The Impact of the International Financial Crises Upon Emerging Economies and the Performance of Discretionary Fiscal Policies: The Case of Argentina

Although international crises partially accounted for the recent weak Argentine economic performance, main causes have to be sought in domestic economic policies adding uncertainty to the decision process of economic sectors and amplifying crises’ effects. Government revenues exhibited a positive, though decreasing, evolution explained by a contraction of tax revenues despite transfers from the eliminated Private Pension System and IMF`s special draw rights. However, public spending was in the root of the government’s fiscal strain as their growth rate outweighed that of revenues and caused an erosion of the primary surplus, whose present level artificially stemmed from exceptional revenue flows and the discretionary seizing of pension funds. Finally, although the overall cyclical sensitivity of tax revenues increased, budget balance’s response to GDP did not suffice to check cycles and active fiscal policies had to strengthen stabilizing actions.