Double is spent on state – own companies than in the AUH

Inflation in January was close to 4% per month and food prices rose above 5%. Thus, there is further evidence that the food price controls, intensified in October of last year, are not working. In reaction to this failure, the government announced that it is analyzing the creation of a state-own food company. The idea is to intermediate between producers and consumers in order to have an additional tool to contain food price increases.

Although inflation is a multi-causal phenomenon, not all causes have the same influence. In the current context, the main inflation generator is excessive monetary printing. High fiscal deficits, with very limited access to public credit, lead to printing money in excess of what people are willing to keep. Part of the excesses are absorbed by the Central Bank with Leliqs and repos, but another part puts pressure on prices. That is why the most effective thing to do is to moderate the fiscal deficit. For this there are many things to be done, but the most urgent is to reduce economic subsidies.   

There are different types of subsidies. According to data from ASAP and the Ministry of Economy for the year 2021, economic subsidies fall into the following categories:

• Subsidies to the consumption of public services amount to 1.8% of GDP.
• Subsidies to the production of public services amount to 0.4% of GDP.
• Subsidies to federal state-own enterprises amount to 1.2% of GDP.

These data show that economic subsidies have a decisive impact on public finances (they represent 3.4% of GDP, an amount similar to the primary deficit) and heterogeneous characteristics. Consumption subsidies are those allocated to electricity, gas, and urban transport. Production subsidies are those allocated to energy production companies. Subsidies to state-own companies are those allocated to the payment of salaries and suppliers of state-owned companies, such as trains, Aysa, Aerolíneas Argentinas, Río Turbio, Correo Argentino, or companies created to face a state-created shortage, such as the former ENARSA (today Integración Energética) and other state-owned companies.

Disaggregating the information in this way, it is clear that the updating of utility fares is not the only challenge to lower economic subsidies. One area that deserves special attention is the state-own companies. One way to measure the flagrant social inequity of state-owned companies is to compare the 1.2% of GDP that they receive in subsidies with the 0.6% of GDP that the national government allocates to the Universal Child Allowance (AUH). In other words, for every $1 allocated to the main social program administered by the State, $2 are allocated to federal state-own companies. If one were to consider other state-own companies’ privileges (such as not paying all taxes), the inequity is even greater.   

State-owned companies are managed according to the interests of their suppliers and unions. Their imbalances do not always originate in insufficient fares but in mismanagement, suppliers overpricing, overstaffing, and salaries totally out of line with those paid in the private sector. They are a huge and irritating source of privileges and corruption.

Reducing subsidies is a priority, not because the IMF suggests it, but because it is the fastest way to moderate the monetary excess that generates inflation. To this end, the challenge is not limited to updating utility fares. More important is to put an end to the diversion of public funds to state-owned companies. For this reason, the project to create a public food company, which will not serve to moderate prices, but will increase inflationary pressures due to the monetary emission required to cover its deficit, is highly contradictory.