Argentina set to make traditional pre-election infra boost

The Argentine government’s US$7.3bn increase to the 2021 budget, including US$500mn more for infrastructure and water projects, is in keeping with previous boosts to public works prior to elections, but the tactic could backfire due to the country’s lack of access to foreign financing.

This strategy was previously applied by Mauricio Macri prior to the 2017 legislative elections, although at that time he also resorted to borrowing, "which ended up badly later on,” Alejandro Fiorito, economic politics professor at Universidad Nacional Moreno, tells BNamericas.

Besides the boost ahead of the November midterm elections, the hike in public investment will also help offset the drop seen in domestic consumption. 

During the first quarter of 2021, public sector consumption fell 0.5% year-on-year, while consumption in the private sector dipped 0.7%, according to figures from local statistics bureau Indec. By contrast, gross net investment jumped 38.4% during the same period 

While Fiorito says that the strategy of greater public spending will boost growth in the short term, the country’s lack of access to foreign currency will be a problem in the longer term, not only for infrastructure financing, but for GDP growth as well. 

“As long as there’s a possibility to access foreign currency, which is very difficult at the moment, Argentina can grow, maybe not at 6% per year, but it can grow at a sustainable level, such as 2%,” the academic said, adding that the country's authorities have to complete negotiations with the IMF over debts of US$46.1bn in order to regain access to US dollars on the capital markets. 

He also argues that domestic demand has to grow in order to support salaries and employment after the pre-election spending hike, otherwise he expects to see job creation slow down after the vote, further limiting consumption.

Argentina will hold legislative elections on November 14, which will decide nearly half of the seats in the chamber of deputies and a third of the seats in the senate.