Argentina's Fernandez Ramps Up Spending Before Power Handover

  • President Fernandez issues decrees ordering spending increases
  • Govt set to hand over power with largest deficit since 1982

Argentine President Cristina Fernandez de Kirchner has ramped up government spending even as she prepares to hand over power in 10 days, helping to widen a budget deficit for 2015 already expected to reach the highest in 33 years.

At the start of the week, the government said it would spend an extra 133 billion pesos this year on salaries and energy subsidies. A day later, and Fernandez’s administration ordered the Treasury to make up a shortfall of 98 billion pesos ($10.1 billion) with the state-run pension system following a ruling by the supreme court. The government must also find 27 billion pesos to cover costs at the tax agency.

The extra spending makes it all the more urgent for incoming President Mauricio Macri to tackle the fiscal gap that is forecast to reach 7.2 percent of gross domestic product. Macri now faces the shortest of honeymoons after defeating Fernandez’s candidate in a runoff vote last month, having pledged to cut subsidies, remove currency controls and slow inflation.

“Clearly the fiscal scenario for next year is going to be very challenging,” said Maximiliano Castillo, director of Buenos Aires-based consultancy ACM. “The roots of rising inflation, currency controls, import and export restrictions come from a completely unsustainable fiscal policy.”

To begin closing the fiscal gap, Macri’s designated Energy Minister Juan Jose Aranguren said the new government will reduce subsidies on electricity bills in the metropolitan area of Buenos Aires, where the government spends about $800 million a month footing the bill for clients of electricity suppliers Edenor and Edesur.

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