Dating kills story. When numbers appear in the economic discussion, subjectivity does not disappear, but rather it focuses on the interpretation of the figures that show what is happening. This was what happened during the week with the dialectical duel around an incontrovertible figure: an estimated 11% increase in GDP for the year that ended. Already the third quarter had grown 11.9% compared to the same period of the previous year, a trend that was finally maintained for all of 2021. But from that number, the explanations and comparisons triggered the controversy: mirage vs. miracle.
For the Government, the recovery of economic activity is the beginning of a virtuous cycle of growth facilitated by the policy change promoted in the middle of the year. The monetary restriction of the first semester, necessary to counteract the tsunami of issuance from the pandemic with elections in sight, made fiscal and, therefore, monetary policy more flexible (it is estimated that the issuance of fiscal origin was $1.92 trillion , 4.1% of GDP, but $1.76 was in the second semester). While the Nobel Prize Joseph Stiglitz sees in these figures a “miracle” of his pupil Martin Guzman (see cover note), others understand it as a process in which the recovery only accelerated after 2020.
Data. In the latest edition of IERAL’s Economic News, it is concluded that what actually happened last year was that the volatility of the Argentine economy deepened, resulting in increasingly abrupt cycles of decline and recovery. “Each attempt at fiscal and monetary expansion contains the seeds of its own adjustment, either due to the inflationary acceleration that liquefies aggregate demand, or due to the lack of financing capacity for the imports necessary to lubricate the supply of goods and services.”, emphasizes the document, signed by Jorge Vasconcelos Y Belen Gonzalez.
George Hillchief economist at IDESA, He describes the positive numbers of last year as a simple rebound from the great drop of the previous year, but which cannot be sustained over time. “That was not growth, but rather we are still below 2019 in terms of GDP, but it is impossible for this process to continue with 50% inflation and a large fiscal deficit”, he highlights. This monetary and productive bottleneck: “the Treasury absorbs all private savings with public bonds and the Central Bank with Leliqs: production has no way of financing an expansion”.
Importer trap. In addition, the other serious obstacle that the economy is already facing in order to sustain the rate of recovery is that of the external restriction: the virtual exhaustion of the international reserves of the central bank. With an exchange rate gap close to 100%, it is logical that the pressure points from two sides in the same direction. Exporters are less in a hurry to liquidate their sales and, in addition, it operates as a punishment together with the withholdings for the agricultural sector. On the other hand, for importers, the demand for “official” dollars is accelerating due to their low value or simply to anticipate future purchases.
With the payments already decided to be made this month, the account would reach its minimum level before the financial milestone on the horizon of March 22: payment to International Monetary Fund (IMF) for the 2018 credit for US$ 44,000 million, for which there are no more funds and would depend on a comprehensive reprogramming for this exchange rate peace to be achieved.
The negotiation with the IMF should abandon its comings and goings in the short term to reach certain agreements and clear up unknowns. What the government calls “conditions” required by the technicians of the international financial organization are actually factors that mark the playing field in a future economic program: the “multi-year” plan that is still awaiting debate in Congress.
Terms. Precisely the points in dispute have to do with what is proclaimed as the sustained growth of the economy: fiscal deficit, public service rates, exchange rate, level of reserves and interest rate. Martín Guzmán could translate these five factors as burdens that would mitigate the “Argentine miracle” because they would lower the growth expectations of the economy to place it close to its natural or sustainable capacity.
The primary fiscal deficit for 2021 was just over 3% of GDP and there is agreement that it should be 0, but when that convergence will occur is different: the Government wants it to be in 2027 and the IMF much closer. The exchange rate should accelerate its devaluation to balance the balance; but it is linked to the other external variable: the increase in the level of reserves, impossible with this gap and with the climatic uncertainty that undermines agricultural optimism, even if international prices remain firm.
This variable is also influenced by the amount destined to subsidize the rates of public services, which in the timidly rejected 2022 Budget, was projected to be reduced compared to the previous year. Just at a time when the rate policy revealed its ineffectiveness in terms of investment in the last section of the service.
Finally, the interest rate, traditionally buried under rising inflation, is unavoidable in order to prevent the escape of funds from the Leliqs snowball, but it would work against more economic activity.
The World Bank has already projected growth of 2.6% for this year, perhaps anticipating that the epic will collide with realism; or, that a scheduled default could produce an expansionary policy, but short-term.
