Agreement with Argentina: in addition to reducing energy subsidies, the IMF asks the government to prioritize children over pensioners

Agreement with Argentina: in addition to reducing energy subsidies, the IMF asks the government to prioritize children over pensioners

The President and the Minister in dialogue with the Director of the Fund

In addition to the emphasis on reducing energy and transport subsidies to reduce the budget deficit, the agreement with the IMF contains references to the expenditure of provinces and public enterprises and includes warnings on the distribution ” intergenerational” expenditure. More specifically, the Fund’s technicians believe that the government spends too much on the pension system (ie pensions and other benefits for the elderly) and very little on care for minorities.

Expenditure on the pension system, he points out, absorbs 40% of total expenditure, against only 5% for social assistance, and while 54% of those under 14 are poor, only 14% of the elderly are.

“Box 8” on page 46 of the staff report indicates that In addition to 40% of federal spending, social security spending accounts for 12% of provincial spending. Added together, these expenditures are around 10% of GDP “well above the OECD average (Organization for Economic Co-operation and Development, a sort of center for studies and statistics for rich countries) and more than double the average of other Latin American and emerging countries », says the IMF. These “high expenses”, he says, are due to “extensive coverage and generous benefit levels”. The proportion of pensioners and pensioners in the population over 65, he continues, is 140%, compared to 109% in OECD countries, which he explains is due to “a relatively low retirement age, pension moratoria that have added people with insufficient contributions to the contributory system (which now only covers 30% of pension expenditure) and “replacement rates” (i.e. say the average percentage of pensions in relation to salaries) of 90%, compared to 58% in the OECD and special countries. “generous” regimes, including at the provincial level.

High coverage, “generous” regimes and moratoriums

Earlier still, in section A of the staff report, on budgetary policies, in the part devoted to expenditure, after reviewing the question of subsidies (the most important, in the opinion of the Fund and the Minister of ‘Economy, Martin Guzman), the technicians specify that pension expenditure has fluctuated between 8.5 and 9.5% of GDP since 2015, “reflecting a combination of high coverage, generous general scheme and special schemes and non-contributory pensions (provisional moratoriums) “.

In the medium and long term, he continues, pension expenditure will increase by another 1.5 points of GDP and although the agreement does not envisage a “parametric” reform of the system, “The authorities have committed to carrying out and publishing a study on the fairness and sustainability of the system, including options that reform special schemes and encourage people to work longer.” The government, they recall, must present this study before the end of the year. And they advise to avoid “discretionary increases (in pension spending)”, because “they would harm budgetary objectives and the viability of the system”.

IMF backs advice on pension spending and social assistance with data on results "generational" on poverty
IMF supports its advice on pension spending and social assistance with data on “generational” poverty outcomes

On the other hand, the document points out that in social assistance, which has increased sharply during the pandemic, the government “is making efforts to rationalize and redirect transfers and encourage the participation of women and low-skilled workers in the labor market”. The accusation coincides with the official decision not to increase the number of social programs, which in recent weeks has caused an increase in blocks and mobilizations by piquetero organizations towards the Ministry of Social Development.

“Vast and Fragmented”

According to the IMF, improving the accuracy and effectiveness of public aid requires an assessment of “large and fragmented social protection programs”, a commitment that the government has also pledged to keep this year. The agreement with Argentina, say the technicians, includes the establishment of a “floor” of aid, focused on the good and precise management of programs such as the AUH, the food card and the Progresar plan, for scholarships.

“Particular attention”, underlines the organization, must be paid to “the intergenerational equity of expenditure”. This is where he points out that about 40% of federal spending in the country goes to pensions and retirement, compared to only 5% that goes to welfare programs such as the AUH, the Alimentar card and the Progress scholarships. These differences, estimate the technicians of the Fund, would partly explain the “very significant” differences according to which “54% of children under 14 live in poverty, against 14% of the elderly”. Therefore, they conclude the reorientation of spending, even at the provincial level, where the bulk of education and health spending is executed, “is essential to ensure that young people are equipped with the skills and human capital necessary to contribute to the economic development of the Argentina in the context of an aging society.

In a way, the document suggests a redistribution of poverty, even if neither the government nor the Fund would venture to say so bluntly.

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