Argentine provinces ready proposal for distribution of resources, Fondo del Conurbano, ahead of talks with Macri - Debtwire

Argentine provinces ready proposal for distribution of resources, Fondo del Conurbano, ahead of talks with Macri

08 November 2017 - 12:00 am

A group of 22 Argentine provinces led by CordobaSanta Fe and Entre Rios are finishing up a joint proposal to present to President Mauricio Macri at a 9 November meeting that aims to be the start point of a negotiation to achieve a “fair” distribution of public resources starting in 2018, two sources close to the matter said.

President Macri will meet with the provincial governors to hear their proposal for a negotiated solution to the Province of Buenos Aires (PBA)’s judicial claim to keep the ARS 50bn (USD 3bn) Fondo del Conurbano for itself, the sources said. Also, the provinces want a broad discussion over the distribution of federal taxes and funds for public works in 2018, as well as over the impact of the Fiscal Responsibility Law and the tax reform proposed by the national government, the first source said.

The provinces’ Economy Ministers met in Buenos Aires 7 November to work on a joint document detailing their proposals for these matters, the first source said. Provinces want to include the Fondo del Conurbano dispute in the broader negotiation over the distribution of resources, the source said.

As reported, Fondo del Conurbano is an ARS 50bn fund that is currently distributed among all provinces proportionally. The fund is financed with 10% of what Argentina collects through income tax, and was originally created in 1992 to provide financing for PBA, as reported. However, in 1996 the national government capped the amount Buenos Aires receives in ARS 650m and decided to distribute the rest among the other 22 Argentine provinces, it was reported.

In August 2016, Buenos Aires Governor Maria Eugenia Vidal requested the Argentina Supreme Court to restore the fund in its entirety to her province, or at least give the province the 36% proportional allocation that would correspond to the province’s size. PBA alleged that the fund’s current distribution scheme is unfair and “unconstitutional,” as reported.

If Vidal’s request to give the entire fund back to PBA is granted, Cordoba and Santa Fe would each lose ARS 7bn in resources, while Entre Rios would lose ARS 3.5bn, and others like ChacoLa Rioja and Tierra del Fuego would lose between ARS 1.5 and ARS 3.5bn, as reported.

The provinces will ask President Macri to discuss how income tax is distributed in the first place, the first source said. As of now, 10% of income tax goes to Fondo del Conurbano, while 20% goes to national pension fund ANSES, 6% goes to the national Treasury and 64% is distributed among provinces. Governors will propose to distribute 100% of Income Tax among provincial administrations, the first source said.

If accepted, the provinces’ proposal would leave Province of Buenos Aires in a much better financial situation, although it is hard to see the national government accepting the proposal as it is, considering it would be too harmful for ANSES finances, the second source said.

President Macri is willing to accept PBA not getting 100% of Fondo del Conurbano, but he will try to get the 36% proportional allocation the province deserves, the second source said. In exchange for this concession, Macri would ask provinces such as Santa Fe and Cordoba to abandon the idea of collecting the more than ARS 100bn in debt that the national state has with them, said the source.

As reported, Santa Fe, Cordoba and San Luis received a favorable ruling from Argentina’s Supreme Court in 2015 that forced the national administration to stop retaining 15% of the coparticipation resources to fund ANSES. The same ruling ordered President Macri to give back the money that was retained from these provinces in favor of ANSES between 2006 and 2015, it was reported.

The national government complied with the first part of the ruling, as it has stopped retaining the 15%, but it has not yet started to pay the debt with them, the first source said. In fact, in late October Santa Fe filed a new claim to the Supreme Court asking for the immediate payment of that debt, the first source said.

Tax reform and Fiscal Responsibility law

Governors are also interested in discussing matters related to the recent tax reform proposal announced by the national government, the first source said. Mendoza and La Rioja want to remove the proposed new 10% tax on wine, alleging it will stop investment in the wine industry, said the source.

Moreover, Tierra del Fuego wants to discuss the elimination of taxes to the import of electronic goods, alleging it will kill the domestic industry, mostly located in that province, the first source said.

The Fiscal Responsibility Law that the national government wants to pass together with the 2018 budget, which proposes caps to provincial expenditures and fiscal deficits, is another topic to be discussed, the first source said. Provinces will propose to comply with the limits imposed by the law in exchange for being able to issue new debt without having to ask authorization from the national administration, the source said.

These negotiations are going to be tough, the second source said, as everyone would have to give up something.


by Clara Agustoni