Falling Purchasing Power and Economic Downturn: How Vulnerable Provinces are Struggling to Cope

Which provinces will be most affected by Milei’s adjustment?

The economic downturn has caused a significant decrease in purchasing power for many people in the country. This is compounded by the loss of jobs in the private sector due to the recessionary context. The fight between the government and provinces over co-participating funds means that some provinces will feel the impact of this drop in purchasing power more strongly than others.

A report from IERAL predicts that the GDP will decrease by 3% this year, and the total wage bill (net of inflation) will also fall by a significant percentage. This news is bad for the commercial sector, as a decrease in consumer spending is expected. Provinces that rely heavily on discretionary transfers and have a high public wage bill as a percentage of total wages will be most affected by this economic situation, particularly those in northern regions.

According to IERAL analysts, provinces have historically received less funding during adjustment periods compared to formal private wages due to their greater resources through co-participation. However, this year presents a different challenge due to limited financing available for provinces. They will have to reduce discretionary transfers and provincial tax collection to a minimum.

A survey conducted by CEPA found that there was a significant drop in National-origin resources and Federal Tax Co-participation in February, which may exacerbate challenges for vulnerable provinces during times of economic adjustment. Hernán Lechter, an economist at CEPA explains that provincial income primarily comes from own resources and tax resources of national origin such as Co-participation transfers. Some provinces are more dependent on national-origin tax resources while others rely more on local resources for tax collection, making it difficult for them to cope with reduced income during tough times.

The question remains as to why more financial assistance is not being provided to these vulnerable provinces during times of economic adjustment. It is essential that governments prioritize supporting regions facing greater financial difficulties and ensure they receive adequate funding during challenging times.

Overall, while certain sectors may benefit from decreased consumer spending, many people will suffer from reduced purchasing power due to inflation and job losses in the private sector. Furthermore, some provinces will face more significant challenges due to their limited financial resources and high dependence on national-origin tax revenue during tough economic situations like these.

It’s time for policymakers to take action and address these issues before they become even more severe problems affecting our entire nation’s economy.

Leave a Reply