Painting without numbers

President Javier Milei ensured that he had the first word on the 2025 Budget last Sunday evening (replacing his Economy Minister Luis Caputo for a centre-stage presentation) but will he have the last? By quoting the “no taxation without representation” foundational principle of the United States, Milei would seem to be assigning that last word to Congress but is that what he really wants?

The adamant tones lent weight to taking at face value a conceptual speech which did far less to define next year’s budget (about which it had almost nothing to say) than to lay the foundations for all budgets to come but could its intransigence also be read as inviting rejection? The gratuitously provocative command to provincial governments to slash their spending by US$60 billion in a speech almost bereft of any numbers hardly boosts the Budget’s chances when no less than 162 of the 257 deputies represent the hinterland. Provoking defeat could also turn into a double victory by again posing as a victim of the “caste” with a renewed outburst of cultural wars while proceeding merrily to rule by decree behind the sulking.

That is not an inevitable scenario and perhaps not even the outcome desired by Milei – Congress defeats create doubts about governance which are extremely negative for the overseas investment assiduously sought by this administration with its RIGI major investment incentive scheme. The latter could be the template for what is to come for the 2025 Budget in the form of the infinity of concessions eventually leading to Congress approval of a shrunken ‘Ley de Bases’ but also containing RIGI – indeed Milei’s maximalist stance last Sunday might also have that experience in mind on the logic of only obtaining half of the requested still being a substantial gain.

The above questions are legitimate but time to examine Milei’s Budget presentation at its face value without speculation about hidden agendas, ulterior motives or intentions. The core of the “historic” speech is obviously enshrining balanced budgets within extremely narrow parameters. While Argentina has suffered unduly from pro-cyclical spending (squandering surplus in the good years to have nothing to face crises), Milei’s leapfrogs the anti-cyclical spending successful elsewhere (saving in the fat years to spend more in the lean) to an absolute fiscal balance – if revenues overshoot expectations, taxes will be cut while if the intake falls short, state spending will just have to absorb further hits. Previous budgets defined the spending and then went looking for funding – Milei turns this process on its head by first estimating the available revenue and then gearing the items of spending to that anchor. Conceptually hard to dispute – even left-leaning ex-president Cristina Fernández de Kirchner has suddenly lurched from insisting that printing money is not inflationary to urging Peronism to respect fiscal balance.

Yet Milei’s 43-minute speech was anything but a presentation of the 2025 Budget, which still entered Congress by a back door and the numbers are to be found there. Not even this entire page would suffice to look at all those numbers but several have already been questioned, starting with inflation. Not only is the 18.3 percent forecast for next year wildly optimistic since it implies a monthly inflation well under 1.5 percent when breaking the four-percent barrier continues to be a formidable challenge – not content with promises for next year, Caputo is insisting that inflation will fall below his crawling peg devaluation of a monthly two percent now by downscaling this year’s inflation to 104.4 percent, some 20 points below the Central Bank’s REM forecast. The 18.3 percent figure might stand a chance amid a steep recession but the 2025 Budget is forecasting five percent growth for next year.

Another figure sending alarm-bells ringing (apart from the required provincial spending cuts) is doubling the revenue from the export duties which this government has pledged to eliminate. Bad news for farmers if export duties are to be brutally increased and unlikely to win votes for the 2025 Budget from the deputies of agricultural provinces but could this estimate conceal a liberation of the exchange rate for export dollars which would be a win-win situation for both sides, doubled revenues with farmers laughing all the way to the bank (but throwing other parts of the Budget out of whack)? And talking of the exchange rate, still no word on ending the ‘cepo’ capital and currency controls.

All questions among many remaining to be answered in a process beginning with great fanfare on Sunday evening but far from over.