In Argentina having fiscal deficits is a “State Policy”

It is very common to assign the responsibility for Argentina’s decadence to the “fracture” that prevails among political and economic ideas. The point is that there are two visions of development that are antagonistic and irreconcilable. Neither has enough support to impose itself, but both have enough support to block each other. This leads to a situation of “stalemate” that makes it impossible to sustain “State policies” leading to progress.

The “fracture” is not a new phenomenon in Argentina’s political history. Since Perón’s first governments, more than 60 years ago, there have been “fractures” between Peronists and Radicals or between both against the military. The prevalence of confrontation in the political debate leads to the idea that what is needed in Argentina is the converge to “State policies”. According to this diagnosis, it is essential to get out of the “fracture” and agree on strategies that transcend the political ideas of the moment.

The question is whether there is indeed a lack of agreements to sustain “State policies” in Argentina. To shed light on the subject, it is useful to analyze public finances in the last 6 decades ordered according to the political color of the administrations. According to the Ministry of Economy, from 1961 to 2019 (excluding Covid), it is observed that:

• Peronists governed approximately 27 years and, in that period, only 90% of the total public expenditure was covered with public revenues.
• The Radicals governed, alone or in alliances, for about 18 years and in those years only 78% of total public spending was covered by public revenues.
• The military governed for about 14 years and in those years only 82% of total public spending was covered by public revenues.

These data show that there was no “fracture” in the administration of public finances, but rather a solid agreement on spending above revenues. This was sustained regardless of the political color or ideological content of the governments. It is no exaggeration to state that having fiscal deficits constitutes a “State policy” in Argentina. Thus, the thesis that the main Argentine problem is the disagreements due to the “fracture” is weak. On the contrary, there is a great consensus among the different political forces around fiscal indiscipline as a “State policy”.

Neighboring countries offer illustrative testimonies on this issue. Chile, since it regained democracy in 1990, has kept to the path of fiscal discipline. This allowed it to maintain macroeconomic stability, resulting in a per capita Gross Domestic Product (GDP) growth of 140% since that time. Chile is preparing to be governed by a new president who defines himself as a “revolutionary”. However, he makes it clear that he will not abandon fiscal prudence. The other case is Uruguay, which after the great crisis of 2002, decided to adopt fiscal solvency as a “State policy”. This allowed it to increase its GDP per capita by 50% so far this century. This policy is led by the current center-right government, but it was the “Frente Amplio”, a coalition made up of 23 left-wing parties, who conceived it.

Closely linked to the policy of spending beyond available resources are the 21 credit operations signed by Argentina with the International Monetary Fund (IMF) in the last 60 years. This implies an average of one operation every 3 years. This is not the result of the IMF’s ruthlessness against Argentina, but of Argentina’s insistence that the IMF finance its “State policy” of spending beyond its means. It is not by chance that Chile and Uruguay have not had any IMF bailout operation for decades.

The central problem is not the “fracture” that prevents reaching a consensus on “State policies”. The core issue is that in a large part of the political spectrum and society there is an agreement (or at least tolerance) on the idea that it is possible and necessary to have fiscal deficits. Until awareness comes that this is a wrong “State policy”, which leads to debt and emission excesses, Argentina will continue on the path of decadence.