(Adds deficit data including debt payments)
By Hugh Bronstein
BUENOS AIRES, March 10 (Reuters) - Argentina's economy was in freefall by the end of last year and its fiscal accounts left in tatters by high spending ahead of the November presidential election, the government said in the first major data release of the new administration.
The 2015 primary deficit was 5.4 percent of gross domestic product versus 3.8 percent in 2014, the finance ministry said on Thursday after a top official told local TV that the economy shrank 3.5 percent in the last three months of the year.
President Mauricio Macri took office in December promising to bolster an economy hobbled by trade and currency controls. Since then he has floated the currency, cut taxes and trade barriers and eliminated thousands of public jobs. His challenge is to cut state spending while stimulating growth.
If he pulls it off, Argentina could become a bright spot in an emerging markets landscape blighted by Latin American corruption scandals, slower commodities demand from China and fear higher U.S. interest rates could push investment out of developing countries and toward the dollar.
"This is not an economy that is cooling. It's an economy in clear recession. We had a very negative final quarter of last year combined with the central bank printing a record amount of pesos," Macri's Cabinet chief Marcos Pena told local TV late on Wednesday when he announced the 3.5 percent slump in GDP.
Pena did not say if the quarterly contraction was measured against the third quarter of last year or the fourth quarter of 2014. The country's statistics remain cloudy as Macri reforms a statistics agency long discredited for publishing false data.
"The 3.5 figure could reflect the revamped statistical approach, with worse growth and inflation expectations under more credible methodology," said Washington-based emerging markets consultant Gary Kleiman.
In January, Macri's first full month in office, the primary fiscal deficit came out at $39.2 million, 91 percent narrower than the same month a year earlier. The primary deficit does not factor in debt payments.
The fiscal deficit including debt service costs and non-tax revenue shrank to 2.2 billion pesos in January versus 13.5 billion pesos in January 2015. For the whole of 2015 that deficit amounted to 5.3 percent of GDP, up from 2.8 percent in 2014.
Previous President Fernandez left office in December with inflation at about 30 percent per year. Macri's economic team said the rate will slow to 1 percent per month in the second half of 2016.
The government says it would like to issue billions of dollars in international bonds next month, once a deal is finalized with creditors who rejected Argentina's 2005 and 2010 debt restructurings and went to court for full repayment of obligations the country defaulted on in 2002.
Fernandez refused to negotiate with the creditors, who she derided as "vultures". But Macri is in a hurry to end the 14-year legal battle over the country's $100 billion default. The unresolved court case has hamstrung Argentina's finances by locking the country out of the global credit markets.
"Stagflation will linger into the president's first year regardless of the debt deal and the removal of capital controls," Kleiman said. (Additional reporting by Gabriel Burin and Anthony Esposito; Editing by W Simon and Andrew Hay)