[Fiscal] January primary fiscal result – the first January with deficit since 2015 – surprised on the downside. We adjust our forecast for the year to -0.7% from -0.4%. For the first time in 22 months, primary spending grew more than income. The most important spending increases were social security (+61.5% YoY), economic subsidies (+76.4% YoY), mostly energy (+125.5% YoY), and Transfers to provinces (+83% YoY). Capital spending, on the other hand, was reduced (-35.2% YoY).
The government responded by announcing an 3% increase of the export taxes for soybeans and derivatives, a measure that would imply 0.1% of GDP in revenue. As we stated in our previous weekly report (See Seido – Weekly Report N°21) export tax collection will probably recover throughout the year. However, “temporary” expenditure increases will most likely become permanent (particularly economic subsidies) we no longer believe 0.4% is feasible.
[Prices] Positive surprise on inflation, with current week preliminary printing in only 0.2% WoW (vs. 0.5% WoW previous week), and Core on 0.1% (vs. 0.5% WoW previous week). We adjust our expectations for the month to 2%.
[Markets] La Rioja started consultations with bondholders as the province might not accomplish its interest payment of the RIF25. The national government issued a Badlar adjusted ARS bill (LEBADs) placing ARS 2.4bn (vs ARS 7bn of debt maturity). Additionally, it performed another exchange for the AF20 with a Badlar bond maturing at 2021 by ARS 6.9bn. The acid test in ARS debt is the A2M2 that matures next week by ARS 60bn. The risk of unilaterally extending maturity by the government, as the AF20 cannot be dismissed.
[Fiscal]
January primary fiscal result – the first January with deficit since 2015 – suprised on the downside. We adjust our forecast for the year to -0.7% from -0.4%.
For the first time in 22 months, primary spending grew more than total income – This was reflected in a primary deficit of ARS -3.8bn, the first deficit in January since 2015 in line with what we anticipated – See Seido – Weekly Report N°21.
Total income and Primary spending
Yoy % change
- On the spending side, the most representative rise were:
- Social spending (61.5% YoY), which included the temporary bonus of ARS 5,000 from the emergency program. For the rest of the year, the modification of the mobility rule that is indexed all the pensions and most of the social programs will be key for reducing the annual growth.
- Economic subsidies (+76.4% YoY), mostly energy subsidies (+125.5% YoY). This result was affected by the tariff freeze, which increased the delinquency from provincial entities to Cammesa from 4% to 30%. The worsening of this item should be expected to be temporal, however, we still have some doubts about whether the tariffs will be unfrozen in the future.
- Transfers to provinces (+83% YoY) in the middle of a high workload in congress.
- On the other hand, capital spending was reduced by -35.2% YoY, which implies a reduction in public investment
The government responded to the result announcing an 3% increase in export taxes for soybeans and its derivatives, implying about 0.1% of GDP. As we stated in our previous weekly (See Seido – Weekly Report N°21) export taxes will probably recover throughout the year. However, “temporary” expenditure increases will most likely become permanent (particularly economic subsidies) we no longer believe 0.4% is feasible.
[Prices]
Positive surprise on inflation, with current week preliminary printing in only 0.2% WoW (vs. 0.5% WoW previous week), and Core on 0.1% (vs. 0.5% WoW previous week). We adjust our expectations for the month to 2%.
4-weeks monthly inflation
[Markets]
La Rioja started consultations with bondholders as the province might not accomplish its interest payment of the RIF25.– Although the amount represents less than USD 15m, the provincial government stated that it has issues to affront this payment and started consultations with the bondholders in order to restructure the disbursements.
La Rioja USD bonds service 
The government issued an ARS bill adjusted by private Badlar (LEBADs) placing only ARS 2.4bn vs ARS 7bn of debt maturity. Additionally, it performed another exchange of the AF20 with a Badlar bond maturing at 2021 by ARS 6.9bn. The ARS Badlar issued matures on August 28th of 2020, placing ARS 2.4bn at an APR of 39.55%. The exchange bond matures on August 2021, performed by ARS 6.9bn with an APR of 33.6%.
The government is moving slowly according to its own debt restructuring schedule – The treasury still has pending items from February:
- Selection of Information Agents from the proposals received
- The signing of the Information Agent Hiring Letter
- Selection of Distribution Agents and/or Financial advisors from the proposals received, and the signing of the hiring letter from these.
- Elaboration of a report based on the comments of public external debt holders.
The government is advancing with its renegotiation schedule, stating that it has opened the proposition period for the signing of Distribution Agents and/or Financial advisors. According to the newspaper Ambito Financiero, there are four candidates for the advisor position: Citi, Global Sovereign Advisory, Rothschild & Co., and Lazard.
To stay on schedule, next week the government should define the final structure of the restructuring offer, and the question and answers instance of the offer distributed by the Distribution Agents.
