The fiscal adjustment plan launched by the Argentine Government has unleashed a growing conflict with the provincial governors, whom the president, Javier Milei, accuses of block his ambitious economic reforms, while his Administration deepens the cut of funds transfers to the country's districts.
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The confrontation is increasing: from the verbal exchanges, it went to Justice – several governors have gone to federal courts and the Supreme Court – and now several oil provinces threaten to cut off the supply of hydrocarbons next Wednesday if the national State does not transfer them the funds they claim.
Of the 23 Argentine provinces, plus the autonomous city of Buenos Aires, none is governed by La Libertad Avanzathe right-wing formation led by Milei, who assumed the Presidency on December 10.
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Although there are governors who are clearly opposed to the new Administration and others who are more “dialogue-minded”, all districts have been affected by the fiscal adjustment plan equivalent to 5% of GDP undertaken by Milei and by his reform package aimed at deregulating the economy and which was reflected in a decree signed by the president in December and in the draft of the so-called 'omnibus law', whose parliamentary debate foundered.
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Milei places much of the blame for this legislative failure on the deputies who voted against the project – or part of it – following the political orders of the governors of the provinces to which they belong.
Many provincial leaders, in turn, accuse Milei of trying to clean up national public accounts by placing the provinces as an adjustment variable and refusing to give them a greater participation in the distribution of taxes collected at the federal level.
The numbers from the public accounts in January show a significant cut in transfers from the national State to the provinces.
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According to a report by the Argentine Institute of Fiscal Analysis, Expenditure on total transfers in January “turned out to be the lowest real value for a month of January in the entire period 1993-2024”.
Provincial accounts are affected in various ways.
On the one hand, there are the automatic transfers that the national State must make for the distribution of federal taxes, which have decreased in real terms.
On the other hand, there are non-automatic transfers, which fell 82.8% year-on-year in real terms in January and are divided into current transfers (financial assistance to provinces, educational funds, shipments to provincial retirement funds, among others) and capital (funds destined for public investment).
Tax sharing and discretionary transfers have a lot of weight in the income of the provinces, especially in those in the north.
Current transfers fell 72% year-on-year in real terms in January.
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Regarding capital expenditures, “transfers to the provinces were cut almost entirely in energy, transportation and housing, while in education and drinking water and sewage they were reduced by more than 96% in real terms year-on-year,” he noted. CMF bank in a report.
“Tax sharing and discretionary transfers have a lot of weight in the income of the provinces, especially those in the north. In these provinces, 74% of their income comes from tax sharing and 9% from discretionary transfers,” Leonardo Piazza, director of the consulting firm LP Consulting, told EFE.
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Tax sharing and discretionary transfers have a lot of weight in the income of the provinces, especially in those in the north.
The cuts have greatly strained relations between the national Executive and the governors, whom the president called this Friday “fiscal degenerates.”
The province of La Rioja went to the Supreme Court to request that the application of the Milei decree is suspended and threatens to issue a 'quasi-currency' (a substitute currency for the peso) to be able to cover its expenses.
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La Pampa also went to Court, but to claim for the removal of transportation subsidies. Chubut, for the same reason, already achieved a favorable ruling in a lower court.
For its part, Río Negro and Misiones sued the national State last week for not sending to the provinces the teacher incentive funds that are used to pay about 15% of teachers' salaries..
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And now Chubut threatens to cut off its gas and oil supply if it does not receive the funds it demands, a decision that has been supported by the majority of provinces.
A political trial of Milei?
Javier Milei's Executive ruled out this Monday that there is any “governance problem” in Argentina that could lead to a political trial, despite to the lack of parliamentary support that the libertarian party has and the fight with the governors of the provinces over the fiscal adjustment.
The presidential spokesperson, Manuel Adorni, stated this Monday in his usual press conference at the Casa Rosada (seat of Government) that “in no way is there a problem of governability” in Argentina, a country that, in his opinion, “is in a process more mature than in other times”.
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The spokesperson commented that The Executive is not “willing” to “start lying or doing things” for which the citizens did not vote for Mileiin the event that there was that governability difficulty for which he was consulted, and described in his personal capacity as “something childish” to want to “promote a political trial.”
On February 22, the senator of Unión por la Patria (Peronism) José Mayans stated that the president “has altered mental faculties”, so he asked “that a psychological examination be done” to know “if he is in a condition to lead the country.”
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The spokesperson noted that It would be “ridiculous” if, in less than three months after taking office as president of Argentina, which occurred on December 10, “there is an attempt to promote a political trial”.
Adorni reiterated that Milei's Executive maintains the objective of “transparenting some issues that had a lack of control” and of preventing, in the face of the governors' arguments, that they continue to “live at the expense of Argentines.”
The libertarian, who returned this Monday from the United States, where he participated in the Conservative Political Action Conference (CPAC), will offer the 1st. March, his first speech before the General Assembly at the opening of sessions in Congress.
EFE
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