We close 2021 and start 2022, looking at economic data that, as much as it is a rebound, is exciting. On the one hand, the survey of the Ministry of Labor revealed that, in the month of October, registered employment recovered 0.3%, compared to the previous month. From this survey it can be deduced that the total occupancy level prior to the pandemic (February 2020) would have been exceeded by almost 2%. How? Essentially, it was thanks to the so-called “independents”.
Thinking in terms of activity, it was the INDEC who reported that, in November, industrial activity climbed 4.8% compared to last month. Likewise, the interannual variation of this variable was 10.1% and the increase with respect to the levels prior to the pandemic stands at 9.5%. For its part, construction had a slight improvement of 0.4%. Although, the jobs in this sector showed an increase of 19.3%, compared to October 2020, but they are still 5.3% below the same month of 2019. In other words, we are talking about 22,000 jobs less approximately.
Another data that was added was that of ADEFA. In this case, it was shown that car manufacturing closed 2021 with a positive balance (+69%, compared to the previous year) and that it exceeded 2019 levels by 38%. Exports grew 89% compared to 2020 and 15% compared to 2019. However, from the sector, it is stated that sales were lost due to lack of supply, due to the lack of dollars and obstacles to imports (which complicates the supply at dealerships). Too ARBA ended the year reporting that in 2021 the collection was $791,479 million. That is, we are talking about 70%, Over the previous year. It is worth mentioning that, in real terms, the increase in the collection of the provincial treasury was 17%.
However, Will this rebound in terms of activity be sustained during 2022? All this will surely be related to the speed of the fiscal adjustment. Something that is surely delaying a virtual agreement with the IMF. Indeed, and consequently, beyond these exciting data on activity, the truth is that the bond market reflects the country’s difficulties, as does an increasingly high country risk and a blue dollar that, like the financial dollars do not exhaust their upward trend.
Why hasn’t an agreement been reached yet? In a few words and, fundamentally, due to an erroneous diagnosis of the country’s macroeconomic problems. Effectively, lowering public spending to correct the fiscal imbalance is going to be, in the immediate term, recessive and would stop the current process of economic recovery. But at the same time, it is transcendental to do so if you want a robust and sustainable recovery over time. The idea that spending is what generates growth is the central point of conflict with the IMF, since balancing public finances without lowering public spending implies increasing tax pressure (which is already too high). The problem today with gradualism is that it takes a long time to achieve fiscal correction and implies an increase in public debt to finance this transition. It is not reasonable to think that we will be able to have smooth access to the debt markets for the next few years. Let us remember that, during 2020 and 2021, the financing mix of the deficit was more linked to issuance than to indebtedness. In addition, currently, the lack of margin is becoming even more visible, given that all the macroeconomic variables are giving warning signs that, if not corrected, could interrupt the recovery. Believing in a gradualism based on the permanent assumption of economic growth, with these macroeconomic conditions, becomes illogical and highly unlikely.
What is also surprising is that The fiscal path presented to the governors estimates that the fiscal balance will only be reached in 2027, that is, four years later (2023 originally proposed). Despite the fact that the recovery was rapid and that much of the impact of the 2020 crisis has already been overcome, now the macroeconomic imbalances are more acute (greater fiscal deficit, higher public spending, higher tariff arrears, the amount of money in circulation is higher, international reserves are lower and considering the net we are at historic lows, the exchange rate gap is higher and the starting inflation rate is higher). This is why the urgency regarding the fiscal order conditions both the recovery and the agreement.
In summary, The fiscal hypergradualism presented does not have any type of consistency with the fundamentals of the macro as they are. If an agreement is not reached with the IMF on the fiscal trajectory, then it is hardly true or at least consistent that there is agreement regarding the trajectory of monetary financing by the BCRA and the trajectory of international reserves. The truth is that both dynamics are dominated by what happens at the fiscal level. From here follows the importance of agreeing on this plan and then advancing on the other two. Likewise, the slight increase in BCRA interest rates will not make any sense if the BCRA’s issuance needs are not considerably reduced to finance the treasury. The main thing is to understand that no measure to reduce public spending will be more recessive than a scenario of no agreement with the IMF or a weak agreement that fails to restore macroeconomic balance and that leads to a new currency crisis with an acceleration of inflation.
*Federico Pablo Vacalebre is a professor at the University of CEMA
by Federico Pablo Vacalebre
