A new federal co-participation law should be sanctioned

In exclusive dialogue with La Mañana, the economist Aldo Abram, executive director of “Libertad y Progreso”, said that the national government should use the funds obtained from the external debt to promote a reform of the State, which will allow implementing policies for the transfer of public employees to the private sector, promoting private activity and reducing public spending. In addition, he recommended the governors and mayors of Argentina that they should be “prudent” in the use of their resources. Likewise, he pointed out the need to sanction a new Federal Co-Participation Law that modifies the current system of distribution of co-participable resources, which promotes “political clientelism”.

“The transfer of public personnel to the private sector can be done. Resources are needed for this, but today many provinces are borrowing only to maintain something that is unfeasible and eventually ends up with an unsustainable and indebted state. We propose that the Nation promote a reform of the State that serves the people and that is economically sustainable; and the debt, which has to be taken the same, should be used to promote this measure, which would solve a problem instead of maintaining it”, Abram told this newspaper.

“Many provinces have a ‘bad of origin’, which is federal co-participation. Today, this system encourages small provinces to waste their resources. A governor of for example Catamarca receives three cents of each peso that comes from the co-participation. In this way, he will not be interested in the development of his province, because every peso that is paid in taxes in its territory for productive development goes to co-participation and return three cents. Thus, it is in the interests of an agent that people pay taxes in other provinces and not in their own because the governor costs a peso and only three cents are returned” explained Abram.

“On the other hand, if a provincial government promotes the development of the private sector, then private employees can vote for that governor or not. Therefore, each provincial leader should let another ‘make the effort’, keep the three cents and political clientelism with public employees, because they are the ones who will vote”, specified the economic analyst.

“This system is pernicious and perverse for all the small provinces. At some point we must go towards a ‘fiscal federalism’, where each State collects what it spends, and helping in its beginning to each province that for the ‘misfortunes’ of co-participation today cannot be sustained; and the sanction of a new Federal Co-Participation Law is still pending, to end this situation”, said Abram.

Also, the professional opined that the current national government is “a little better than other management”, but warned that it has “a high level of indebtedness”, which is why he said that “it would have been better to establish a mechanism for the transfer of personnel”

“The provinces with better administration will suffer fewer consequences if the national government does not solve the current problem. However, that the Nation avoided a crisis does not mean that the provinces don’t have it. This is what happened with Santa Cruz and with others”, the expert warned.

For Abram, in our country we chose a gradualism “that did not exist in the provinces”; and remarked: “What there was was ‘immobilism’ or something worse, because some provincial governments increased spending, as did several municipalities, at a time when the state should be saving every penny they can. If one supports public spending, it is all very nice until one day they stop lending you money. At that moment, ‘you are broke'”,


Next, Abram described the origin of the economic crisis that began to take shape in the country two weeks ago. “What happened is that there was a strong increase in uncertainty, and that generated an outflow of capital, aggravated by having included in the tax reform the tax on financial income of foreign investors, which caused a flight of billions of dollars. This, in a very small credit market like the one we have in Argentina, has a phenomenal impact. In this way, the credit becomes scarce and the interest rate rises for this reason. The rate rises not by decision of the Central Bank, but because clearly there was a very large capital flight”, he said.

For this reason, Abram said that the financing with which the demand of Argentinians has now declined, both to consume and to invest. “With this level of uncertainty, both investors and the rest of the people consume less. This also causes the level of economic activity to suffer. There is less internal demand, and at the same time citizens are afraid and therefore spend much less,” he said.

Regarding the tax on financial income of external investors, the economist stressed: “When the politicians opposed to the national government pressed for this tax to be included in the tax reform, and we also warned the Nation when it accepted it, economists told them that we were going to have a strong capital flight, and they did not care about anything. I think it was fair, but not timely because it was established when we were in need of money. Now, those who considered that that was fair and timely, have to accept the consequences and take responsibility. The same ones who proposed this, today are the first to blame others for what is happening these days”.

“One has to do economic policy with prudence because afterward the consequences are paid by the people. Now, who are we are the ones who are going to invest and consume less” he said.

To conclude, Aldo Abram clarified that 99% of the titles that the national Government placed abroad since December 2015 have been issued by setting foreign jurisdictions to decide eventual conflicts with the debt payments. “It was decided to settle in that way because most investors do not trust our country after the 2001 default and other situations that occurred afterward. Investors do not trust the legal security of Argentina. Nobody trusts a scammer, and we still have a reputation as ‘swindlers’. But there are many nations that are not like us and that use that modality, including developed countries. It is a ‘normal’ mechanism in other latitudes and ‘unavoidable’ in Argentina. On the other hand, the debt that is issued in the national territory is made with local jurisdiction, “he said.


Written by: Aldo Abram
Director Ejecutivo, Libertad y Progreso.

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