A fiscal adjustment plan implemented by the Argentine government has sparked a growing clash with provincial governors. The president, Javier Milei, accuses the governors of blocking his ambitious economic reforms while his administration continues to cut transfers to the country’s districts.
The confrontation is intensifying: what began with sharp exchanges has moved into the courts, with several governors turning to federal tribunals and the Supreme Court. Now, several oil-rich provinces threaten to halt hydrocarbon supplies next Wednesday if the national state does not transfer the funds they demand.
Among the 23 provinces plus the autonomous city of Buenos Aires, La Libertad Avanza, the far-right political group led by Milei, governs none of them. Milei took office on December 10 last year.
Though some governors are clearly opposed to the new administration and others more amenable to dialogue, all districts have felt the impact of a fiscal tightening equivalent to five percent of GDP. This course, together with a package of reforms aimed at deregulating the economy, was formalized in a decree signed by the president in December and in the proposed omnibus law, whose parliamentary debate stalled.
Milei largely blames the legislative setbacks on deputies who voted against the project, or parts of it, following political directives from the governors to which they belong.
Many provincial leaders, in turn, accuse Milei of trying to restore public finances by treating the provinces as an adjustment variable and refusing to grant them a larger share of the revenue distributed at the federal level.
January’s public accounts data reveal a substantial reduction in transfers from the national government to the provinces.
According to a report from the Argentine Institute for Fiscal Analysis, total transfers in January registered the lowest real value for that month since 1993-2024.
Provincial accounts are affected through several channels.
On one hand, automatic transfers stemming from the federal tax sharing have diminished in real terms. On the other hand, non-automatic transfers fell in January by 82.8 percent year over year in real terms. These include current transfers (financial aid to provinces, education funds, payments to provincial pension funds, among others) and capital transfers (funds allocated to public investment).
Current transfers declined by 72 percent year over year in real terms.
In capital expenditures, the portions sent to provinces were almost entirely cut in energy, transport and housing, while education and access to clean water and sanitation saw reductions exceeding 96 percent in real terms year over year, according to a CMF report.
The reliance on shared tax revenues and discretionary transfers weighs heavily on provincial incomes, particularly in northern districts. In those provinces, about 74 percent of revenue comes from the shared tax pool and 9 percent from discretionary transfers.
The cuts have strained relations between the national executive and the governors, who were called “fiscal degenerates” by the president this past Friday.
La Rioja province turned to the Supreme Court to seek a suspension of the Milei decree and even threatens to issue a parallel currency to meet its expenses.
La Pampa also appealed to the Court, challenging the cutoff of subsidies for transportation. Chubut obtained a favorable ruling in a lower court for the same cause.
Río Negro and Misiones filed lawsuits last week against the national state for not disbursing the teacher incentive funds that cover about 15 percent of teachers’ salaries.
And Chubut now threatens to cut gas and oil supplies if the demanded funds are not released, a move supported by most provinces.