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In February purchasing power will be lower than after the 2001 crisis

In this scenario, the Government reached the long-awaited fiscal surplus in Januarybut according to the report of the Institute for Argentine Social Development (IDESA)one of the main research centers on pension issues, was achieved at the expense of the real reduction in spending on retirement and pensions.

This analysis is based on numbers released by the Congressional Budget Office (CBO) which show the forecast items that explained the surplus in the month.

Strong pension adjustment as a driver of the fiscal surplus

As the OPC explained: “By a greater decline in expenses, basically linked to social benefits, than the drop in collection, during January the National Administration recorded a real financial surplus 77.2% higher than that obtained in the same month of the previous year.

And he specified that the primary surpluswhich does not take into account the payment of interest, It was 105.2% higher than that obtained a year ago.

While, Total revenues contracted 1.3% year-on-yeardriven by the falls in resources from Social Security (-26.5% year on year) and of Income Tax (-40.3% year on year)partially offset by increases in the COUNTRY Tax (411.6% year on year) and in the Export Duties (88.5% year on year). Partly due to the improvement in the exchange rate, partly due to regulatory changes.

The total expenses of the National Administration registered a real drop of 11.9% year-on-year in January and the cut in primaries reached 30.8% in the same period.

The retirements and pensions fell 32.5% compared to the same month last year, while the social programs did so 59.6% and the personnel expenses 18.0% being the items that contributed the most to the reduction of expenses. Social programs were influenced by the lack of registration of some programs.


The purchasing power of the minimum retiree in February could be lower than in 2002

According to the IDESA report, the minimum retirement in 2002 was $83,078 at December 2023 prices (that is, transferring the purchasing power of the peso from the last month of last year to last to allow comparisons).

By contrast, The average value throughout 2023 amounted to $127,858, adjusted for inflation. However, in December 2023, the figure dropped to $105,713evidencing a persistent deterioration in the purchasing power of pensions.

Thus, with an average inflation of 20% in January 2024, The real value of the pensions in that month would have been equivalent to $88,094 at December 2023 prices. This trend suggests that, by February, the real value of pensions would be even lower than that recorded in 2002marking the lowest point in the 21st century.

Problems that this way of achieving fiscal balance could generate

The IDESA report makes a series of warnings regarding the problems that this route may experience in trying to achieve fiscal balance:

The adjustment strategy based on retirement liquefaction not only does it have a regressive impact and generates political tensionsbut also increases lawsuits against ANSES. In this sense, it stands out that historically pension justice was not adept at tolerating the reduction in the real value of pensionswhich poses additional challenges for the sustainability of this policy because the savings achieved can be reversed in court.

Despite these challenges, the Government remains firm with the goal of zero deficit with the argument that it is essential to eliminate inflation and create a favorable environment for investment and the generation of quality employment. However, the report warns that the perception of economic agents about the long-term viability of fiscal balance is crucial. Social, political and judicial resistance can dilute the expected benefits of these policies..

To move towards a more sustainable fiscal balanceIDESA recommends a comprehensive approach that includes the unification and simplification of taxesas well as the responsibility of each level of government to generate sufficient revenue to cover its expenses. Furthermore, it suggests eliminate overlaps between levels of government, organize the pension system and improve public management.

“As past experiences demonstrate, the adjustment for liquidation of pensions leads to wasted efforts, both by society and the government”says IDESA.

The current situation of retirements in Argentina, according to IDESA, reflects a deep problem that requires structural solutions. The reduction in the real value of retirements and pensions not only affects retirees, but also raises questions about the State’s capacity to guarantee a fair and sustainable pension system.

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