The blow that the ruling party received in the Congress was only the most resonant chapter of a increasingly open escalation between Javier Milei and the governors. Behind the nuances of economic reforms and delegated powers, the fight for the “box” and the distribution of the adjustment has emerged as one of the main reasons for the collapse of the omnibus law.
Already in December The government has ordered a cut in discretionary transfers AND stop working without executing. The strategy was to “turn off the tap first and then sit down to negotiate with the governors”. But tensions increased and the “chainsaw” wreaked havoc. All this fueled the background to the failed session which was read as “revenge” in the Casa Rosada.
As revealed by an Ieral report, released in the midst of the debate in the governorates, the Executive sent in January only $200 million in transfers not automatic to the Provinces, compared to $46.8 billion sent in the same month of 2023, in constant terms. This meant a decline of 99.5% in real terms across all jurisdictions 13 of them did not receive a single peso.
THE more punished they were Catamarca, Formosa, La Pampa, La Rioja, Río Negro, Salta, Santa Cruz, Santiago del Estero and Tierra del Fuego, many linked to opposition Peronism. But also Córdoba – despite having officials in key sectors of the national administration – and the districts governed by JxC, such as Chaco, Chubut, Entre Ríos, Jujuy, San Luis, San Juan and Santa Fe.
Most of these funds go to the provinces and are administered by the Treasury outside of the partnership They are associated with the National Teachers’ Incentive Fund, the Fiscal Strengthening Fund of the Province of Buenos Aires, the so-called Financial Assistance to Provinces and Municipalities (ATN) and transfers to provincial pension funds.
Alberto Fernández had already begun to reduce them gradually after the pandemic, but Milei sliced them in all provinces with the exception of the City and Corrientes. “Even though January is a low execution month, it has never happened at this level, it’s something historic, “They want to act with all their might against the provinces.”They pointed to one of the leaders most affected by the adjustment.
Faced with the impact on the markets of the sinking of the Law of the Bases, which hit sovereign bonds and Argentine securities on Wall Street, the Government this Wednesday downplayed the nullification of the law and redoubled the fight by ratifying that it will “deepen” the law adjustment to obtain a further 0.8% of GDP, with an eye on the provinces.
In reality, if the Executive kept the tap closed as in January, Ieral estimates so Savings throughout the year could reach 1.1% of GDP, approximately 2 billion dollars. This is almost double the budget cut envisaged in the “table” that the Minister of Economy, Luis Caputo, presented to the IMF to reduce the deficit by 5% of GDP in 2024, something never done in a single year.
The plan took an uncertain turn two weeks ago, when Caputo amputated the tax package under pressure from governors (and exporters) to cancel the increase in withholding taxes and reduce delegated powers. The provinces then tried to participate in PAIS, but this too was discarded, as was the idea of reinstating income tax for 800,000 workers.
Amid these tensions, Milei suspended advances of funds to the provinces for the payment of salaries. The provision opened another front of conflict and Caputo backed down with the universities and national autonomous bodies that collect salaries at the Banco Nación, but maintained the constraint on provincial banks, forcing them to finance themselves with their own resources.
The other obstacle for governors was the loss in January of $280 billion in automatic transfers due to a lower collection of co-participation taxes and an increase in the minimum profit level promoted by Sergio Massa, with the support of Milei. According to the director of Iaraf, Nadin Argañaraz, they would have decreased by 11% in real terms on an annual basis, the lowest real value for January in the last 9 years.
Source: Clarin
