Argentina’s Congress approves pension reform

This is the first bill passed by Congress from a battery of reform initiatives submitted by the government

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Pension reform is now law. The lower chamber passed the bill with 128 votes in favor versus 116 votes against (2 abstentions and 10 absences). The session took place amid demonstrations and new episodes of violence in the streets. The reform will likely permit the treasury to achieve significant savings in 2018. The law changes the formula used to adjust pensions. The new formula uses an index made up of the CPI (70%) and a wage index (30%) instead of the evolution of social security contributions and wages. Adjustments to pensions will now be made on a quarterly basis (it was previously done on a semi-annual basis). The application of the new formula could result in savings up to 0.4% of GDP in 2018 for the treasury. The pension reform is key to meeting the primary federal fiscal deficit target for next year (3.2% of GDP). Among other things, the law permits workers to postpone their retirement until age 70. The option can be exercised every year after a person reaches the minimum age for retirement (65 for men and 60 for women). Under the previous legislation, companies could compel workers to retire.

This is the first bill passed by Congress from a battery of reform initiatives submitted by the government after its victory in the October mid-term election. The Senate already passed the fiscal responsibility bill (that caps at zero the real growth of provincial and federal primary expenditures) and the fiscal pact (that seeks to cut provincial taxes and compensate the province of Buenos Aires in a share-tax revenue dispute). The lower chamber passed the capital market bill and will soon begin discussions on a tax reform that aims to reduce corporate income tax, financial transaction taxes and payroll taxes.
The INDEC will release the GDP figures for 3Q17 tomorrow at 5:00 PM (SP time). The EMAE (an official monthly GDP proxy) anticipated that the economy has expanded 4.3% year over year in that period and 1.3% QoQ/sa. We expect 2.9% growth this year. The fiscal accounts for November will also be published tomorrow. The primary deficit accumulated over the last 12 months fell to ARS 327 billion in October (-3.4% of GDP according to our estimates), from ARS 356 billion in September. We expect the government to run a primary deficit of 4% of GDP this year, 0.2% below the official target.


Tax collection came at BRL 115.1 billion in November, above our call (BRL 112.5) and market expectations (BRL 113.3). Tax collection once again increased sharply in the month (9.5% yoy in real terms). The recovery in tax collection is widespread among its components. For instance, revenues that depend on consumption (PIS/COFINS, IPI) increased 14.1% (yoy in real terms; also influenced by higher fuel taxes), while revenues related to the wage bill (IRPF and social security) increased 2.7% (yoy in real terms). Excluding tax amnesty programs (REFIS/PRT) and repatriation, real revenues increased 4.7% y/y in real terms, with the 3-mma going to 6.6% from 7.7%, confirming a rebound trend in federal revenues. The central government primary result from November will be released next week.

The November balance of payments report will come through tomorrow at 10:30 AM (SP time). We expect a USD 1.9 billion current account deficit in November, below the median of market expectations (USD -1.8 billion). The weaker result on the trade balance and the service account (especially international travel and transportation expenses) will keep the current account under pressure. We expect direct investment in the country (DIC) to register inflows of USD 4.0 billion in November (consensus: USD 4.3 billion).

The BCB placed the full offering of 14,000 FX swaps. After closing, the central bank announced another roll over auction of up to 10,800 contracts for December 20.

Macro Vision – New Industrial Production Heat Map. We remodeled our Industrial Production Heat Map, seeking a gauge that is more intuitive and allows a clear view which industrial segments are accelerating at the margin. The Industrial Production Heat Map confirms that the rebound in activity is becoming more widespread, but we observe there is still a lot of slack in most segments. ** Full Story here.


The statistics institute (INEGI) will announce October’s retail sales tomorrow at 12:00 PM (SP time). We estimate that retail sales grew 0.1% year-over-year, above the Bloomberg consensus of a 1.1% decline. At the same time, INEGI will publish Q3’s aggregate supply, which we expect to grow at the pace of 2.6% year-over-year (mkt: 1.8%).

Fuente: ITAU

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Finanzas Sector Público / Fiscal