There is a consensus among economists, that the prevailing model in recent years was exhausted and could lead to a non-traumatic transfer of government, generating debts and distortions of relative prices that will make the task of the next administration difficult.. Reversing this implies a rearrangement of the economic variables that was not possible/wanted/known to be carried out before for fear that it would have a negative impact on the electoral expectations of those who had to implement it.
Scalpel vs chainsaw. The connotation of “adjustment” leads to a concept of restriction, but it was usually taken to mean causing a drop in consumption caused by increased taxes and/or a devaluation. In the last 40 years at least, there has rarely been a fiscal restriction that stemmed from cutting expenses in general. But the riddle this time was what other moment of crisis in the Argentine economy the current scenario resembled. Some were betting on the month before the implosion of convertibility (November 2001); others to the assumption of Carlos Menem (July 1989) or the step prior to the implementation of the Bonex Plan (January 1990). But the one that gained the most ground was that of the weeks before the “Rodrigazo” (July 1975), when after two years of frozen prices and rates, exchange controls and falling reserves, the Government, through a short-lived Minister of Economy (Celestino Rodrigo) opened up the variables, released the pressure on the markets and opened the parities, causing the first hyperinflation in Argentina. The reference is not a mere historical curiosity, but rather points out the risks of not being able to direct an inevitable process. The context also marks its differences and leaves its own stamp on the next economic policy. But what clearly exists is the notion that total public spending (national + provincial + municipal and autonomous entities) has reached a point that is not financeable without resorting to indebtedness or monetary issuance. Game over!
The diagnosis from which the next economic team headed by himself starts Javier Milei and with the duo Luis Caputo– Santiago Bausili (in the Central Bank) on the battlefield, is based on assuming the restrictions with which the economy has coexisted for a long time without distinction of orientation and not postponing decisions. In the shock vs. dichotomy Gradualism, more out of feasibility than desire, won by a landslide the adoption of a timing that wins the fight against expectations. Macroeconomic stability is the necessary condition to develop the rest of the initiatives. The recognition that this restriction is operational is linked to the slogan that will be repeated more and more frequently: “there is no money.”
Prices. The first ghost to defeat is, precisely, the inflationary spiral. While academics discuss what the border is between high and hyper. But reality is getting closer and closer to that mined area: the November CPI would be between 11% and 12.5% but December could even double said index. Many controls based on agreements were relaxed due to the lack of an interlocutor authorized to give something in return and because the “carrots” ran out. Many deregulated rates were also updated and the same boosted the “dollar mix” that is close to what the future Minister of the Interior Guillermo Francos predicted: $600-$650 as a reference price for the “official” dollar and most likely a segment freed up for other transactions. ¿A convergence to the unified dollar that Milei himself would have wanted and that was a campaign promise like dollarization? The speed of adjustment will also be printed on this fine tuning.
External front. The concept of “negative reserves” is a euphemism to describe a pressing reality: not only is there no foreign currency available, but the informal debt with which an attempt to cushion the impact of the drought was financed was increasing. However, although this weighed down US$22 billion on exports, it also increased the debt that the exchange authority forced importers to incur in order not to deliver the dollars that were in short supply. It is estimated that the jump in debt that they usually have for this concept will end up being US$25 billion more at the end of this year. This is without counting currency swaps (in yuan) or loans with international organizations that under various pretexts served to not empty the account so quickly. On the verge of productive paralysis, restoring that credit capacity to import and not cutting the supply chain is on the verge of priorities. But everything is shaped like a short sheet. And dollarization? A teenage dream that, with effort and fortune, the hard core of the ruling cast believes they will be able to achieve sooner rather than later.
Local collection and spending. This awareness that the “adjustment” was serious, at least for their own treasuries, motivated the provinces to mobilize to ask the outgoing government to provide them with the funds to avoid a salary and pension default at the end of December. With a condescending view of the incoming economic team, they will spend the holidays in relative calm before beginning a summer that promises harshness like few other times before. The curious thing is that, until October, most of the provinces had blue numbers in their accounts and in January they will start in red. What happened? There were two carryover effects of the tax measures of the “platita plan” with which Massa tried to avoid the ballot, but which mainly deprived the co-participatory collection of half of what is left by the Income tax, a tax in the process of extinction for the official campaign proposal and which curiously had the support of the three deputies of La Libertad Avanza. The other factor was the abrupt drop in VAT due to a drop in consumption and that the economist Fernando Marull points out as the “textbook” consequence of an old economic theorem: the Olivera-Tanzi effect, which explains that when the inflation tax increases, real revenue falls.
According to figures from IARAF, An eventual freezing of the discretionary items with which the Executive Branch administered the fiscal stick or carrot to governors will mainly affect those jurisdictions in which these items represented a greater proportion of their total primary spending. Qprovinces such as La Rioja (17.5%), for example, contrasts with Neuquén (2%) but above all with the average of all (6.2%).
Poverty. Mauricio Macri once said that the objective of his government was to achieve “zero poverty”, an inappropriate blooper for a president or those who dictated his speech. He probably referred to zero “destitution” or “hunger,” emulating Lula’s plan upon taking office in Brazil. Now, Alberto Fernández referred to the terrible news that is being suggested about social indicators of the end of his administration as being of dubious elaboration. The Poverty Nowcast, which produces the Di Tella University, showed 42.9% for the May-October semesterhey the economist Martin Gonzalez Rozada who leads the research team projects that, with the approximate estimate of the CPI and income for November-December, said indicator would be close to 50%. That is to say, half of Argentine households would be below the poverty line.
But if there is an indicator worked on for almost a quarter of a century that became an undisputed parameter, it is that of Social Debt Observatory (ODSA) of the UCA, whose poverty index takes not only the income variables from the Permanent Household Survey (EPH) but also other additional ones, so the figure is always higher. In a recent report, its director, the sociologist Agustín Salvia, He pointed out that what happened from 2000 to the present can be labeled as a failed development model: “the average per capita growth was barely 0.73% annually, clearly deficient to address historical social debts, or to make a leap in science and technology, or to respond to just social demands, and, above all, allow investing in the human capital of new generations”. The vicious circle of stagnation-macroeconomic instability-low quality job creation leads to increasing structural poverty and exposing more and more people (especially minors) to worsening living conditions.
by Tristán Rodríguez Loredo
