. Sales declines for building supplies such as asphalt (48.8%), concrete (27.6%), rebar (26%), and cinder blocks (25.7%) were the steepest since the depths of the 2002 crisis.
The May budget figures were thus the first to show an annual increase in deficit spending so far in 2016. “In nominal terms, we now have roughly the same deficit as in the first five months of 2015: 70 billion pesos ($5 billion); but adjusting for inflation it is narrowing,” Martín Polo, chief economist at Analytica consultants, told the Herald.
Polo believes that over the coming months fiscal policy will become even more expansive. “I expect them to bet on boosting demand and boosting the construction sector in order to jump-start the economy. If as a result they get the economy growing again, then it will not be a problem because the deficit should be compared to GDP. If the recovery doesn’t happen, then there will reasons to worry,” Polo said.
Marina dal Poggetto at Bein & Associates agreed. “I would say this is something we were already seeing over the last few weeks: the government is making a u-turn.”
At: http://buenosairesherald.com/article/216669/gov%E2%80%99t-eases-austerity-as-spending-recovers