In its history, the Argentine economy already has several episodes of control and decompression of some variable. Attempts to contain the inevitable end up producing imbalances in that market or spreading the distortions to the rest of the economy. But this time we are not talking about the dollar or the prices that are presumed care: it is the turn of the rates of public services.
Eureka!
The connection with economic policy reinforced its leading role at the end of convertibility. In its eagerness to show that a 200% devaluation would not affect the rest of the prices, the government of Eduardo Duhalde saw the light :cWith the cost of inputs and capital, dollarized, this difference could be subsidized so as not to increase the bill. Conclusion: a cataract of trials of the concessionaires in the ICSID (International Center for closing the gap between costs and “stepped” rates.
for the specialist Santiago Urbiztondochief economist at FAITHFUL and also full professor of Economics and Regulation of Public Services at the National University of La Platathe rate level should be multiplied by three to reach the updated value that was in force during convertibility, when subsidies did not exist.
The impact of this gap changed depending on the applied policy, but it became a magnitude of macroeconomic relevance. For example, in 2014 it consumed 5% of the GDP, but after the “tariffs” from the first year of the administration of Mauricio Macri, it dropped to 1.5% for 2019 and grew again to 3.3% of GDP in 2021.”The quasi-freezing of the rates of different public services -gas, electricity, transport, drinking water, at the country level or limited to the AMBA depending on the service- since the second quarter of 2019, in the face of accumulated inflation and devaluation of practically 200 % since then, reversed the trend of reducing tax subsidies verified between 2016 and 2019”, explains the economist. The aggravating circumstance, now, is that, due to the combined effect of the pandemic exit and the war scenario in Ukraine, if nothing changes, one more point of the tariff red would have to be added for 2022. It is that the costs have risen in dollars (perhaps even 30% throughout the year.
Precisely, what in another context would be a “technical correction” now unleashes political storms, amid inflationary projections for 2022 of 60% per year. It is only enough to remember that the large demonstrations that occurred in October 2019 in Santiago de Chile, caused by a rate adjustment in the metro, lit a fuse of discontent against “the system” in force, with price stability, sustained growth and poverty in decline over time. throughout the three decades of democracy. And the ticket increase, in that case, had been only 4%….
Time
The official decision to unfreeze tariffs has many logical antecedents but a trigger: the commitment assumed with the IMF. “After the gas and electricity rate increases in March (around 20%), the increases planned for June (an additional 20% in general, and the elimination of tax subsidies for the 10% of the population with the highest purchasing power), It will not even be enough to prevent tax subsidies, measured as a percentage of GDP, from rising in 2022 compared to 2021”, adds Urbiztondo. This calculation projects that assuming that in transport and drinking water in the AMBA there were increases of 40% during 2022, as of December of this year there will still be tariff increases pending above future inflation of 75% in general terms (considering gas, electricity, transport and sanitation in the AMBA).
The inevitable noise that this measure makes for a consumer culture that has become accustomed to cheap access to public services as a social conquest regardless of the fiscal cost, fuels doubts as to whether it could really be carried out. Even the diagonal found by the Government to segment the increase by introducing a distributive criterion of dubious effectiveness and vulnerable to the legal proposals of those most affected, also enters into a nebula. “It is really an unknown if it is really going to be possible to implement the proposed update, on the one hand, and if, in addition, the promised segmentation can be done”sentence Camilo Tiscorniadirector of C&T Economic Advisors. In their projections, the rate adjustments, with luck, will end up leveling inflation that today is already above 60% per year. In other words, even overcoming the obstacles, they will not serve to lower the projected deficit.
Rebound
The problem of suppressing prices in more sensitive markets, such as public services, with the dragging distortions that accumulate pressure to reach equilibrium, which often generates a jump in the price level. “Inflation is the sustained increase in all prices. In this sense, the updating of any price does not feed inflation in particular, but rather accompanies it. But delaying a particular price to placate her contains very little and then causes a sharp jump when the pressure makes it impossible to keep it delayed.” explains the economist George HillPresident of IDESA. Urbiztondo also does not adhere to the inflationary push argument to postpone adjustments. “In the medium and long term, inflation does not depend on tariff levels but on the existence of a comprehensive plan that includes a certain fiscal balance (given by access to public credit in a sustainable way). Without a consistent macroeconomic plan, any measure adopted leads to inflation,” he warns.
Release
LThe trap in decision-making not only covers tariffs, but also reaches two other variables in which the official policy used as inflationary “anchors” in the last two years: the exchange rate and the interest rate.
During 2021 the “official” dollar rose 25% against 54% of the rise in the consumer price index (CPI). Tiscornia estimates that “the dollar will continue to move at the same speed as before: between 3.5% and 4% per month,” he summarizes. As with rates, it also analyzes that the expected increases are already incorporated in inflationary expectations, which will only be altered if there is a sudden unforeseen jump.
The circuit with the interest rate is more intricate. Last week, the Central Bank raised the cut-off rate for bill tenders by 2.5%, validating an effective annual rate of 59%. Raising it a few more points would not be unreasonable with inflation running comfortably above it, but it would spiral into recession just as economic activity entered a “plateau” after last year’s recovery.
One more ingredient for a stabilizing formula that gets complicated every time inflation accelerates, which, paradoxically, is what fuels these emergency measures. A vicious circle that should become virtuous at some point.
