Argentina Sends Mixed Signals on Plans to Tackle Fiscal Deficit

Argentina Sends Mixed Signals on Plans to Tackle Fiscal Deficit

03/07/18 - 15:44 - Government maps out compliance with record IMF credit line. Treasury minister at odds with cabinet chief over air taxes.

Argentine leaders have kicked off the week by sending conflicting signals about how they plan to rein in the fiscal deficit in keeping with a record $50 billion IMF credit line agreement.

On Tuesday, Cabinet Chief Marcos Pena told radio station La Red that a tax on airplane tickets is a discussion "on the table" for international flights, in addition to a existing tax on airfares, just a day after Treasury Minister Nicolas Dujovne appeared to rule out any such measures.

Dujovne, named by President Mauricio Macri to coordinate the budget across ministries, on Monday told investors that the government won’t add taxes on expenditures abroad, and won’t return to capital controls. Transport Minister Guillermo Dietrich clouded that message when he spoke of “many different options in front of the work that the Treasury Ministry is doing for the next year’s budget -- there isn’t anything defined.”

Macri’s economic team has given markets mixed messages throughout 2018 while the peso has weakened 34 percent, the worst performance in emerging markets. The central bank cut interest rates in January, then sharply raised them in April and May amid a currency selloff.

Argentine officials are seeking to regain investor confidence by accelerating spending cuts as part of the International Monetary Fund credit line finalized last month. The government is targeting a fiscal deficit of 2.7 percent of gross domestic product for this year and 1.3 percent for 2019.

The tax, if imposed, will help boost government revenue but at some political cost. Many Argentines travel abroad, reflected in a $8.6 billion net deficit on outbound tourism last year, which includes airfare and overseas credit card purchases, according to central bank data.

--With assistance from Ignacio Olivera Doll es un sitio web oficial del Gobierno Argentino