Argentina: Fiscal splurge

Argentina's 2008 budget, to be announced within the next few days, will include another spending splurge, especially on health, public works and subsidies. It is aimed at boosting support for the government's presidential candidate, Senator Cristina Fernandez de Kirchner, who will face 13 other presidential hopefuls on October 28. 

Cristina's husband, President Nestor Kirchner, decreed a 12% increase in 2007 budget spending, a rise of some 4.4 billion dollars, just before presidential candidacies were finalised last Saturday.  Although he recently claimed that his wife, if elected, would increase the primary surplus to 4% of GDP next year, all signs point to public spending staying high: the primary surplus target remains at 3.15%, and a low GDP growth estimate of 4% means revenues will exceed the budget forecast, allowing for discretionary spending. 

Trade union bosses, already angered at being offered few legislative candidacies in the elections, have expressed doubts about Fernandez de Kirchner and warned that she can expect a build-up in wage demands after the elections.  The need to ensure support from unions, social movements and the Peronist party will make it difficult to curtail spending, in spite of the effect that the spending spree is having on inflation.  At the same time, Fernandez de Kirchner has hinted that she will continue to favour an enhanced state role in the energy sector, which is likely to worry the business sector. Despite her efforts to appear more 'business-friendly' than her husband, the business climate is likely to remain uncertain -- discouraging much-needed productive investment and raising investor worries over the sustainability of the primary surplus and, thus, debt servicing.