After a year of the new economic management, focused on the market and economic freedom, the macroeconomy is becoming organized and the microeconomy continues with more imbalances, but it may be facing a structural change. The Government maintains a very high level of acceptance, after a year of fiscal adjustment and recession of around 3.5% annually. The Government Confidence Index of the Di Tella University registers the highest average measurement for an ruling party in comparison with other presidencies since 2003.
Reading from political economy. The management did not respect the institutions on more than one occasion (validity of the 2023 Budget, among other examples). The 2025 National Budget has not been discussed so far and the 2023 budget remains in force in combination with the 2024 budget execution, which again grants broad discretion to the National Executive Branch. From the point of view of the institutions and the National Constitution, it continues to be an ill-advised public policy and a bad precedent. But Argentine liberalism in its history was not very attached to institutions. He almost always supported and was part of the military governments and was the protagonist of the presidency of the ’90s, not very attached to the validity of some institutions.
Support for the government is focused on winning sectors, many businessmen and the population with high purchasing power, and a large part of informal sectors that also won with a full provision of greater social plans that charge without political intermediaries and without the obligation to be taken to marches. On the other hand, due to cultural factors, acceptance among young people is high. 40% of the electoral roll are sub-35, where there is good adherence. This age group receives information mostly on social networks and not in traditional media.
Towards an orderly macroeconomy. From the point of view of economic policy, the results are more evident since they are reflected both in statistics and in the expectations of the population. The “chainsaw” was fiscal balance and “dollarization” was minor inflation with corrected relative prices and the beginning of a tenuous, for now bimonetarism.
Half of the population sees the glass half full and maintains that the macro was almost orderly: we need to remove the stocks, see what happens with the exchange rate delay and achieve single-digit annual inflation.
A fiscal surplus was achieved for the Nation, with extra tax revenue and sloppy adjustment of public spending, with cuts focused on public works and the provinces and, to a lesser extent, on retirees, public employees and universities. Little adjustment about “caste”, an electoral myth, but with good results. It is impossible not to highlight the extra tax revenues due to more than doubling the rate of the PAIS Tax, the money laundering and the persistence of export duties.
Inflation is converging to some value in the order of 2.5% monthly with various relative prices corrected as the best achievement. The exchange gap fell to 15%, from more than 100% months before. The drop in country risk to 650 basis points was notable, from 2,600 a year ago. Financial markets believe in the economic program, bonds recovered more than 60% and private stocks grew exponentially. The foundations for large investments have been laid, especially by the RIGI.
Exchange rate policy in 2025, amid the exchange rate delay, will continue with more crawling peg and more exchange rate delay, typical of electoral years in Argentina. The monthly exchange balance shows that imports of goods are rising and will continue to rise – due to reactivation and lowering of tariffs – and imports of services due to outbound tourism attracted by the delay. With negative net reserves of the BCRA in the order of US$8,000 million, the exchange rate should persist. The devaluation of the Brazilian Real will affect exports, but should not modify exchange rate policy, at least until after the elections. The Nation’s public debt grew due to Lecap/Lefi (the BCRA’s fell, but it is still complicated) and may be a problem in a couple of years or in the face of external shocks.
Microeconomics in crisis, but in transformation. The other half of the population sees the glass half empty. It recognizes macro achievements, but demands better institutions, a National State more committed to the productive and social, a micro one with more sectors and greater care for employment.
The reactivation is slow and heterogeneous by sector, but without significant additional deterioration of the labor market, already very damaged for about 25 years and with a preeminence and social acceptance of informality.
The Argentine economy is an economy in correction and dramatic structural change approximately every three or four decades. Therefore, in each change there are inevitable temporary transitions with winners and losers in the microeconomy.
In the official vision, the micro will be oriented by the market, that is, capital and labor resources will be oriented towards private competitive activities with emphasis on tradables such as oil and gas, mining, forestry, grains (if the government eliminated export duties ), technology, finance and some non-tradables such as real estate and construction. ANDl salary, determined by the market and productivity. A withdrawal of the National State with increasing decentralization of different functions to subnational governments.
The RIGI has already caused immediate effects on hydrocarbons and generates high expectations about them and mining for the coming years. Also for forestry activity. This ensures an excess supply of dollars and a positive trade balance year after year, which is good news for the recurring problem of external restriction of the Argentine economy.
The official SME bill has generally unattractive incentives, and in terms of labor reform it is very limited.
It is not clear how public works continues: the national public sector has still not reactivated it, no PPP schemes have been announced, nor is there a transfer of functions to the provinces. It seems that the fiscal adjustment on public investment will continue in 2025, but it already affects competitiveness and private production costs.
The “Argentine cost” remains to be lowered; The timing is not clear, nor are the instruments available to the government in the short term. The list is long: DEX, distortive taxes, logistics and public works, credit and interest rates, various deregulations, labor costs and flexibility, getting provinces and municipalities to stop raising – and lowering – taxes/rates (difficult). The rate of reduction of import tariffs is a risk for local production without lowering the “Argentine cost” in parallel.
The projections of economic activity for 2025 are moderate, at 3.6% annual growth, and similar for 2026. The medium-term productive and employment perspective points to growing regional development in the geographical ring that starts in the north of Entre Ríos and runs through all the bordering provinces to Tierra del Fuego, especially through the RIGI. In contrast, large urban centers point to segmented consumption conditioned by informality.
After a productive and social model. In short, the Argentine economy seems to be heading, if this new form of pro-market economic organization and economic freedom succeeds and continues beyond 2027, towards a mix between the economies of Chile and Peru. Stability, currency competition, global finance, extractives around export commodities, construction/infrastructure, strong consumption of ABC segments with informality assumed by a large part of the population. Adding technology in the case of Argentina.
In contrast, the Argentine economy would “move away” from a form of organization that can be called an average of Brazil and Mexico, highly stated and not achieved during the long years 2003-2015. Those economies have more integrated and competitive industrial production structures, a greater number of private companies, strong exports, and broader mass consumption services given that they have a larger population and a greater number of people with high purchasing power than in Argentina. Time, as always in economics, will have the final say.
*Ernesto O’Connor is a Doctor in Economics and a professor at the Faculty of Economic Sciences at the UCA.
by Ernesto O’Connor
