Report Nº: 104214/11/2023


The macroeconomic disaster would be much worse if it were not for the fall in pension expenditure thanks to the drop in the real value of pensions caused by the high inflation. It is essential to organize the pension system instead of trying to freeze this situation by manipulating the pension indexing rule.

Although inflation is a multi-causal phenomenon, in Argentina the main factor is the chronic fiscal imbalances. For more than half a century, expenditures have exceeded revenues, forcing the country to finance the difference with public debt and monetary issuance. Excessive money issuance inevitably leads to inflation. This reality has increased the conviction that it is essential to reduce the fiscal deficit. 

Among the many things necessary to lower the fiscal deficit, an essential one is to moderate pension spending. The reason is that, within national public spending, the main component is pensions. There is no way to balance the public finances without addressing the pension imbalance, which tends to increase due to the aging population. A factor that makes the issue even more complex is that pension spending is rigid since it is entitlements.   

What has the government been doing regarding pension spending? To answer this question, it is useful to observe how pensions have been modified, in real terms, since September 2017, when the inflationary acceleration began. According to data from the Social Security Secretariat, it is observed that, at today’s values, between September 2017 and September 2023:

  • The average pension was reduced by 32% as it went from $212,500 at current values to only $143,800 in September 2023.
  • The minimum pension fell by 38% as it went from $142,000 at current values to $87,460.
  • If the $37,000 bonus paid in September 2023 is added to the minimum pension, the decrease is reduced to 12%.  

These data show that the adjustment in pensions is profound. On average, retirees lost almost a third of their pension real value in the last 6 years. Even those who benefit from the additional bonus –which the government discretionally pays– have lost 12% compared with the 2017 level. Using high inflation as a tool, the government reduced the purchasing power of pensions. While the payment of bonuses and early retirement schemes are announced, inflation makes the adjustment in the excess of public spending eroding the real value of pensions.   

The challenge for the next government is enormous. Since the indexing rule updates pensions with a lag, if inflation is reduced, pensions will tend automatically to recover the real value lost during the acceleration. This expansion of public spending is of a magnitude to destabilize the macroeconomy and prevent price stability from being sustained. As an example, in 2017 spending on pensions amounted to 8% of GDP with an average annual inflation rate of 27%, while in 2022 the average annual inflation rate was 72%, and spending on pensions fell to 6.3% of GDP. It is very difficult to sustain a stabilization plan if pension expenditures recover that 1.7% of GDP that has been eroded in the last 6 years.

A tempting alternative is to manipulate the pension index rule to avoid the recovery of the real value of pensions. This is an ethically questionable and financially inconsistent strategy since it will generate pension lawsuits that will ultimately imply an expansion of public spending. The only way to prevent pensions from being a factor of macroeconomic destabilization, which leads to high inflation rates, is to order the system. That is to say, to change the rules of the pension system to make it financially sustainable within a framework of more equity. 

It is inconsistent to desire to lower inflation and not talk about pension organization. Under the rules under which the pension system currently operates, inflation is essential. It is what makes it possible to reduce pension expenditure. If there had been no inflation in recent years, the fiscal deficit would have been much higher and, therefore, the money issuance needed would have been even higher. If the next government intends to stabilize prices, it must necessarily address the pension issue and assume that the challenges increase along with demographic aging.  


Highly effective reporting to reveal accurate information on a wide range of research areas.
Consult us about your project to provide you with the solutions we have at your disposal.