​The end of fiscal gradualism

ARGENTINA - In Brief 03 Sep 2018 by Esteban Fernandez Medrano

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The economic turbulences of the last week which drove, among others, the FX rate above 40 AR$/US$, induced president Macri to give today a rather motivational address to the nation. He announced changes in its cabinet and Argentina's economic policy. In short, he proclaimed an acceleration in time to reach fiscal balance to curb concerns about Argentina's fiscal and debt sustainability. According to the president, given the change in global risk appetite, the government had been excessively optimistic in believing it could curb the fiscal deficit gradually. Reality showed him that they were running out of time. The president announced a reduction in the amount of Ministries. The fusions did not imply the presentation of new ministers and the fiscal impact of this measure is relatively small, but it represents not just a sign of austerity but of the president´s intention to have a closer control on economic policies. Former Treasury and Finance minister Dujovne, came out strengthened as new Economic Minister absorbing also the former Energy Ministry. Following the presidential announcements, the new Economic Minister presented in a press conference some of the more technical details. The main objective is to reach a balanced primary balance already next year and a 1% of GDP primary surplus in 2020. Note though that the 2018 fiscal projections were not modified. This 2.7% of GDP improvement compared to 2018 would be achieved through a combination of lower spending (-1.5%) and new taxes (+1.2%). In line with what the government had been doing so far to reduce the fiscal deficit, cuts in capital spending and subsidies represent the lion share of the projected spending cuts...