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Contradictory Argentine policies mar stability hopes

Tuesday, May 9, 2017

Subject

The difficulties of economic policy-making.

Significance

The first-quarter primary deficit reached 0.4% of GDP, below the quarterly goal of 0.6%. The rise in revenues, mainly due to the tax amnesty that ended in March, helped offset higher spending in areas such as social security payments and capital investment, driven by the pre-election revival of public works. However, in the absence of extraordinary revenues during the rest of the year, it will be harder to meet fiscal targets.

Impacts

  • The lack of coordination between fiscal and monetary policies raises concerns over macroeconomic stability.
  • This will further discourage consumption and investment, preventing a sustained economic recovery.
  • Growing fiscal and external deficits will raise risks of a balance-of-payments crisis in the medium term.
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