In February the minimum retirement will be lower than in the 2002 crisis

Retirements and pensions fell 32.5% year-on-year in January in real terms, that is, taking inflation into account (Reuters)

The minimum retirement In Argentina, in February it would reach a real value – that is, expressed in terms of purchasing power – lower than that recorded during the economic crisis of 2002. This data arises in a context where The national government achieved a fiscal surplus in Januaryan achievement that, according to the analysis, was largely based on the real reduction in spending on retirements and pensions.

The estimate corresponds to a report from the Argentine Institute for Social Development (IDESA) that highlights that the efforts of the Government of Javier Milei to balance public accounts and maintain the goal of zero deficit had a significant impact on the purchasing power of retirees. The reduction in the real value of retirements and pensions is identified as the most decisive factor behind the financial surplus of 0.2% of GDP achieved in January. It was the factor that weighed the most and the sector that, until now, had borne the greatest efforts.

The analysis is based on numbers published by the Congressional Budget Office (CPO) that show which items were the ones that explained the surplus in the month.

“Due to a greater decline in expenses, basically linked to social benefits, than the drop in collections, during January the National Administration recorded a real financial surplus 77.2% higher than that obtained in the same month of the previous year,” said the OPC and detailed below:

  • The primary surplus, which does not take into account interest payments, was 105.2% higher than that obtained a year ago.
  • Total revenues contracted 1.3% year-on-year, driven by falls in resources from Social Security (-26.5% year-on-year) and Income Tax (-40.3% year-on-year). year), partially offset by increases in the PAIS Tax (411.6% year-on-year) and in Export Duties (88.5% year-on-year). Partly due to the improvement in the exchange rate, partly due to regulatory changes.
  • The total expenses of the National Administration registered a real drop of 11.9% year-on-year in the first month of the year and the cut in primaries reached 30.8% year-on-year.
  • Retirements and pensions (-32.5% year-on-year), social programs (-59.6% year-on-year) and personnel expenses (-18.0% year-on-year) were the items that contributed the most to reducing expenses. Social programs were influenced by the lack of registration of some programs.

To understand the magnitude of this reduction, IDESA examined the evolution of minimum assets, which better reflects the mobility of retirements over time. According to the report, The minimum retirement in 2002 was $83,078 at December 2023 prices (that is, transferring the purchasing power of the peso from the last month of last year to the past to allow comparisons). By contrast, The average value throughout 2023 amounted to $127,858, adjusted for inflation. However, In December 2023, the figure dropped to $105,713evidencing a persistent deterioration in the purchasing power of pensions.

The analysis projects that, Assuming an approximate inflation of 20% in January 2024, the real value of pensions in that month would have been equivalent to $88,094 at December 2023 prices. This trend suggests that, For February, the real value of pensions would be even lower than that recorded in 2002, marking the lowest point in the 21st century. Even below the values ​​of the last great Argentine economic crisis.

The IDESA report makes a series of warnings regarding the problems that this route may experience in trying to achieve fiscal balance. The institute emphasizes that the adjustment strategy based on the liquefaction of pensions not only has a regressive impact and generates political tensions, but also increases legal claims against Anses. Pension justice, historically, has not tolerated the reduction in the real value of pensions, which poses additional challenges for the sustainability of this policy because the savings achieved can be reversed in court.

Despite these challenges, the government maintains its commitment to the zero deficit goal, arguing that it is essential to eliminate inflation and create a favorable environment for investment and the generation of quality employment. However, the report warns that the perception of economic agents about the long-term viability of fiscal balance is crucial. Social, political and judicial resistance can dilute the expected benefits of these policies.

“The adjustment due to the liquefaction of pensions leads to wasted efforts, both by society and the government” (IDESA)

To move towards a more sustainable fiscal balance, IDESA recommends a comprehensive approach that includes the unification and simplification of taxes, as well as the responsibility of each level of government to generate sufficient revenue to cover its expenses.. In addition, it suggests eliminating overlaps between levels of government, organizing the pension system and improving public management. These measures require innovative ideas and the ability to implement them effectively.

The report concludes that, although the government has demonstrated ideas, it lacks the political and technical expertise necessary to carry out these reforms. “As past experiences demonstrate, the adjustment due to pension liquefaction leads to wasted efforts, both by society and the government,” says IDESA.

The current situation of retirements in Argentina, according to IDESA, reflects a deep problem that requires structural solutions. The reduction in the real value of retirements and pensions not only affects retirees, but also raises questions about the State’s capacity to guarantee a fair and sustainable pension system. The strategy to achieve this balance needs to be reconsidered, in the opinion of the economic studies center.

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