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Informe Mensual Económico Financiero N° 342 – Agosto de 2018

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On the fiscal front there is good news: the overcoming of the primary result goals in

the first semester. Revenue grew 26.3% and primary expenditure 19.3%. Thus, the

primary deficit was 0.8% of the GDP and leaves a margin of 1.9% for the rest of the

year which, in turn, is consistent with increases of 22.6% and 17.5% in revenues and

expenses.

Fiscal consolidation is essential because the primary result goal for 2019 looks

demanding: 1.3% of GDP for the whole year, with increases of 22.5% and 14.5% in

resources and expenses, respectively. On the revenue side, the contribution of the

inflation tax, if the targets were met, would not be as relevant as in 2018; on the other

hand, decelerating spending so strongly, when a substantial part of it is virtually

indexed with lag (pensions and Universal Assignment by Child) will not be easy.

The fiscal improvement would consolidate the lowering of the risk Premium already

observed in July, allowing a more comfortable roll

over of the public debt (64.5% of

GDP by mid-2018 according to IMF), in particular from the LETES stock (9.5 billion

dollars until the end of the year) which shows a strong concentration between

September and November. The renewal rate, 96% in the first four months, fell in May

and June (60%) recovering to 78% in July. With risk premiums below 450 points, the

renewal would be higher.

There are signs of a decrease in the real demand for money, particularly transactional

(circulating in the public, deposits in current account and savings), associated with

the acceleration of inflation and the existence of a “plethora” in the second half of

2017. The good news is that part of the funds withdrawn from the LEBAC turned to

fixed-term deposits in pesos that grew about 9% in July compared to June.

The programme faces several challenges: i) a demanding inflation target for 2018

(and also for 2019); ii) a strong dependence on financing; iii) the need to correct high

current account deficits. In that sense , the programme with the IMF is a bridge to the

third quarter of 2019, when, after the elections, whoever triumphs in the elections

must pass from the stabilization phase and correction of distortions( the tariff for

example) to address a medium-term agenda.

El IAEF agradece la colaboración de la Sra. Marta Álvarez – Executive English en la traducción de

esta Síntesis Ejecutiva.