July 19, 2018 / 4:14 PM / a year ago

UPDATE 1-Argentina primary deficit falls to 0.8 pct of GDP in first half

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By Luc Cohen

BUENOS AIRES, July 19 (Reuters) - Argentina posted a primary fiscal deficit of 105.8 billion pesos ($3.7 billion), or 0.8 percent of gross domestic product (GDP) in the first half of 2018, government data showed on Thursday, down 26.7 percent from the same period last year.

The total financial deficit including debt interest payments was down 1.7 percent from last year at 251.2 billion pesos, or 1.9 percent of GDP, as the country seeks to strengthen its finances as part of its $50 billion financing agreement with the International Monetary Fund (IMF).

"The fulfillment of these goals is irreversible," Treasury Minister Nicolas Dujovne said at a press conference.

A run on the peso earlier this year due to a selloff in emerging market assets and concern about President Mauricio Macri's government's ability to fight inflation prompted Argentina to turn to the IMF. Dujovne had already slashed the 2018 primary deficit target to 2.7 percent of GDP, from 3.2 percent previously, in an attempt to calm markets.

As part of the IMF deal, Argentina lowered its primary deficit target to 1.3 percent of GDP in 2019, down from 2.2 percent previously.

Officials have said they may delay implementing elements of a tax reform approved last year if spending cuts prove insufficient to reach deficit targets, but Dujovne said he hoped negotiations with opposition parties that control congress would lead to other ways to cut the deficit.

"It would be counterproductive to take a step back on structural reforms," he said. "Argentina needs the private sector to develop and create jobs, and raising taxes is not the most appropriate measure to achieve that."

Dujovne also acknowledged that the 29.5 percent year-on-year inflation reported in June was above the 29 percent level that would trigger a consultation with IMF staff on the government's plans to fight inflation, but said it was not a "formal process" and the government needed only to "explain its view as to why" inflation exceeded the target.

Inflation above 32 percent would require a consultation with the IMF's executive board, which could withhold further disbursements.

In June, the government posted a primary deficit of 56.7 billion pesos and a financial deficit of 88.9 billion pesos, the data showed. The cuts in the first half were driven by a 19.9 percent reduction in capital spending, led by declines in spending on transportation infrastructure and housing.

$1 = 28.95 pesos Reporting by Luc Cohen and Scott Squires Editing by Susan Thomas

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