Budget, hydrocarbons law and debt: how the government’s economic agenda continues after the PASO

Martín Guzmán will send the new budget and the hydrocarbons promotion law to Congress this week. Photos: Charly Azcue / Senate Communication.

After the primary elections, the Government’s economic agenda will continue in the coming days with important announcements, the debate of a bill that the Ministry of Economy considers key and the first payment of capital to the International Monetary Fund, at the same time that the resolution of a new financial program is being debated.

The roadmap of the Palacio de Hacienda will continue this week with two decisive elements of its economic policy. First, on Wednesday he will present the 2022 Budget to Congress. In that project, the minister Martin Guzman it will clear up some of the doubts that still persist about the vision that the ruling party has, for example, regarding inflation.

It happens that the Budget will have, in addition to the projections, goals and allocations of funds for next year, a kind of “Update” of the estimates for the remainder of 2021. And one of the indicators that the Ministry of Economy will have to recalibrate, in that sense, will be that of inflation with which it will end this year. The calculation of 29% per year with which it started from the base was outdated only with the rise in prices in the first quarter.

Market estimates speak of a CPI that should end in 2021 in a range closer to 47 or 48%, meanwhile the Government’s objective, once the reference of that 29% per year is “lost”, is that -with nominality whatever it takes – wages beat inflation, and that the monthly price index begins in the coming months with a 2, in a place of 3% that still persists.

The 2022 Budget will also provide other decisive data for the future. One of them will be the level of fiscal deficit that the national government expects to go through next year. The number will not only be key because from it it can be inferred how much money the Treasury will need to raise among investors in the local market and how much should be the assistance of the Central BankBut because this indicator is also part of the hard core of negotiation with the IMF.

Most private analysts expect that this year will end with a primary deficit – not counting the payment of interest on debt – lower than the one proposed by the Ministry of Economy in the 2021 Budget, which was 4.5% of Gross Domestic Product .

This “overcompliance” with the official goal responded to the fact that the treasury’s income was higher than expected by the rise in international commodity prices -and the collection of more export duties than that implied- and the collection of the extraordinary contribution to the great fortunes. On the spending side, however, some relevant items such as social spending and retirement spending had a cut in real terms.

Congress will receive the 2022 Budget this Wednesday
Congress will receive the 2022 Budget this Wednesday

The market and the opposition also expect other official projections of the new Budget: among them, what the expected value of the wholesale dollar will be during 2022, GDP growth, spending on subsidies after a year in which public services increased in the single digits after an internal dispute between two wings of the Frente de Todos, which included an unsuccessful request for the resignation of the undersecretary of Energy Federico Basualdo.

The Government plans to present, on the same day that the Budget reaches parliament, another legislative initiative that it considers key: the new regime for the promotion of hydrocarbon production, a project that required between eight and nine months of design by the Ministry of Economy in conjunction with YPF.

The announcement of the project to boost oil and gas activity (conventional and unconventional) will be made by the president Alberto Fernandez together with Minister Guzmán and the Secretary of Energy, Darío Martínez, in an act in which unions, oil companies, governors of producing provinces and organizations of SMEs and regional companies will be present.

After a couple of weeks in the Legal and Technical Secretariat, the last step that the text of the law prepared by the Palacio de Hacienda and the main energy company in the country had, the Secretary of Energy said he was “very satisfied because the consultation work and participation carried out, the preparation of the text came to an end, and we already have a bill to drive the activity ”.

The market and the opposition also expect other official projections of the new Budget: among them, what will be the expected value of the wholesale dollar during 2022, GDP growth, spending on subsidies

The different chapters of the text of the law will establish promotion regimes for the oil, gas, large infrastructure works and also for special projects, such as the exploitation of hydrocarbons off shore. The tax benefits, clarified sources linked to the development of the project, will be related to a cut in the cost of capital that makes the investment viable and that does not foresee a reduction in the taxes that companies will have to pay for profits of its developments.

In the case of oil, one of the decisive points of the project, the production incentives operate in two ways. On the one hand, the Government will establish a Activity “baseline” of each firm from which, in case there is a surplus, what they call “incremental” production. That extra production you will be guaranteed an export percentage -which will start at 20% but may be higher according to different peculiarities of the law such as the recovery of inactive or low productivity wells- and a free availability of foreign exchange equivalent to 50% of those sales.

In this way, the Executive Branch It will make exchange controls more flexible so that companies in the sector – which in many cases are usually foreign – can use part of that balance in dollars at their discretion, for example to rotate it to its parent houses. As for guaranteed exports, which start at 20% but can be increased, 50% may be slightly higher if companies comply with other points of the law, such as certain environmental protection or labor inclusion programs with a gender perspective.

The Government will have to pay almost 1.9 billion dollars to the IMF on September 22, the first principal payment for the 2018 loan.
The Government will have to pay almost 1.9 billion dollars to the IMF on September 22, the first principal payment for the 2018 loan.

The Government is in a hurry to pass the initiative through Congress. These weeks are key because oil companies finish determining what their investment projection will be for 2022. If the initiative is not approved in time, the companies could be “out” of the benefits of the promotion regime and only next year could they adapt their investment plans.

Traditionally oil companies around the world They close their investment plan at the end of September and the beginning of October, both for the following year and for the pluni-year. The Government admits that one of the time limits for which the drafting of the law was accelerated was for this reason. In any case, they trust that “if the companies see that the project has majority support or that it was approved, they can incorporate it into their investment projections,” said an official source.

These weeks are key because in them the oil companies determine what their investment projection will be for 2022. If the initiative is not approved on time, the companies could be “out” of the benefits

A fact that does not go unnoticed by official offices has to do withn the increase in the international price of gas in recent weeks. Last week, the price of LNG (Liquefied Natural Gas) that Argentina imports during the winter months to cover internal demand reached 20 dollars per million BTU in the Japan-Korea Market (two island economies and of the main world importers ) and in the Dutch TTF (one of the nodes of the European market, which depends mainly on Russian gas and LNG). In the energy market, it is expected that the climb could continue.

According to experts, this is a bad sign for the coming winter. Because, the Government will need to increase local natural gas production through the Gas Plan, which the project to be presented this Wednesday will “institutionalize” in the form of a law. Otherwise, in 2022 IEASA (ex Enarsa) will have to continue importing large volumes, taking into account the constant decline in gas shipments from Bolivia.

The agreement with the IMF

Next week, on the other hand, will take place the first principal payment to the International Monetary Fund for the Stand By loan signed in 2018 during Mauricio Macri’s administration, while the Government is still seeking to resolve the negotiation with the agency to sign a new financial program that restructures the USD 45,000 million of that loan.

The expected date for that first principal payment to Washington It is next Wednesday, September 22. That day, Argentina should repay almost USD 1,884 million. The calendar with the Monetary Fund includes another payment of a similar amount on December 22, so that until the end of the year it should disburse a total of 3,767 million in three months, which will be covered with the Special Drawing Rights (SDR) distributed by the IMF to its member countries in August.

That second payment in December could be avoided if, until that date, the Executive Power manages to close a new program that reconfigures the payment roadmap to the body. For reference, Guzmán signed with the Paris Club a deadline until March 31 to restructure the outstanding debt with that consortium of creditor nations.

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