Argentina comes to the support of struggling provinces

Argentina’s federal government came to the rescue of five provincial governments with close political ties to President Alberto Fernández. 

The economy ministry authorized financing worth 5.6bn pesos (US$94mn) for the provinces of Chaco, Chubut, Tucumán, Río Negro and Santa Cruz. The biggest amount of 2bn pesos went to Chaco.

More provinces are likely to request financial aid from the federal government since some are in an even worse state than the five that obtained support, Julio Gambina, political economy professor at Universidad Nacional of Rosario, told BNamericas.

Due to Argentina's economic crisis, many provinces cannot raise funds on the financial markets due to the high interest rates they would have to pay, said Gambina.

Before the announcement of the financing support, the governors of Tucumán and Chubut held meetings with federal authorities, and more governors are expected to follow suit, unnamed sources from the executive branch told daily La Nación.

In the case of Chubut, the province has faced difficulties to pay salaries for months and the provincial government has been forced to underspend on some budget items, said Gambina.

Many provinces, like the federal government, are now faced with high debt levels after having raised funds on the debt markets in the previous years, he noted.

Local governments have been forced to implement belt-tightening measures and in several cases this has affected the payment of salaries, like in Chubut, Gambina added.

It is "impossible to isolate" the financial situation of the provincial governments from the national context of high inflation and weak economic activity, Sebastián Laza, an economic adviser for the Mendoza government, told BNamericas.

The dire situation is also affecting the capacity of the provinces to move forward with public works projects, resulting in late payments for some works and projects being halted.

Some of the biggest projects carried out by provincial governments include the Portezuelo del VIento dam (Mendoza), the New Ramón Carrillo Hospital (San Luis),  the paving works of Routes 3, 31, 32, 36 and 39 (Santa Fe) and the Río Colorado mine (Mendoza).

THE CASE OF MENDOZA

The recession and inflation problem have not been as severe in Mendoza as the rest of the country, according to Laza.

The province could however be facing financing problem after protests prompted lawmakers to backtrack on amendments to a law, which would have eased restrictions on mining. The government is also facing opposition to its 2020 budget proposal due to a request to seek US$300mn in loans.

“It is a shame, because Mendoza could have seen strong growth in the next five to 10 years,” said Laza regarding the mining law.

As for the budget problem, Laza said part of the 2019 budget was re-directed so the public sector could begin operating while this year's budget continues to be discussed by lawmakers.