Argentine federal funding woes affecting provincial public works

Argentina’s government transferred fewer funds again to provinces in May, creating problems for public works, as local administrations are also grappling with a central bank decision to restrict their access to foreign currency. 

Funding through the tax revenue sharing scheme (CFI) fell 1.9% year-on-year in May and 2.5% in April, while additional federal funding under the RON program fell 3.1% and 5%, according to economic policy think tank CEPA, citing economy ministry data. 

As of 2021, provinces received on average 70.3% of their funding through CFI and RON. 

CEPA attributed the May decrease to falling income tax collection, whose share in transfers to provinces fell for five consecutive months and 14.5% in May alone.

Santa Fe province’s work, employment and social security minister Juan Manuel Pusineri admitted that payments for public works contractors will be delayed because of inflation, currency restrictions and the drought hitting the country.  

“As a product of this situation, we will need to extend [payment] periods … but this doesn’t mean in any way that any ongoing project will be paralyzed. What the province is doing is reprograming payments with businesses,” Pusineri said in a press release.

A group of provincial lawmakers accused federal public works minister Gabriel Katopodis of punishing Santa Fe for the poor result the leftist ruling coalition achieved in local elections. 

“There’s some ground movement and nothing else. They don’t even cover potholes. They don’t even do the minimum south of the province. Vialidad Nacional needs work. It is total political mistreatment,” senator Lisandro Enrico told local daily Letra P. 

CURRENCY RESTRICTIONS

A central bank decision to restrict regional and local governments’ access to the lender’s foreign currency reserves is in legal limbo.

The bank mandated that administrations must extend the maturity of at least 60% of their foreign currency-denominated debt by two years or more to gain access, but a court sided with Córdoba province, which faces a US$143mn bond payment on June 9, and suspended the decision.

However, the injunction is not a solution and only elevates the issue to the supreme court, daily Infobae reported.

Mendoza and Entre Ríos also filed legal measures to gain access to the reserves under the old rules. 

Ratings agency Moody’s said some local administrations may be forced to restructure their debt in 2024 to meet the new requirements. 

“Provinces had US$1.2bn of available foreign-currency deposits as of March 31, but their debt-service payments increase in the second half and become significant in 2024-25. Debt maturities in the second half of this year are roughly US$665mn, increasing to US$1.6bn of foreign-currency debt service payments in 2024, and to US$2.1bn in 2025,” a report said.

Moody’s said the situation could negatively affect investor interest in provincial debt.