Argentina - Provincial government finances (Vol. 2 of 2) : Annexes and statistical appendix

RepW No. 8176AR Argentina Provincial Government Finance Study (In Two Volumes) Volume II: Annexes and Statistical Appendix Api 3, 1990 L.atin America and the Caribbean Region Country Department IV FOR OFFICIAL USE ONLY ; S .~~~~~~~~~~~~~C, . . .~a~ of the World B-- bedoscused iifthoutWorld Bank atoiain be~~~~ di=loe wihu Wol Ban auhr.ain . ~ ~ ~ ' N -- ' N . X  FOR 0FFICL USE ONLY LABLE OF CONTMNTS VOLUME II: ANNE8ES AND STATISTICAL APPENDIX INTRODUCTION .1... . . . . . . . . . . . . . . . . . . . . . . . . . . . I ANNEX CHAPTER I. OVERVIEW OF THE PUBLIC FINANCE DATA AND REPORTING PROCEDURES .... . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 A. Government Structure for Provision of Public Services . . . . . 2 B. The Availability of Data . . . . . . . . . . . . . . . . . . . . 2 U. The Reporting System for Provincial Public Finance Data . . . . 4 E. Transfers from the ventral Government . . . . . . . . . . . . . 8 F. Rationale for Inter-governmental Transfers . . . . . . . . . . . 11 ANNEX CHAPTER II. SOCIO-ECONOMIC STRATIFICATION OF THE PROVINCES . . . . 13 A. The CFI Stratification of Provinces . . . . . . . . . . . . . . 13 B. Population, Product and Poverty by Province and CFI Group . . . 14 ANNEX CHAPTER III. FIELD WORK IN THE PROVINCES . . . . . . . . . . . . . 16 STATISTICAL APPENDIX . . . . . . . . . . . . 18 LIST OF TABLES .... . . . . . . . . ...... . . . . . . . . . . . 18 Tables 1 - 26 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  The Annexes of this Volume II cover: the governmental structure of Argentina; the available data on provincial public finance and the methodological questions involved in their analysis; the CFI stratification of the provinces into four main groups; and the selection of the provinces for the case studies. These annexes are followed by the Statistical Appendix. In addition to the summary tables presented here, the same data are available on request for each province at.d the Municipality of Buenos Aires. All the tables shown here, as well as those for each province, are available on spreadsheets.  - 2 - ANNU CHAPTER I. OVERVIEW OF THE PUBLIG FINANCE DATA AND REPORTING PROCEDURES A. Governme_t Structure for Provision of Public Services 1.01 The Argentine State is organized in three political- administrative and territorial jurisdictions: the central, provincial and municipal levels. Within this federal organization, all governmental powers formally emanate from the provinces. Provinces delegate limited powers to the Central Government and retain for themselves all other authority. Provinces are autonomous entities governed by their own Constitutions. Municipalities are organized as part of each province's system of government. 1.02 the Central Government is empowered to meet the main general needs of Argentine society and to provide for the common interest of the different territorial subdivisions. There are also "concurrent powers" entrusted by the Constitution to both the Central Government and the Provinces, and even to municipalities by provincial delegation. Because of the diversity of Provincial Constitutions, and a historically strong interpretation of the Central Government's authority in practice, there is a great deal of diversity among the provinces with regard to service delivery authority and responsibility. In general, however, responsibilities for service provision may be illustrated as follows: exclusively Central Government -- defense, foreign affairs, inter-province transportation and trade regulation, mail and telecommunications; Central and Provincial Governments--secondary and higher education, preventive health, justice, security, economic development, major passenger and cargo terminals, housing, electric and gas energy; Provincial and Municipal Governments -- elementary education, primary health care, water and sewerage, regional and local roads, fire control; and predominately Municipal Governments -- solid waste collection and disposal, local streets and drainage, parks, markets, cemeteries and land use planning and control. 1.03 As provided in the National Constitution, the Central Government has the following sources of revenues: (a) resources allocated to it exclusively and on a permanent basis (taxes on foreign trade and profits from the postal service); (b) resources allocated permanently in conjunction with the Provinces (domestic taxes); and (c) resources allocated temporarily and on a shared basis with the Provinces (direct taxes in cases of national emergency). Categories (b) and (c) have contributed approximately 80 percent of total Central Government tax revenues, and have formed the basis for the Central/Provincial Governments' revenue sharing system. B. The Availability of Data 1.04 Although incomplete and out-of-date, the data available in the Secretaria de Hacienda of the National Ministry of Economy (hereafter called the Hacienda data) are useful for analyzing the histrAical trends for all of  the provinces.y The strategy for analysis is to use the case study data to complement the Hacienda data and vice versa. For example, the Hacienda data on all of the provinces are used for an overview of all 22 provinces, and the data from the case studies to estimate how accurate these data portray the situation of the provinces, as well as how trends might have shifted in 1987. For these reasont, it is important to understand the limitations of the Hacienda data. Coverage of the Hacienda Data 1 05 The Hacienda data cover only the Consolidated General Administration of provincial government, but do not cover the non- consolidated, decentralized entities and the public enterprises at the provincial level (hereafter called public enterprises), which include the utility companies in many provinces. This results in a significant underestimation of investment and sometimes of the consolidated public sector deficit for these provinces where these util.ty companies are excluded. 1.06 The case study data for the provinces of Buenos Aires and Santa Fe give an idea of the size of the underestimation due to this exclusion. The public utility enterprises of these two provinces spent a total of US$576.7 million in 1986 of which US$193.8 million was for fixed investment. Although these enterprises are theoretically "autonomous", they are actually financed by continual transfers from the General Administration. In so doing, these enterprises spent and invested more than the Province of Chubut. Even after transfers from the Central Administrations, the total need for financing in 1986 for the non-consolidated entities was US$146.1 million for the two provinces. In 1987, the need for financing of these enterprises in Buenos Aires alone was US$164.6 million, an increase of 37 percent over the previous year. Thus, this gap in the Hacienda data represents a significant under- reporting of the provincial non-financial public sector, especially of the water supply and sewage sector, where urgent reforms are needed to increase user fees and efficiency. Given this importance, a high priority should be to including these public enterprises in the provincial accounts. Non-existence of Provincial Public Finance Data after 1986 1.07 In addition to this incomplete coverage, there are no Hacienda data on provincial finance at all after 1986. Until the 1987 exercise, the budget data were collected and analyzed by the Direccion Nacional de 2rogramacion Presupuestaria of the national Secretaria de Hacienda. The provinces then refused to send this information to Hacienda, as they contended that it was used for "political ends" by the Central Government. As discussed in Chapter V of Volume I, the lack of 1987 data is particularly important, as the rapid drop of provincial, own-source revenues (especially non-tax revenues), together with a continuing rise in expenditures, caused the total need for financing to more than double to over US$1 billion. This explosive increase in the provincial deficits is undoubtedly part of the 1/ For a discussion of these data, see Chapter I of Volume I. r  - 4 - reason why the provinces no longer wanted to send the data to Hacienda. However, with the new Government, the provinces have agreed to resume sending the data. 1.08 The Fundacion de Investigaciones Economicas Latinoamericanas (FIEL) used the Hacienda data to develop a set of Consolidated Public Sector Accounts that cover the 1960-85 period, but FIEL does not produce these accounts on a regular basis, as it is a private non-profit foundation.1 The Consejo Federal de Inversiones (CFI)--a public institution controlled by the provinces--receives budget information from the provinces; however, it does not analyze and publish the recent results in any systematic manner. C. The Reporting System for Provincial Public Finance Dats 1.09 The estimates of provincial revenues, expenditures and deficit often vary significantly, depending on the classification of budget items and the inclusion or exclusion of different provincial entities. It is normally assumed that the user should know the reasons for these differences, although this is not always the case. 1.10 One of the objectives of the Provincial Government Finance Study is to make these differences more transparent and to show how the Argentine system is different from that generally used by the Bank for analysis of public finance. Another is to develop a set of accounts which follows as closely as possible that used in the BanAk.. 1.11 The first part of this Annex Chapter discusses the institutional structure of the provinces and explore its relationship with provincial finance; the second, deals with the classification of budget items in Argentina and by the Bank, as well as the "hybrid" system proposed here. Institutional Structure of Provincial Covernient 1.12 In Argentina's Federal System, the institutional structure of every province is different. Thus, the institutional "map" would have to be very detailed to show all of these differences. Fortunately, most provinces have about the same general structure so that a general "map" can point out some of the main institutional elements of its structure: --General Administration (Administracion General) --Central Administration (Administracion Central) --Consolidated Decentralized Entities (Organismos Decentralizados Consolidados). These normally have some administrative autonomy, may have some independent sources of revenue, but are still 2/ The effort was funded by the Consejo Empresario Argentino: FIEL, f Gasto Publico. . .1987, op. cit.  included in the provincial budget. --Special Accounts (Cuentas Especiales) are separate accounts established hy law in which revenues from sources specified in the law can be transferred for uses that are also specified in the law. Although both the sources and the authorized users of the resources are defined by the law, the province also may transfer additional resources to these ?_counts from the general fund. These special accounts tend to be much less important at the provincial level than the national level. --Unconsolidated Decentralized Entities (Organismos Decentralizados No Consolidados) These have some administrative autonomy, normally have their own sources of revenues such as fees, tariffs and taxes, but do p_t appear in the budget of the Administracion General, although their individual budgets normally appear in the provincial government's budget uocument. --Provincial Public Enterprises (Empresas Provinciales) These are public enterprises in the usual sense of the term. Their budgets and financial statements normally do not appear in the provincial government's budget documents. --Social Security Entitites (Organismos de Prevision Social) 1.13 Although all six of the provinces surveyed have this basic structure, there is no consistency in the way in which different provinces treat the same type of activity. For example, the water companies and other public utilities are treated as Cor.solidated Decentralized Entities in Salta, Chubut and Santiago del Estero, but as Unconsolidated Decentralized Entities in Buenos Aires and Santa Fe. Also Cordoba's water company is a public enterprise. The study file contains information on the institutional structure of all of 22 provinces. 1.14 To simplify presentation, both the non-consolidated decentralized entities and the public enterprises are called public enterprises unless specific reference is made to the former.1 Also, the central administration and its consolidated, decentralized entities are called the general administration. Thus, for the purpose of this study there are only two main administrative units of analysis: The general administration, covering the centralized entities and the consolidated decentralized entities. The public enterprises, including the non-consolidated, decentralized entities, social security entities, and public J This is exactly as FIEL, op. cit., does. Both the non-consolidated decentralized entities and public enterprises have their own sources of revenue and are not consolidated in the provincial budget.  6- enterprises. Institutional Structure and Consolidated Public Acounts 1.15 The institutional complexity described above greatly complicates the generation of the Consolidated Public Accounts for the Provinces. The Direccion National de Programacion Presupuestaria of the national Secretaria de Iwacienda received budget data from the provinces on the Administracion General until the 1986 exercise. These Hacienda data cover the budgets of the Central Administration and the Consolidated Decentralized Entities, but not the Unconsolidated Decentralized Entities, as these are not part of the provincial budget, although their separate budgets sometimes appear as part of the budget document. Hence, the utility companies are included in these data only for provinces where they are "consolidados". In the case study provinces, these utility companies would be covered in the Hacienda data only for Salta, Chubut and Santiago del E5stero, but n= in Buenos Aires and Santa Fe, which are Unconsolidated or in Cordoba, which has public enterprises.y 1.16 In generating its consolidated public accounts, FIEL went to the great trouble of separating out all of the Organismos Decentralizados (both consolidados and no consolidados) with the characteristics of public enterprises (i.e., administrative autonomy, own source revenues from goods and services, etc.), but lumped them all together under "empresas publicas", inclu.~_g the big national ones. This FIEL methodology results in an underestimate of the importance of the sub-national governments, as these sub- nationa1 piblic enterrpria.. arc directly subordinated to thess governments, although they have some autonomy. It would be better to show separate accounts for each administrative unit (See para. 1.12 of this Chapter). Consolidation could then be done with emphasis on calculating the deficit/surplus of each of these administrative units.Y 1.17 Because the consolidated public sector accounts reported in previous Bank studies use the data from Hacieudia on the provinces' general administration, they do not cover either the Unconsolidated Decentralized Entities. 1.18 Even excluding the provincial public utilities, the have been spending about 11 percent of GDP. With these enterprises, expenditures would be about 12 percent of GDP or about US$8 billion per year. Clearly, sub- national governments deserve more careful attention in the consolidated public sector accounts. g/ The public utility enterprises of Cordoba are not included in this analysis. 2/ See para. 7.03 in Volume I for an idea of what categories might be used in this analysis. i'  -7- nho Provincial Accouitlnq Systems 1.19 Reports on the same province using the same budget data way show deficits of very different sizes caused by shifting important items from above to below "the line" or vice versa. The same kind of expsnditure or revenue may also be classified differently by different provinces. Finally, the provinces use cash basis reporting for revenues, but not for expenditures. This section will deal with three key financial reporting issues: cash basis reporting for revenues but nor for expenditures; definition of the deficit or surplus; and "above or below the line." 1.20 Sash Basis Reporting for Revenues but Not E$ponditures. Revenues "re reported when received; expenditures, when the commitment is made. Unpaid payment orders (both those for which the payment date has not expired and those in arrears) are treated as accrued liabilities of the province, and as such, constitute part of its floating debt. 1.21 Definitiog of the Deficit/Surplus. The DMF Manual defines the deficit/surplus concept as follows: Deficit/Surplus - Borrowing - Amortization + Net Cash Transfers Deficit/Surplus - Expenditures on goods and services + Transfers + Lending - Repayments - Revenue - Grants "A government deficit thus represents the portion of expenditure and lending which exceeds receipts from revenue, grants, and loan repayments. . .The deficit/surplus concept thus measures whether the government meets the costs of expenditure and lending activities undertaken for public policy purposes with receipts from revenue, grants and loan repaymen.s and which the government covers by undertaking obligations for future repayment and/or running down its liquidity holdings." -' 1.22 Before the 1980 exercise in Argentina, the concept of deficit was measured as the "resultado" which is the net change in short term assets and liabilities: ResuLtado - Net Borrowing - Need for Financing Where Net Borrowing - Borrowing - Amortization Need for Financing - Revenue (including Transfers) - Expenditures i/ IMF, A Hanual on Government Finance Statistigs, Washington, D r., 1986, p. 106.  1.23 In Argentina. where expenditures are reported before delivery or payment, this "resultado" was quite important. With the implementation of Law 22.202 in the 1980 exercise, the provinces began to use the more traditional definition of deficit/surplus: the total borrowing needs of the public sector. This definition is much closer to that of the IMF, except that it includes the floating debt because expenditures are reported before delivery or payment.J Some provinces, such as Cordoba, also report on a cash basis, which enables analysis of the composition of the floating dbbt over time and by line item. Santiago del Estero also reports expenditures at the delivery date. 1.24 The floating debt reflects the backlog of unpaid obligations. and under the repcrting procedures of Argentina's provinces it is quite important, as it may be a non-transparent means of deficit financing. Provinces are financing a significant portion of their deficits through suppliers and contractors. These, in turn, include an interest change as part of the price to cover not only the risk of not being paid, but also the cost of borrowing for the supplier or contractor. In this sense, the supplier or contractor is acting as a bank. The real interest rate in Argentina is quite high (e.g., even before hyperinflation, public bonds yielded about 25 percent in dollars per year). In short, the large floating debt increases the costs of goods and services for the provinces. 1.25 Because Grants are not included as current revenues under the IMF system, two measures of current saving are used: 14. Current Account Surplus without Grants (Own Saving) 15. Cu. rent Account Saving with Current Grants (Saving) Int addition, Gross Fixed Asset Formation is calculated by subtracting Selling of Fixed Assets from Real Investment.y 1.26 Rg=ortina "Above and Below the Line". This study follows as closely as possible the methodology recommended in the IMF Manual. The main difference between the approach used in Argentina and in this study is that this study reports all discretionary grants "above the line" as Grants, including the Aportes del Tesoro Nacional, Regional Development Fund (which was eliminated by the new Revenue Sharing Law), the Electric Fund and all other special accounts unless they require repayment. In Argentina, all of these normally appear "below the line" as "financing". Only the Housing Fund (FONAVI) is reported "below the line" as financing. 2/ Using cash basis reporting for both revenues and expenditures as the IMF recommends, the floating debt would not be included as part of the deficit. However, it would be analyzed in the budget report (See memorandum item 14, ibid, pp. 210-211). f/ See Summary Table of Major Components, Ibid, pp. 112.  . 9 - E. Transfgrs from the Central Gogernment 1.27 Understanding the transfers from the national to the provincial governments is key for understanding provincial finance in Argentina. These can be classifiee into four main types in accord with how they are allocated: (1) to the provinces (automatic or discretionary) and (2) by the provinces (earmarked for a particular use or free allocation by the provincial government), as summarized in the following matrix: Allocation to Allocation by the Provinces the Provinces -------------------------------- Free Allocation Earmarked Automatic a b Discretionary c d 1.28 Types a and b are considered to be provincial taxes collected by the Central Government and, therefore, as current revenues from national sources. These tnter-governmental transfer categories are summarized as follows. a. The main transfer in this category are the federal taxes transferred automatically to provincial governments under Federal Revenue Sharing (Coparticipacion Federal) for use as they see fit. Revenue sharing is treated here as a current provincial revenue, as is generally the case. In Argentina, there is less consensus with regard to royalties with some provinces treating them as current tax revenues from a national source and others a8s a current, own-source, non-tax revenue, as does FIELD. All royalties are treated here as a current revenue from a national source whether they be for hydroelectric power, hydrocarbons or uranium, because the Central Government owns all subsoil resources in Argentina and the law governing royalties is thus a national one. Another alternative would be to treat them as a grant that compensates for the loss of a non-renewable resource (i.e., as a kind of reparation for the loss of an asset or to cover environmental damage). This would imply that resources from royalties should go to development projects of some type that would cover the loss of revenue when the resource is exhausted. In fact, royalties now go into the general fund of the provinces and are _llocated as they see fit, mostly for salaries. b. Automatic, earmarked transfers include the highway development fund (Coparticipacion Vial) and social security funds transferred to pay pensions. both of these are treated here as current revenues from national sources, although they are collected for the provinces by the Central Government. c. Discretionary Grants (Aportes Dal Tesoro Nacional) are unrequited and non-repayable transfers from the Central Government to the provinces. As 2/ FIEL, E1 gasto Publico, op. cit., p.60.  - 10 - such, they are reported as grants. 4. Discretionary, earmarked transfers include those from the Regional Development Fund (FDR), the Special Fund for Electrification of the Interior (FEDEI), the National Housing Fund (FONAVI), as well as a host of smaller funds (i.e., for nutrition, health, etc.). Except for FONAVI, all are treated as grants.0 FONAVI transfers are considered as borrowing. 1.29 The amounts transferred through these four different channels constituted over 8.3 percent of GDP in 1986, about two percentage points higher than for the first three years of the decade. However, the amounts transferred via the two most important types (revenue sharing and discretionary grants) varied widely over the years, with the biggest shift occurring during the 1984-87 period when there was no formal revenue sharing law, meaning that all transfers were legally grants.L1 For example, the Hacienda data show revenue sharing to be zero in 1987 and projected to be over 5 percent of GDP in 1988. Although Discretionary Grants tended to rise to compensate drops in the Revenue Sharing snd vice versa, the tutal amount going to the provinces has also been temporally unstable. In order to interpret historical trends, the discretionary grants received under the "transitory revenue sharing agreements" during the 1984-87 period by the six provinces surveyed are considered in this study to be revenue sharing (i.e., current revenue from a national source). 1.30 The provinces normally share part of the resources from the national revenue sharing with municipalities. The primary and secondary distribution criteria used by the provinces vary widely, but tend to be weighted toward redistribution, rather than fiscal effort. Royalties increased by fivefold from only 0.2 percent of GDP in 1980 to 0.8 percent in 1986. As mentioned above, royalties are very important sources of revenue for the provinces of the resource frontier. IQ/ Although all should be treated as grants, it was not always poss_ble to dc so as the smaller funds are often grouped into one "other" category under financing that could contain some borrowing. In all of the tables in the Statistical Appendix, the "other" categor; was left as 'financing" (i.e., below the line), although some of it could have been classified as grants, if the available data were adequately disaggregated. IV Hacienda treats all revenue sharing done during this period as grants (Aportes del Tesouro Nacional), as do some provinces. However, other provinces consider the transfers under the ad hoc revenue sharing agreements during this period as current revenue from a national source, but it is not always clear how they determined what was revenue sharing and what was grant money.  - 11 - F. Rationale for Inter-novernmental Transfers 1.31 Conceptually, there are three major reasons for inter- governmental fiscal transfers: (a) the provision of services by one jurisdiction generates the spill-over of benefits or costs in another jurisdiction; (b) because of legal and/or administrative attributes, one level of government has a comparative advantage in raising revenues over other levels of government, and it is therefore more efficient for it to collect a revenas and then share it with other levels of government; and (c) a higher level of government is not satisfied with the distributive impact of the fiscal base status quo of other go-.ernments under its jurisdiction and centralizes the uollection of certain revenues so that distributive objectives may ba achieved through the inter-governmental fiscal transfer system. In summary, the three arguments generally used to justify inter-governmental transfers are: spill overs, equity and efficiency in tax collection. 1.32 When sub-national governments are expected to have a significant role in providing public services, public sector efficiency requires that sub-national governments receive fiscal transfers in a sufficient amount so that, combined with a reasonable sub-national government own-source fiscal effort, these governments may at least continue to maintain their current level of services. 1.33 In addition to quantity, predictability of inter-governmental transfers is important to public sector management efficiency. In Argentina, high variations in the annual amounts transferred to the provincial governments from the Central Government made it difficult for provinces to effectively plan their capital investments before 1988. 1.34 In order to ideaitify improvements in the effectiveness of Argentina's inter-governmental fiscal transfers system, it is necessary to identify the transfer allocation criterfa, which may be classified as follows: --Straight devolution: The taxes collected by the revenue sharing entity are divided according to the proportion of the total tax collected in each jurisdiction. In this case, the revenue sharer is just acting as a tax collector for the other entity. --Fiscal Efficiency: In this case, allocation of the shared funds is based on some measure of the level or the increase in tax receipts. For example, the distribution of the receipts of a given tax might be based on the total tax "effort" of the province or municipality. --Redistribution: Distributive criteria include: provincial populatior, surface area, equal shares, the inverse of population size, indicators of underdevelopment, poverty and unsatisfied basic needs. The higher the positive correlation of the criteria with the jurisdictions's total tax receipts, the lower the distributive impact. To the extent that population size is normally more highly and directly correlated with total tax receipts than such cr.teria as surface area or equal shares, its distributive impact  - 12 - will be lower. Distributive impact is highest where the criteria are inversely correlated with total tax receipts, as is generally the case with poverty or underdevelopment criteria. It is, therefore, interesting to divide the distributive criteria into two subgroups: proportional redistribution (population, surface area or equal shares) and compensatory redistribution (inverse of population size, development gap, etc.). 1.35 As discussed in Chapter II of Volume I (para. 2.15), Argentina's current Revenue Sharing System strongly favors territorial redistribution, but it tends to transfer resources away from areas with high concentrations of poor families.  - 13 - ANNEX CHAPTER II. SOC O-ECONOMIC STRATIFICATION OF THE PROVINCES A. The CFI Stratification of Prtginces 2.01 In addition to analyzing the data from each province individually or for all of the provinces together, tL.e provinces are analyzed by group. Rather than do a new strat'fication of the provinces, this study employs one used in many CFI studies (hereafter referred to as the CFI stratification) in which the provinces are classified in four groups: Advanced--Buenos Aires, Cordoba, Mendoza, Santa Fe and the Federal Capital (Municipality of Buenos Aires). Low Density--Chubut, La Pampa, Neuquen, Rio Negro and Santa Cruz. Intermediate--Entre Rios, Salta, San Juan, San Luis and Tucuman. Underdeveloped--Catamarca, Chaco, Corrientes, Formosa, Jujuy, La Rioja, Misiones and Santiago del Estero. These four groups are relatively homogeneous with regard to population size, economic product and poverty levels. This type of analysis is particularly important in Argentina given the great diversity of the provinces with regard to all three of these variables. 2.02 The tables of Part I of the Statistical Appendix show a number of basic indicators for the provinces and these provincial groups, including Total and Per Capita Gross Provincial Product population, and households with unsatisfied basic needs. The "Advanced Provinces" and Capital Federal all had populations of over 1.3 million in 1985, as well as above median per capita product and below median poverty as measured by the proportirn of households with satisfied basic needs. The "Low Density' provinces all had small populations (ranging from 134,000 to 460,000), but high per capita products. Of the five provinces in this group, two had high relative poverty (Neuquen and Rio Negro) with about a third of the families with unsatisfied basic needs. 2.03 One problem with this stratification is that the names of the four groups are confusing. For example, Formosa has low demographic density, but is classified as "Underdeveloped" and not "Low Density." More descriptive names for these same CFI regions would be: Advanced - High Population and Gross Provincial Product(GPP) Intermediate - Intermediate Population and Per Capita GPP. These provinces had populations ranging from 500,000 to 1.3 million in 1985 and per capita GPP in the middle third of the distribution. Low Density - Small Population and High Per Capita GPP. These are provinces on the "Resource Frontier", such as Chubut, Neuquen, etc. Underdeveloped - Low Per Capita GPP and High Poverty. Note that the last category uses slightly different criteria than the others  - 14 - in that it includes all provinces with low per capita product and high relative poverty levels, even those with populations of small and intermediate size. One way to think of this process of classification, then, is that the poorest provinces are first grouped into one group, and the rest are, in turn, classified by population and per capita product. B. Ponulation. Product and Poverty by Province and CFI Groun 2.04 Of the total estimated population of 30.6 million in 1985, 21.6 million (70.5 percent) lived in the Advanced Group. The 36,000 inhabitants of Tierra del Fuego are excluded. Almost 40 percent of Argentina's total population lived in the Province of Buenos Aires alone in 1985. Well over half of the population live in the three largest provinces: Buenos Aires, Santa Fe and Cordoba. The population of the Province of Buenos Aires is about the sawe as that of Chile, living in an area about the size of Italy (307,571 square kilometers). However, 63.6 percent of this population is concentrated in the Municipalities of Gran Buenos Aires. 2.05 The total population of the five provinces of the Low Density Group was only 1.4 million in 1985, about half that of the province of Santa Fe in the same year. However, these provinces are quite important in economic terms, due mostly to their high production of oil, minerals and other primary products. The total population of the 5 provinces of the Intermediate Group was 3.6 million (11.8 percent of the National total). The 8 provinces of the Underdeveloped Group had a total population of 4.0 million (13.6 percent of the National total), ranging from 180,000 ii La Rioja to 780,000 in Chaco. 2.06 Although the percentage of households with unsatisfied basic needs tends to be higher in provinces with smaller populations and lower per capita products, such as Formosa (46.8 percent) and Santiago del Estero (45.8 percent), the concentration in absolute terms is highest in the Advanced Group, especially its three largest provinces. For example, of the 1.6 million households with unsatisfied basic needs, 59.5 percent lived in the Advanced Group, with 35.9 percent located in Buenos Aires, 8.4 percent in Santa Fe and 7.5 percent in Cordoba. The Underdeveloped Group had 20.5 percent of the total, and the other two regions combined 19.9 percent. Thus, efforts to redistribute territorially, as in revenue sharing, can run at odds with the objective of interpersonal distribution, as they tend to distribute away from the areas where the absolute concentrations of the poor are the highest. 2.07 Gross Provincial Product (GPP) is very highly concentrated in the Advanced Group (78.4 percent).11 The GPP of all eight provinces of the Underdeveloped Group was less than that of Santa Fe in 1985, as was the total la/ For a discussion of the methodology used in calculating the Gross Provincial Product, see: Consejo Federal de Inversiones, Producto Bruto Geografico: 1970-1985, Buenos Aires, CFI, 1988. This publication is currently available for most of the provinces.  - 15 - GPP of the Intermediate Group. The fastest growing provinces during the 1970-80 period were outside of the Advanced Group, especially on the "resource frontier due mostly to the increase in gas and oil production. For example, Neuquen's CPP grew at 11.6 percent per annum during the 1970s. However, stagnation set in for most of the provinces in the first half of the 1980s, especially for the Underdeveloped Group which showed a decline of about 1 percent per year. The biggest loser, however, was the Federal Capital for which GPP dropped at about 2.8 percent per year. 2.08 Per capita GPP give a totally different ranking. Among the Provinces, the Province of Buenos Aires ranks in twelfth position with a per capita GPP of US$1,675, less than half that of the Province of Santa Cruz, Chubut or Neuquen. The three poorest provinces (Formosa, Santiago del Estero and La Rioja) had per capita GPP of less than US$1,000.  - 16 - ANNEX CHAPTR III*. FITLD WOtE IN THE PROVINCES 3.01 Case studies of six provinces were done to: cover the important gaps in the data on provincial finance from Hacienda and the total lack of centrally collected data after 1986 (See Annex Chapter I in this Volume), and also to do interviews to obtain a more detailed understanding of how provincial finance works. In these interviews, emphasis was given to the "felt need" for fiscal reforms at the provincial level, if any, and what kind of technical assistance would be needed to implement them. 3.02 The following were among the questions addressed: What are the main existing sources of provincial revenues? How could these receipts be increased in efficient and equitable ways (e.g., improvement of cadastres, better collection procedures, training, etc.)? What is the willingness to implement such reforms? How could provincial expenditures be reduced or be made more efficient and equitable? What is the willingness to implement such reforms? What are the sources of provincial credit? Of special interest are the more "informal" ones such as accounts in arrears, ovardrafts on provincial banks, etc. 3.03 Six provinces were selected for these case studies for the following reasons: Buenos Aires, Cordoba and Santa Fe, because they had the highest absolute deficits of all the provinces except 3alta in 1986 and because over 60 percent of Argentina's population resided in them in 1985. Santiago del Estero, because it was the only province to register a surplus in both 1983 and 1986, although it is among the poorest provinces of Argentina. Salta, as it had one the highest per capita deficits and also issues "bonds" which have all of the characteristics of currency. Chubut, because it is very dependent on transfers from the Central Government in the form of royalties and because it is in the Patagonian region. These six provinces accounted for 68.8 percent of the total population in the provinces in 1985, 62.8 percent of households with unsatisfied basic needs in 1980, half of total fiscal deficit of the general administrations of all of the provinces, and 70.9 percent of the gross provincial product. The frequency of the six provinces included in the field work by CFI group is as follows:  - 17 - Sample Unlverse Advanced 3 5 Low Density 1 5 Intermediate 1 5 Underdeveloped 1 8 Total 6 23  - 18 - ARGENTINA STAT ISTICGAL APEND IX LIST OF TABLES I. GENERAL DATA ON PRICES, POPULATION, PRODUCT AND POVERTY 1. Consumer and Wholesale Price Indices Used 2. Totrl Population by Regional and Province: 1970-1985 3. Households with Unsatisfied Basic Needs: 1980 4. Gross Provincial Product by Provincial Group and Province: 1980-1985 5. GDP per Capita by Province, Provincial Group and Sector 6. Annual Rate of Change of GDP by Sector, Provincial Group and Province: 1980-1985 7. GDP by Sector, Provincial Group and Province: 1980 8. GDP by Sector, Provincial Group and Province: 1985 9. GDP by Sector, Provincial Group and Province: 1970 II. PUBLIC FINANCE DATA FROM THE SIX PROVINCES STUDIED: 1981-1987 10. Revenues, Expenditures and Financing lO.a US$ 1O.b. Percent of Gross Provincial Product 1O.c Per Capita l0.d Summary Table of Performance Indicators 11. Revenues, Expenditures and Financing for the General Administration Only: Summary Tables for All Six Provinces: 1986-1987 ll.a US$ ll.b. Percent of Gross Provincial Product ll.c Per Capita ll.d Summary Table of Performance Indicators 12. Revenues for the General Administration Plus Provincial Public Enterprises for All Six Provinces: 1986-1987 12.a US$ 12.b. Percent of Gross Provincial Product 12.c Per Capita 12.d Percent of Total Revenues 12.e Percent of Total Expenditures  - 19 - 13. Expenditures for the General Administration Plus Provincial Public Enterprises for All Six Provinces: 1986-1987 13.a US$ 13.b. Percent of Gross Provincial Product 13.c Per Capita 13.d Percent of Total Revenues 13.e Percent of Total Expenditures III. PROVINCIAL GOVERNMENT REVENUES, EXPENDITURES AND FINANCING FOR THE CONSOLIDATED GENERAL ADMINISTRATION OF THE 22 PROVINCES AND THE MUNICIPAI TY OF BUENOS AIRES IN USW: 1981-1986 14. Provincial Revenues, Expenditures and Financing: 1981-1986 (US$) 14.a US$ 14.b Percent of Total Expenditures IV. PROVINCIAL GOVERNMENT FINANCE INDICATORS BY PROVINCIAL GROUP AND PROVINCE: 1981-1986 15. Total Revenues by Provincial Group and Province: 1981-1986 15.a US$ 15.b. Percent of Gross Provincial Product 15.c Per Capita 16. Own Source R6venues by Provincial Group and Province: 1981-1986 16.a US$ 16.b. Percent of Gross Provincial Product 16.c Per Capita 16.d Percent of Total Revenves 17. Revenues from National Sources by Provincial Group and Province: 1981-1986 17.a US$ 17.b. Percent of Gross Provincial Product 17.c Per Capita 17.d Percent of Total Revenues 17.e Percent of Total Expenditures 18. Total Expenditures by Provincial Group and Province: 1981-1986 18.a US$ 18.b. Percent of Gross Provincial Product  - 20 - 18.c Per Capita 19. Personnel Expenditures by Provincial Group and Province: 1981-1986 19.a US$ 19.b. Percent of Gross Provincial Product 19.c Per Capita 19.d Percent of Total Revenues 19.e Percent of Total Expenditures 20. Total Provincial Public Employment by Region and Province: 1983-1986 21. Total Investment by Provincial Group and Province: 1981-1986 21.a US$ 21.b. Percent of Gross Provincial Prod-ict 21.c Per Capita 21.d Percent of Total Ravenues 21.e Percent of Total Expenditures 22. Current Account Surplus Without Grants (Own Saving) by Provincial Group and Province: 1981-1986 22.a US$ 22.b. Percent of Gross Provincial Product 22.c Per Capica 23. Current Account Surplus With Grants (Saving) by Provincial Group and Province: 1981-1986 23.e US$ 23.b. Percent of Gross Provincial Product 23.c Per Capita 24. Overall Deficit/Surplus or Need for Financing by Provincial Group and Province: 1981-1986 24.a US$ 24.b. Percent of Gross Provincial Product 24.c Per Capita 25. Net Variation in Short Term Assets and Liabilities by Provincial Group and Province: 1981-1986 25.a US$ 25.b. Percent of Gross Provincial Product 25.c Per Capita  - 21 - I. GEMEAL DAM ON PRICES, POPUIATION, PRODUCT AND POVERTY  - 22 - ARGENINA PROVINCIAL GOV01W FINANCE SMY Table 1 CONiSUIER AND VHOLES PRICE INDICES 6ne: July 1088 c 100 Period Consmer Vholle Aerap (a) 1970 0.00000147 0.00000138 0.00000143 1980 0.00381685 0.00285433 0.00335059 1981 0.00780456 0.00604555 0.00692505 1982 0.02066464 0.02154142 0.02110303 1983 0.09171153 0.0.906286 0.09538719 1984 0.66648746 0.66880060 0.66764404 1985 5.14648186 5.1023506) 5. 12441L4 198L 9.783132 8.360398 9.071765 1987 22.631415 16.634139 20.6327M 1988 100.2469B7 95.51393 97.88061 1/1988 39.250913 33.950816 36.600864 2/1988 43.345701 38.488807 40.917254 3/1988 49.734456 44.743903 47.239180 4/1988 58.304732 52.275832 55.290282 5/1986 67.470934 64.442511 65.956722 6/1988 79.591910 79.938701 79.765306 7/1988 100.000000 100.000000 100.000000 6/1988 127.625271 131.852215 129.738t73 9/1988 142.547638 140.30935 141.428406 10/1988 155.367556 146.722814 151.045185 11/1988 164.245563 152.418158 158.331861 12/1988 175.479171 161.024102 168.251637 SOURCE: FIlL, INDICADORES DK COTUNTURA, Agosto 1988, p. 74, 78 and 110. NOTE: a) Australes vill be transformed to July 1988 values using the averag of the *NIvel General Total' of both the hIndice de Preclos al Consumidoc for the Federal Capital and Gran Buenos Aires and of the *Indlce de Precios al por hayor from INDEC, and then Into dollars using the average value finanoleroe for July (1US a 12.18 Australes). The financial market Is legal, but us much higher thaQ that of the offical rate (US$ a 0.66 Australes).  - 23- TIF~~~~~~~~~~~~~~~~~~~~~~~~~~ AlumINA PROVINCIAL GOVENIEIT FINANCE STUDY Table 2 Total Population by Provincial Group am Provincos 1970-1965 000's . *.... ......*. ._. ... ..... _.... ........ ...... ... .. ........ .... Groups 1970 1960 185 Absolute Chane Annual Rates Provinc ------------------------------............ 70/80 80185 70/80 80/65 . ................... ........................................ ............ .......................... TOTAL 23348.9 27920.1 30613.8 4571.2 2693.7 1.80 1.86 ADVANCED 16915.7 19857.8 21567.7 2942.1 1709.9 1.62 1.67 Capital Federal 2072.5 2922.8 2806.3 -49.6 -24.5 -0.17 -0.17 Buenos Aires 8714.5 10865.4 12000.9 2090.9 1225.5 2.16 2.16 Cotdoba 2060.1 2407.8 2603.0 347.7 105.3 1.57 1.57 Nendoza 973.1 1196.2 1326.3 223.2 130.1 2.09 2.09 Santa Fe 2135.6 2465.5 269.2 330.0 183.6 1.45 1.45 LOl DENSITY 863.6 1213.5 1442.4 340.9 226.9 3.46 3.52 Chbubt 189.9 263.1 309.7 73.2 46.6 3.31 3.31 La Pup 172.0 208.3 229.1 36.2 20.9 1.93 1.93 Neqmne 154.6 243.9 306.3 89.3 62.4 4.66 4.66 Rio Negro 252.6 383.4 463.; 120.7 79.8 3.65 3.85 Santa Cruz 84.5 114.9 134.1 30.5 19.1 3.13 3.13 INTEDJEDIATE 2655.3 3224.2 3557.6 566.9 333.4 1.96 1.99 Entre Rios 611.7 98.3 960.9 96.6 52.5 1.13 1.13 Salt& 509.8 662.9 755.9 153.1 93.0 2.66 2.66 San Jua 364.4 466.0 513.1 81.6 47.1 1.94 1.94 San Luis 183.5 214.4 231.8 31.0 17.4 1.57 1.57 Tucuaan 766.0 972.7 1066.1 206.? 123.4 2.42 2.42 2914.3 3624.6 4046.0 710.3 421.5 2.21 2.22 Ctatatca 172.3 207.7 228.1 35.4 20.3 1.69 1.89 Chaco 56l.6 701.4 780.4 134.8 79.0 2.16 2.16 Cottientes 564.1 661.5 716.2 97.3 54.8 1.60 1.60 Foruosa 234.1 296.9 332.7 61.8 36.8 2.37 2.37 Jujuy 302.4 410.0 477.4 107.6 67.4 3.09 3.09 La RBoja 136.2 164.2 180.3 28.0 16.1 1.89 1.69 NIgiaies 443.0 589.0 679.1 146.0 90.1 2.89 2.89 Santiago del Ester 495.4 54.9 651.9 99.5 57.0 1.85 1.85 Souwce INDEC  - 24 - AMRTWIA PROVINCIAL GOVERMiIBT FINANCE STUDY Tabl 3 NoHbusolds uith Unsatistled aSuit leeds by Provincial 6roup sad Province 1080 Groups Absolute s of * of Provinces Provincial National Accmulated Total Total s S TOTAL 1,565,223 100.0 ADVANCED 94S,659 17.7 59.5 59.5 Federal Capital 67,692 7.4 4.3 4.3 Bueonos Aires 568,925 19.9 35.9 40.2 Cordoba 118,315 19.2 7.5 47.6 Nendoza 56,061 20.4 3.5 51.2 Santa Fe 132,666 20.0 8.4 59.5 LOU DENSITY 83,735 28.6 5.3 64.8 Cbubut :8,695 20.8 1.2 60.7 La Pup 10,679 18.5 0.7 61.4 muquen 1t,951 33.9 1.1 62.5 Rio Nero 30,401 32.8 1.9 64.4 Santa Cru 6,009 22.7 0.4 64.8 INTERNEDIATE 232,077 32.9 14.6 79.5 Intre Hos 61,360 21.9 3.9 68.7 salts 58,228 42.4 3.7 72.4 Sn Juan 25,803 26.0 1.6 74.0 San Lult 14,078 27.7 0.9 74.9 Tucuan 72,606 36.6 4.6 79.5 325,752 42.3 20.5 100.0 Catauaca 16,129 37.6 1.0 80.5 Chlo 67,410 44.0 4.3 84.7 Corttente 56,88 40.6 3.6 68.3 Forsosa 28,732 46.8 1.8 90.1 Jujuy 38,886 45.1 2.5 92.6 La Rioja 11,002 31.6 0.7 93.3 Nisione 50,553 39.2 3.2 96.5 Spo. del Estero 56,151 45.8 3.5 100.0 SOMRCE: INDEC, U POBEA Ell U ARGENTINA  - 25 - ARGENTINA PROVINCIAL GOVRET FINANCE STUDY Table 4 6ro Provincial Product by Provincial 6roup and Provinces 1970-1985 Millions of UrA ot July 1998 Grups 1970 1980 1985 Abwolute Change Amual Rates Provinces 70/80 80/85 70/80 80/85 MTAL 46521.8 59718.9 59238.6 13197.1 -480.3 2.53 -0.16 ADVAII 38390.6 46953.9 46454.7 8953.3 -499.2 2.03 -0.21 Capital Federal 13221.8 15704.7 135I8.7 2482.9 -2116.0 1.74 -2.95 hems Aires 157S0.4 19021.8 20037.3 3271.4 1015.5 1.91 1.05 Cardaba 3024.5 4316.5 4466.2 1292.0 149.7 3.62 0.68 thldoza 2279.5 2260.5 2633.i -19.0 372.6 -0.08 3.10 Santa Fe 4114.4 5650.4 5729.3 1536.0 79.0 3.22 0.29 LOUi WSITY 2097.3 3800.3 3839.2 1703.0 37.9 6.12 0.20 Chubut 559.9 995.6 886.1 435.8 -109.5 5.93 -2.30 La Pampa 370.1 497.3 665.3 127.2 168.1 3.00 6.00 NeuQuen 330.6 993.9 910.4 663.3 -83.5 11.64 -1.74 Rio Negro 561.7 862.3 977.9 300.6 115.5 4.38 2.55 Santa Cruz 275.0 451.2 398..5 176.2 -52.8 5.08 -2.46 INTEMEDIATE 3404.5 4875.1 5044.3 1470.6 169.2 3.66 0.68 Entre Rios 1183.4 1319.3 1217.5 135.9 -101.8 1.09 -1.59 Salta V26.8 951.1 1110.2 324.3 159.0 4.26 3.14 San Juan 38.6 %9.4 591.0 180.8 21.6 3.89 0.75 San Luis 238.2 351.5 415.7 113.3 64.2 3.97 3.41 Tucuua 967.5 1683.8 1709.9 716.3 26.1 5.70 0.31 INE IBN 2629.3 409.5 3901.4 1460.2 -189.2 4.52 -0.94 Catarca 129.7 251.1 289.1 121.4 38.0 6.83 2.86 Chaco 466.5 713.3 636.9 246.8 -76.4 4.34 -2.24 Corrientes 637.7 866.1 793.2 228.4 -72.9 3.11 -1.74 Formosa 196.3 246.3 251.1 50.0 4.8 2.29 0.39 Jujuy 355.5 642.5 647.8 287.0 5.4 6.10 0.17 La Rioja 103.6 163.6 158.6 60.0 -5.0 4.68 -0.61 Nisions 336.2 628.2 581.0 291.9 -47.1 6.45 -1.55 Santiago del Ester 403.9 578.5 543.6 174.4 -35.0 3.66 -1.24 Soame CFI  - 26 - ARGTINA PROVINCIAL GOVENIT FINANCE STUDY Table 5 Gross Provincial Product per Capita by Provincial Goup and Provinest 1970-1835 USS of July 198 Groups 1970 1980 1985 Absolute Change Annual Rates Provinces -------------------- ----------------- 70/80 80/85 70/80 80/85 TOTAL k092.5 2138.9 1935.0 146.5 -203.9 0.71 -1.98 ADVANCED 2269.5 2364.5 2153.9 95.0 -210.6 0.41 -1.85 Capital Federal 4448.1 5373.1 4698.5 925.0 -664.7 1.91 -2.69 Buenos Aires 1795.0 1750.7 1657.2 -44.3 -93.4 -0.25 -1.09 Cordoba 1468.2 1792.7 1715.8 324.6 -77.0 2.02 -0.87 NFndoz 2342.6 1689.7 1985.3 -452.9 95.6 -2.13 0.90 Santa Fe 1926.6 2291.7 2162.7 365.2 -129.1 1.75 -1.15 LOY DENSITY 2428.6 3131.7 2861.0 703.t -470.6 2.58 -3.20 Chsuut 2847.9 3784.0 2861.3 836.1 -922.? 2.53 -5.44 LA Pampa 2151.1 238?.7 2903.6 236.5 515.9 1.05 3.99 Neu*uen 2139.0 4076.0 2972.5 1937.0 -1103.5 6.66 -6.12 Rio Negro 2139.0 2249.4 2111.2 110.4 -138.1 0.50 -1.26 Snta Cruz 3256.4 3825.6 2971.6 669.2 -954.0 1.89 -5.42 INTVRNEDIATE 1262.2 1512.0 1417.9 229.9 -94.1 1.66 -1.26 Entro Ro$ 1458.0 1452.5 1267.1 -5.5 -185.4 -0.04 -2.69 Salta 1229.6 1434.8 1468.7 205.3 33.9 1.56 0.47 Sn Juan 1011.1 1222.0 1151.9 210.8 -70.1 1.91 -1.17 San Luis 1298.3 1639.2 1793.4 341.0 154.2 2.36 1.81 Tucuan 1263.1 1731.1 1560.1 466.1 -171.1 3.20 -2.06 IIDERD_VELOPED 902.2 1128.3 964.2 226.1 -164.0 2.26 -3.09 Cataarca 752.4 1208.9 1267.8 456.5 58.8 4.86 0.95 Chaco 823.3 1017.0 816.1 193.7 -20a.8 2.14 -4.31 Corrientes 1130.3 1309.4 1107.5 179.1 -201.9 1.48 -3.29 FPorooa 838.6 832.3 754.1 -6.3 -77.5 -0.08 -1.94 Jujuy 1175.4 1566.9 1357.0 391.6 -209.9 2.92 -2.84 La RIoja 760.4 996.2 879.9 235.8 -116.3 2.74 -2.45 Nisioues 758.9 1066.5 855.6 307.6 -211.0 3.46 4.31 Santiapo del Estero 815.4 972.5 833.8 157.1 -138.7 1.78 -3.03