Argentina Agrees Tax-Sharing Deal With Provinces

by Mike Godfrey, Tax-News.com, New York

28 February 2002

After long negotiations, Argentina's government and most provinces on Wednesday night signed a new tax sharing deal that is essential for the bankrupt nation to win vital IMF aid, government officials said. In return for assumption by the central government of much of their indebtedness, the provinces also promised to reduce their fiscal deficits by up to 60%.

Currently the government pays a monthly minimum of $650 million from federal tax receipts to the provinces, but in future the provinces will receive a set percentage of total tax collections each month. It wasn't immediately clear what the percentage would be except in respect of the financial transactions tax, for which it will be 30%.

"I think this is the first important step not only for the government but for the people of Argentina," President Eduardo Duhalde said moments before signing the tax sharing pact in the Economy Ministry where Wednesday's negotiations were held.

"I cannot say I am happy but I can say this casts a ray of hope for growth," said Gildo Insfran, the governor of Formosa and a member of the ruling Peronist party who signed the deal.

The Argentine government hopes that the deal with the province will be the final element in a 'sustainable' programme of fiscal reform which will allow the IMF to restart its lending programme to the cash-strapped country.

Jorge Remes Lenicov, Argentina's economy minister, said he expected the 2002 budget would be taken up by congress on Thursday and predicted negotiations with the International Monetary Fund over new aid could begin next week.

Years of public overspending and skyrocketing interest rates combined with a grinding recession since mid-1998 led the government to default on part of its $141 billion public debt and devalue the local peso currency in January. Now unemployment is estimated around 22 percent, and 45 percent of Argentina's 36 million people live in poverty.

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