The other side of the surplus that Milei celebrates in Argentina is not encouraging, says analyst

Sputnik Brazil – Although the Argentine government celebrated a surplus of around R$2 billion in March, the data may not be so hopeful. In a conversation with Sputnik, economist Micaela Fernández Erlauer warned about the lack of sustainability of the result, as economic activity and revenue continue to fall.

In a broadcast on national TV, last Monday (22), the Argentine president, Javier Milei, announced that in March 2024, the National Public Sector (SPN) had a financial surplus of around 276.6 billion pesos (around R$2 billion), thus completing three consecutive months of financial surplus, something that had not occurred in the South American country since 2008.

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In his speech, the president emphasized that “the fiscal surplus is the cornerstone from which we will build Argentina’s new era of prosperity.” He further emphasized that the result achieved should be seen as “a milestone that we should all be especially proud of as a country.”

However, experts question the sustainability of the feat celebrated by Milei. In her account on X, Argentine economist Micaela Fernández Erlauer https://twitter.com/micafererl/status/1782776169974096344?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1782776169974096344%7Ctwgr%5E5e7746e859a170f6c10988e56512aa7d5f144e37%7Ctwcon%5Es1_&ref_url=https%3A%2F%2Flatamnews.lat%2F20240424%2Fla-contracara-del-superavit-que-milei-celebra-en-argentina-1149984609.html that the surplus celebrated by Milei corresponds to the National Public Sector and that, if we consider only the National Public Administration (APN), “in March the result was a deficit”.

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Consulted by Sputnik, Fernández Erlauer explained that the main difference between the public sector and public administration is that the first includes the second, since in addition to public administration, it also encompasses state-owned companies, trust funds and public entities, such as the state health service for retirees and pensioners (PAMI).

For the specialist, researcher at the Fundar study center, making this distinction between SPN and APN is fundamental because the latter is where the majority of State spending is concentrated, such as pensions, public works or transfers.

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The issue, warned the economist, is in returned expenses, that is, expenses that have already been recorded, but for which payment has not yet been made. “The difference between the SPN and the APN is the floating debt, that is, this difference between what was returned and what was paid”, he detailed, noting that the ability to face these payments will depend on the State’s future revenue.

“The problem is that revenue is falling. It is falling, because the government’s main strategy is to reduce economic activity to reduce inflation,” she highlighted.

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Fernández Erlauer pointed out that, although the increase in the exchange rate has boosted the collection of the PAIS tax (on operations in foreign currency) and export duties, “the flip side is that the collection of other taxes, such as Income Tax, social security or VAT, is lower because people’s incomes are falling and consumption is shrinking”.

Official data collected by the Argentine newspaper Ámbito indicated that in March 2024 tax revenue fell 16% in real terms compared to the same month of the previous year. In fact, the drop especially affects VAT and Income Tax, which decreased by 15% and 40%, respectively.

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The expert admitted that “balancing public accounts was necessary” for Argentina, but warned that, along this path, the government chose to cut spending “that impacts economic activity.”

She highlighted that there are many doubts about whether there is “a sustainable path” to maintain this surplus in a context of falling revenue and while the president ratifies that he will not change his economic direction. “Milei confirmed that she will not increase spending, but it is also not very clear how she will be able to increase revenue in a scenario of economic contraction like the one we are experiencing”, summarized the economist.

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BETTING ON THE PRIVATE SECTOR – Fernández Erlauer also relativized the expectation that Milei’s government places on the arrival of large private investments. In his speech, Milei appealed to “mining, oil, gas and the countryside” as sectors of the private economy that would sustain the country’s future economic growth.

“These are long-term investments, which are not just looking at these last three months, but the entire history and the future”, explained the economist.

The expert also considered that there should be a “synergy” between these private projects and the public sector to “ensure that investments are productive and generate wealth, but also that it takes into account what type of jobs they create and how sustainable their activity”.

“There is a clear intention from the government to call on businesspeople, but there must also be a consistent and sustainable direction. I do not believe that the private sector is willing to invest in absolutely everything on its own and will consider what facilities are offered in fiscal terms and how much support is given to public investment to be able to carry out these investments”, he pointed out.

Fernández Erlauer also said that, even if Milei ensures that the IMF’s goals are being “exceeded”, the multilateral organization will take into account this “floating debt” of the public sector when evaluating the country. Therefore, said the economist, “it is not so clear that all the goals imposed by the agreement are being met.”