Building blocks: in 2006, Argentina's government will dole big bucks out to improve infrastructure.

Argentine construction companies have every reason to smile. When the Kirchner administration unveiled the 2006 budget, Planning Minister Julio de Vido found out he was getting the lion's share when it came to budget increases--US$1.20 billion more than he had in 2005, most of it bound to improve infrastructure.

According to the latest government figures, Argentina's total budget for 2006 comes to $32.31 billion, which is $3.46 billion more than a year earlier. "For 2006, we've got $3.70 billion set aside for infrastructure" de Vido said, responding to questions at a press conference. "This shows how important this is to the government." According to de Vido, ports, highways and other projects such as the Plan Circunvalar, a project that will decongest highway and railroad traffic in the nearby port town of Rosario, are slated to receive government money in 2006. Argentina is a large producer of soy and other agricultural products, and booming demand in Asian countries, namely China, has prompted the government to improve infrastructure in order to allow producers to get their goods out quicker.

Also important for the country are energy, fuels and mining. The government plans to spend $1.44 billion there, which is $424 million more than in 2005, especially after scarce energy resources strained the country--and the economy--during the last few years. The government will focus on ensuring the domestic supply of natural gas and electricity by making sure other countries and third-party entities live up to energy agreements, according to the 2006 budget proposal sent to Congress. Argentina is dependent on natural gas pipelines running across the Southern Cone. The Kirchner administration squeezed the natural gas supply to neighboring Chile when the resource grew scarce at home.

Public spending will help finance the construction of pipelines, including one that will bring in gas from neighboring Bolivia. Work on that project will begin in March. The government will also expand capacity at other pipelines as well as at electricity transmission lines, particularly those connecting Choele Choel, in Rio Negro province, with Rio Gallegos in Santa Cruz province. Increased energy supply will also improve mining activities within the country.

Another $911 million will build new houses, which is $210 million more than in 2005. In just over a year, work will begin on emergency housing programs while a federal housing plan, which will develop 300,000 new housing units by 2007, will continue to receive fresh government funds.

The budget also earmarks funds for highway maintenance. Money will upgrade interstate highways, especially those near the country's borders, and will integrate other transportation networks. The government will bid out work to interested companies.

Construction companies, and those who supply them, will emerge as the obvious beneficiaries of the government's plans to improve infrastructure. Carlos Wagner, head of Esuco, a construction company, will continue working on projects bid out from the 2005 budget, including those made at the national level or others made at provincial and municipal levels. "For 2006, the outlook calls for continuing with projects currently under management as well as participating in auctions for new projects slated to begin this year" says Wagner.

Despite budgetary increases, there is still room for more investments, says Wagner, who also presides over the Argentine Construction Chamber. "The GDP [gross domestic product] for 2006 is forecast to be $161.50 billion, while funds invested in public works come to 2.45% of GDP," Wagner says. "This amount is insufficient to upkeep existing infrastructure on top of what's needed to build enough new infrastructure needed to support the country's growth."

The construction chamber, meanwhile, says overall investment in the sector this year will come to $18.21 billion, with the public sector accounting for 21.7% of that. For the chamber, the private sector remains the motor behind its growth.

In the wake of the economic implosion of 2002, the government allocated emergency spending to programs helping low-income citizens. Now that the economy is getting back on its feet again, the government is redirecting public spending to other programs, which is good for public works, says Daniela Dborkin, a researcher at CIPPEC, a public policy research center. Spending reallocation, coupled with the government's need to pump more money to increase its energy supply, prompted the Planning Ministry to spend more and more on infrastructure, Dborkin says.

While vibrant highways and energy supplies are important for President Nestor Kirchner, so are healthy minds and bodies. The Education Ministry's budget jumped to $2.09 billion in 2006 from $1.65 billion a year earlier. "With the crisis, public spending in education took a hit, but since the economy began to recover, so did education in terms of productivity and the amount of money allocated to it," says Dborkin. While salary hikes at the country's universities will grab a big chunk of public spending, money will flow into higher-education programs designed to improve technology.

Beware. Professors and educators aren't the only ones getting raises. Those in uniform are too. The defense sector will get $1.97 billion in 2006, up from the $1.74 billion it got a year earlier. Rosendo Fraga, a political analyst specializing in military affairs, says suppliers should beware. "The budget for defense is going up 5% in a budget that is going up 15%," says Fraga. "It's one of the areas that is growing the least and a big part of the spending increase will pay salaries."

Gustavo Sibilla, an analyst at SER en el 2000, an organization that tracks military expenditures in Latin America, says the portion of the budgetary increase that will actually purchase capital goods comes to $83 million, $42 million of which will buy combat equipment. Breaking down capital expenditure by sector, the air force will take in $28 million, followed by the Defense Ministry itself, which will get $5.5 million. The navy gets $4.5 million while the army rounds it out with $4 million.

Most of the air force's $28 million will modernize its fleet of LA-63 Pampa combat-training aircraft. "The budget is also forecast to upgrade transport aircraft, upgrades on the LA-58 Pucara aircraft and finance a plan that will modernize the primary training helicopter fleet," says Sibilla.

The Argentine subsidiary of U.S. aircraft manufacturer Lockheed Martin manufactures the LA-63 Pampa aircraft. Company spokespersons told LATIN TRADE they did not want to reveal terms surrounding the bidding it uses to find its suppliers. Nor would they comment on spending. Many suppliers to the Argentine military are domestic companies, says Fraga, although most of them buy their original inputs from abroad. Also, when it comes to military hardware, suppliers come from abroad. "Arms and similar purchases can be made directly--without auction--and purchases are normally made from foreign companies," says Fraga.