I believe that the economic course that the president charted Javier Milei That’s the right one. And that the implementation that the minister is doing Luis Caputo He is impeccable, above all and despite my prejudices, in terms of how much and how he communicates. Having said this and considering the complex socio-economic situation inherited, I have no doubt that the government is enjoying the joys of a start of eloquent results, while facing no less than minor challenges in the short term.
There is an excess of pesos in the economy as a result of uncontrolled emissions, the result of a chronic deficit financed with the machine for almost two decades. Milei opted there for a fiscal shock that combined greater tax pressure (via withholdings) and tax laundering that gave him a significant one-time income to cushion the “social cost” of the adjustment.
On the spending side, he presented a series of cuts in public works, ministries and secretariats, privatizations of loss-making public companies and a liquidation of pensions and public salaries: for the most part, this fiscal package collapsed in the parliamentary thread even before the debate in the chamber. of the Omnibus Law.
Another part of the chainsaw It came somewhat camouflaged outside the fiscal package, in the famous sections of intervention of the Trust Funds that were part of the discord scandal, by which several betrayals of parties like the UCR and the CC, accompanied by apparently allied provincial deputies who did not want to see those boxes of appetizing resources melt down with a high degree of discretion.
An incipient celebration by enemies and some allies with the fall of the Bases Law was quickly wrecked in the face of harsh statements from the Presidential Office and the Minister of Economy: The deficit is not negotiated. “If conventional politics does not want to accompany a rational adjustment, we will have to resort to a more painful resource, such as the blender instead of the chainsaw,” was the downline.
How do they differ? The chainsaw is a thick scalpel but it allows us to point with a certain degree of precision where the cuts are intended to be affected, potentially recognizing there a certain degree of cushion to withstand the fiscal onslaught in the coming months. The blender is clumsier in its objective, but equally effective in its result: it decreases the purchasing power of all those actors whose income is not adjusted for inflation or is adjusted very below or much later. This is what is happening with retirees, informal workers, public employees and to some extent also with private employees.
If this pension adjustment formula, introduced by the last government, persists, it is likely that the total adjustment on the passive sector via liquefaction will be close to 2 percentage points of GDP, a disaster. It is not what the Minister of Economy wanted to do, who had requested to remove it and allow it to offer a monthly adjustment according to the Treasury’s possibilities. Once again purism prevailed over pragmatism.
The cultists of the non-delegation of powers ended up punishing the most vulnerable sector of society in their obstinacy: it would be appropriate to say that if the government’s intention were to liquefy them less could be more generous and extensive in the bonusesbut prefers to double the amount of the AUH and the food card, which is where the highest percentage of indigence and poverty is concentrated (in childhood).
I hope the President @JMilei advance quickly in ordinary sessions with the legislative projects for labor, tax and pension reform.
It is essential to debate this NOW. We do not want to continue seeing a stagnant Argentina in a growing region.
If not look at Uruguay 👇 pic.twitter.com/L4igLjjbrX
— Antonio Aracre (@tonyaracre) February 23, 2024
The government’s determination was not in the calculations of its political allies and probably not in that of his enemies either. And from the moment the chainsaw was unplugged and the blender was started, institutional, union and inter-jurisdictional conflicts did not stop emerging: the governor of Chubut and the President exchanged grievances through social networks, in many cases the result of largely ignoring part the rules of the game.
Nobody doubts that The macroeconomic scenario for the coming months is auspicious for Argentina. In particular, the market speaks through the dollar and the country risk that reflects the price and demand of Argentine bonds abroad. Inflation will fall faster than expected and the dollar in real terms appears to have a stable curve.
However in the micro the effect is the opposite: companies under pressure will have to suspend or lay off employees, consumption will fall significantly and we are already seeing the effects of the fall in economic activity and the recession. But I think the government should not panic and neither should the Argentines. Experience teaches that all adjustment plans end up being expansive if they manage to stabilize the macro.
Fiscal and financial surpluses are key to avoiding the issuance of money that INEVITABLELY generates inflation.
But a healthy trade balance is essential to accumulate reserves and calm our monetary BI economy. @JMilei he did it again.
PxQ report credit 👇 pic.twitter.com/FiqLIHrw8G
— Antonio Aracre (@tonyaracre) February 21, 2024
Many are shocked by the size of the fit. And it is logical. But it is also true that Argentina required a profound cultural change. For this, always you have to overact initially. Continuing to gather reserves in the BCRA is critical for the stabilization plan and the desired objective of exiting the stocks. For this, it is key that the agricultural harvest is good and that the producer liquidates his stock. For that you have to give it attractive conditions and today three negative variables are combined for that: very high withholdings on soybeans; type of change perceived as delayed; and international prices in collapse mode.
Will the government be able to liquidate agriculture in this scenario? In the last reports he gave, Minister Caputo forcefully denied that there was going to be a devaluation. Meanwhile, is there nothing that the government can do differently to mitigate the effect of the fall of the Omnibus Law? ¿Individual laws that have popular support and leave exposed in the debate those who do not want to support them if that means a softer adjustment for retirees and more food for cafeterias?
They would serve to further legitimize the cultural change initiated, and in order for the adjustment to fall on the caste: Industrial promotions of all kinds; various tax exemptions; cutting positions in public organizations inherited by family members; cutting privilege pensions and special pensions that are no longer self-financing; pruning of advisors in the public sector; and the elimination of double provincial legislatures. Added to a handful of key laws: labor, tax and pension reform. These fundamental projects would restore positive leadership on the public agenda and have a tremendous impact on the evolution of the country’s prospects.
by Antonio Aracre
