Even though it was predictable, it did not stop making an impact. The accumulation of distortions that the Argentine economy accumulated since the beginning of the pandemic ended up sinking the hopes that Plan Arrar still harbored.. Some saw it as a currency run that reached a symbolic peak when a “baker” could not even buy a one-dollar bill, but that was the emergence of a deeper crisis with several aspects at stake.
Zero in deficit. Already the previous week, during the development of the IDEA Colloquium the target of criticism, but above all of the proposals made by economists aligned with the opposition of Jtogether for Change It was the fiscal disorder. With a more rational style, making efforts for equidistance between continuity and the chainsaw, the plan to quickly reach fiscal balance basically involved a reordering of public spending and the tax structure. As he mentioned Carlos Melconianthree new elements of this crisis would be added to the overflows that would be found on December 10: a) the virtual disappearance of the inflation tax that would decrease as a possible stabilization plan manages to tame the rise in prices; b) the pro-cyclical adjustment of retirement spending, which indexes assets with past inflation, therefore should prevail in the event of a slowdown; and c) the reinstatement of the Income Tax, with another name, something unsympathetic in the dialectical battle to cancel the most progressive tax of the existing options. But he also warned that the fiscal creativity of many economists would clash with an ironclad constraint of jurisprudence: vested rights.
The first victim of this limitation is the attempt to reform the pension system. It is no small thing: it consumes around 50% of the National Budget and 13% of total resources measured in terms of GDP. Jorge Colinaof IDESAa think tank that has been working for some time to reformulate the system, also shows a great contradiction: while it is protected from reformist attempts, retirement benefits became the main variable for adjusting public spending. While in 2022 pensions absorbed 7.6% of GDP, this year the projection indicates that they would be falling to 7.2% (considering an increase in the CPI of 133% annually), but by 2024 they would only recover the level of last year if inflation does not exceed 70% annually. Any flirtation with hyper will end up pulverizing assets, no matter how many compensations are installed.
In conclusion, the suggested reforms go from the present to the future and are above all based on the elimination of overlaps and unequal coverage of the different regimes. But although it is the most important battle to balance the accounts, it is the one that only produces effects in the very long term.
The other components of the regulation are the rationalization of spending by public companies, subsidies for energy and transportation consumption, and discretionary transfers to the provinces. Each of them requires negotiations with strong political content and, even having found a point of agreement, would require a roadmap contemplating the timing to achieve normality. The Economist Esteban Domecq Add to these factors the “spillover effect” in public spending, which measures the inefficiency in its allocation (corruption and overlapping, among others) and which in the Argentine case almost doubles the average for the region, totaling up to 4.5% of GDP.
The other debt. Another burden of these years of malpractice and external restrictions is the enormous debt that the State contracted with importers due to successive controls that imposed excessive payment terms for purchases abroad and that ended up financing the parent companies. The Economist Fernando Marull estimates that they will reach US$54,000 million, including the import of goods and services. That is, 20% more than the IMF loan that concentrated the maturities. Here we can clearly see the enormous impact of the drought during this campaign and the erosion of the intricate system of stocks on the balance of trade.
This chronic shortage of dollars also explains the course of the exchange rate run that accelerated after the PASO. As noted, the 22% devaluation that the minister-candidate agreed to implement on August 14, was transferred to prices, on average in 40 days. Already the previous week, I had begun preparing the takeoff runway with daily mini-devaluations so as not to take such an abrupt jump. The lesson of that time is that without a comprehensive plan and in a framework of uncertainty, any alteration of the status quo (in this case, the artificially low price of the official exchange rate) the escape valves end up being dollarized prices (food ) and then the free exchange rate.
One way to visualize these growing expectations is the exchange rate gap (measured as the difference between the official and the financial dollar -CCL-). The recent raid of the blue dollar once again exposed this difference, taking the gap to 180%, which anticipates two things: an upcoming devaluation of the “commercial” dollar and an inflationary blow that in fact can also shorten that difference in real terms. That is to say, once again inflation (stabilized until this week at 12% monthly) is likely to jump again. A wild way to liquefy liabilities, public spending and rearrange the amounts. The balance: increasing poverty level and decreasing real wages (in pesos, but also in historical dollars).
Weight flight. The other aspect of this crisis is the flight from the peso as a savings vehicle and as a price reference. It was not necessary for the libertarian Javier Milei He called fixed terms as the ideal vehicle to defend savings so that a worrying trend would continue: the draining of deposits from the banking system, combined with the withdrawal of the private sector as a recipient of credit. Obviously, the little that remains is directed to the public sector, especially the placements that banks make in short and medium-term debt instruments issued by the Central Bank.
While this dynamic is happening, it seems that the blue dollar takes center stage. The staging of raids in the City of Buenos Aires is a momentary containment of speculative movements. In fact, the current value is not the highest: in real terms it was surpassed by the peak of October 2020, when the tsunami of pesos issued to compensate for the emergency ended up boosting the value of the dollar and contradicting those who believed, for a while in the utopia that the emission did not necessarily generate inflation. The silver plan post-STEP 2023 version would be demonstrating, once again, that the iron law is still in force. The memory and economic gymnastics of citizens do the rest.
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by Tristán Rodríguez Loredo
