BUENOS AIRES, March 22 Argentina's provinces
have agreed to craft a new law with the federal government that
would prevent provincial spending from rising faster than
inflation, the Treasury Ministry said in a statement on
The proposed law, which would have to be approved by the
country's Congress, comes as President Mauricio Macri aims to
cut Argentina's fiscal deficit in part to lower the country's
high borrowing costs.
Last month, Treasury Minister Nicolas Dujovne announced
targets for a primary deficit of 4.2 percent of GDP this year,
3.2 percent next year and 2.2 percent in 2019. Last year's
fiscal deficit was 4.6 percent of GDP.
But as Argentina's 23 provinces and the autonomous city of
Buenos Aires depend on transfers from the central government for
a substantial portion of their revenue, a failure to reduce
provincial spending could complicate the federal government's
own deficit-reduction efforts.
Federal transfers to provinces increased to 1.8 percent of
GDP in 2016, according to JPMorgan Chase & Co. Several
provinces have followed the national government's lead in
tapping international bond markets after Macri ended a dispute
with holders of defaulted debt last year.
According to the Treasury Ministry's statement, the
so-called 'Fiscal Responsibility Law' would freeze current
account spending in real terms and require that primary spending
- which does not include payments to service debt - remains
below inflation through 2019.
The statement did not say when the proposal could be sent to
the country's opposition-controlled Congress, and a Treasury
Ministry spokesman did not respond to a request for comment.
Though he had some early successes in pushing bills through
an opposition-controlled Congress, Macri has run into increasing
resistance to his agenda of market-friendly reforms. Late last
year, lower house opposition forced the administration to
re-negotiate its income tax reform, while a proposed capital
markets reform package has yet to be considered.
Dujovne is also preparing to present a reform to the
country's tax code to Macri, though Congress is not expected to
debate it until next year.
Popular opposition to Macri's austerity measures, including
cuts to electricity and home-heating natural gas subsidies, is
growing. More Argentines now disapprove than approve of his
performance for the first time since he took office in December
2015, and the country's largest labor union has planned a
general strike for April 6.
(Reporting by Luc Cohen; Editing by Lisa Shumaker)