In the initial month of 2024, Javier Milei’s administration registered a primary surplus of 0.2% and a favorable trade balance of nearly US$ 800 million. This was achieved by curbing expenses, liquidating payments, and a reduction in imports due to the dollar shortage and decreased consumption. Analysts suggest that while the trade balance will remain positive due to the ongoing recession, managing the primary surplus could become more challenging in the forthcoming months.
The trade balance for January revealed a surplus of US$ 797 million due to a 9.6% year-on-year increase in exports and a 14.3% drop in imports.
Furthermore, Minister Luis Caputo reported a 0.2% primary surplus of GDP in January and managed to achieve a financial surplus – the balance after servicing debt interest – of 0.05% of GDP. This is the first time this milestone has been achieved since mid-2012.
Consequently, the twin surpluses made a comeback in the first month of the year. The last president to sustain twin surpluses was Néstor Kirchner.
PPI analysts have raised concerns about the sustainability of these figures throughout 2024, given that neither liquidation nor import restriction can be indefinite.
LCG suggests that while the government’s direction is clear, real progress is yet to be made. They claim that the January primary surplus was primarily due to a slowdown in payments. In fact, the Treasury paid less than half of the month’s accrued commitments. The outstanding debt, equivalent to the primary result shown, stands at $2 billion. Without this accounting effect, the financial surplus would not have been as significant.
In addition to controlling expenditure, the government cut real spending by 39% and social benefits by 30%, resulting in a 38% loss for retirees.
LCG believes that the government’s push for fiscal convergence is noteworthy, but the IMF, during its recent visit to the country, demanded more enforcement for proposed changes to be perceived as sustainable over time and to establish growth foundations.
Economist Salvador Vitelli from Romano Group predicts that for the remainder of the year, the main challenge will be fiscal rather than commercial. According to him, the current exchange contracts imports and boosts exports.
Vitelli suggests that the government will continue to strive for a fiscal surplus, but this might become more difficult in the second half of the year. This is mainly due to a significant part of the adjustment being the liquidation of items, meaning that the entire spending structure is not being restructured but rather inflation is taking the hit. He warns that this is not sustainable and risks perpetuating high inflation.
Aldo Abram, an economist from the Libertad y Progreso Foundation, cautions, “Having twin surpluses is not always beneficial, it’s a myth”. He argues that while a financial surplus resulting from good public account management is positive, a surplus resulting from a decrease in consumption is not. He doubts the sustainability of this situation over time.
According to Abram, the aim should be to attract external investments and capital inflows that facilitate growth and investment, with spending exceeding capabilities, financed not by the Central Bank but by the private sector. He observes that successful emerging countries tend to have trade balance deficits rather than surpluses.
