A new report released by the Buenos Aires-based NGO Asociación Argentina de Presupuesto y Administración Financiera Pública (ASAP) reveals that Argentinean government subsidies have skyrocketed during the first trimester of 2008. According to numbers calculated by ASAP, the government spent almost US$ 4.6 billion during the first three months of 2008: a 132% increase over the same period last year.

Over half of this amount (56%) went to energy subsidies. Argentina spends the bulk of its energy subsidies on the purchase of fuel oil, a petroleum product that is used to generate electricity for the nation's power grid. As governments around the world have experienced, rising fuel costs have led to a rising subsidy bill.

Another major component of Argentina's rising subsidy bill is the payments the government provides to certain food producers and vendors as part of its food price-control scheme. Since early 2007, the Argentinean Government has controlled the prices for food products such as milk, wheat, corn, soy and their derivatives. The scheme was implemented in order to curb inflation, which had risen to double digits the previous year.

Argentina spent US$ 448 million during the first trimester on supporting the cost of food products, triple the amount spent in the period time last year. These subsidies have been predicted to increase in the coming months as food prices rise further.

Notably, recent social unrest due to the food-price crisis led the International Monetary Fund's secretary-general Dominique Strauss-Kahn to call on Latin American governments to temporarily increase food subsidies, in order to alleviate the effects on the poor. At a conference organized in early May by the Council of the Americas, Mr. Straus-Kahn stated that temporary subsidies were preferable to lowering taxes on the import or sale of food, since the latter would have longer-term negative impacts on government budgets.

The 2006 Economics Nobel Prize Laureate Edmund Phelps has also recently weighed in on Argentina's food-price controls. Speaking to the Argentinean paper La Nacion in May, Dr. Phelps said that the current food price crisis required targeted support to low-income people. However, he criticized the current food-subsidy scheme in Argentina for also benefiting the middle and upper classes.

The full ASAP report is available in Spanish by clicking here.