It was not the first nor will it be the last. But this mini-crisis of economic policy marks a turning point that comes with the calendar: that of the second semester. Because more than setting a date and time for the resignation of an economy minister formalized on social media, inaugurates another era with more uncertainty, but with the same problems that existed until the first of July: stationary inflation (for now) in a step of 5% monthly, tariff delay, increasing fiscal deficit, growing internal debt, exchange rate gap and shortage of dollars.
obstacles. This scenario constitutes a veritable minefield through which the new economic team will have to advance, urged by two slogans that would have been given by the presidential duo: not to abandon the road map drawn up in the agreement with the IMF (by the President) and build the economic foundations so that the electoral luck for the ruling party is not adverse as in 2021 (Cristina). That is to say, a strong restriction and an ambitious objective in whose conjugation will lie the success or failure of the brand new official.
“It strikes me that in the face of so much uncertainty, rumors and variables that seem to escape, we are not in a recession,” he reflects Eduardo FracchiaDirector of the Economics Department of the IAE Business School. In his opinion, the short-term results show a scenario that is not so bad: unemployment at 7%, rising inflation but with the dynamics of the hyper, level of economic activity that still has the drag of last year and a record level of exports thanks to the boom in commodity prices. “The problem is that, if expectations change drastically, everything can get complicated, starting with inflation,” he adds, “and continuing with the external restriction, the discouragement of investment that is already low, exports that are difficult to push with this dollar and export products that seems to have reached its ceiling”. Fracchia believes that, just as this year bears the benefit of two or three dragging points from the previous one, this statistical make-up would disappear and even, if the situation in the second half gets worse, the final account would be, once again, 0 % growth. “The real problem is that since we would close a decade of economic stagnation, no problem can be solved without altering the position of another sector”, he concludes.
good neighbours. Precisely, in an analysis carried out by the IERAL, compared the Argentine performance not only of this decade but of the last 40 years with discouraging results. “While the GDP per capita of the United States grew at a cumulative rate of 1.7% per year between 1980 and 2019, for Brazil and Mexico that figure was 0.7% and for Argentina only 0.5%.”, points out the study of Jorge Vasconcelos, Chief Economist of the entity. “Stability is a necessary but not sufficient condition for sustained growth. Without long-term fiscal sustainability, the costs of sustaining stability are increasing (Brazil’s large domestic public debt is not a model to follow), and they can end up destroying stability itself,” he points out.
Perhaps the characteristic that marked these last years was the recurring crisis in the external sector, despite the fact that the commodities that Argentina exports are currently 96.4% above the 2015 level, a key figure for the country’s macro, but that is overshadowed by the existence of an exchange rate gap that, at present, “doubles that of the 2011/15 period, enhancing its distorting effects; due to an inflation rate that triples the figures at that time, and also due to a level of indebtedness in the local market (in pesos, with private parties) that quadruples the 2015 reference”, he summarizes.
dollar in sight. As on other occasions, the US currency turned out to be the fuse in this outcome. But not because it constitutes a real fetish for the Argentine economy: as a result of the long inflationary saga (in 75 years, only in a fifth part were there increases in the CPI below 10% per year), the dollar adopted the function of the currency reserve of value and unit of account for large transactions. But also in the thermometer that announces any macroeconomic dysfunction before the government in power recognizes it. This bimonetaryism, recognized as a detriment by some and as an opportunity for monetary expansion, marks the possibilities of autonomy of monetary and fiscal policy.l.
For Camilo Tiscorniadirector of C&T Economic Advisors and teacher of Monetary Policy at the UCA, “in the short term, we know that the dynamics of inflation is dominated by the exchange rate before anything else. Last week’s decision to restrict dollars for importers generates an increase in prices that was boosted by the soaring of the blue dollar and the cash price with liquidation this week. That was the most complicated: either shortages are generated with price increases or direct inflation”, he argues.
However, for Tiscornia all this noise had already been generated the week before the change of minister when it was decided to close the dollar tap for imports and the Central Bank was notified that it could not continue placing debt in pesos happily.
The other factor is money. During June, currency issuance accelerated: the “M2” (which includes money in circulation and sight deposits) went from a rate of 58% year-on-year to almost 70% in part due to the fiscal deficit that is financed with liquidity. that the Central Bank injects into the economy and also because of the need to continue financing the Treasury with debt, but at the same time maintain the value of the securities.
the black hole. “Therein lies the underlying problem: the fiscal deficit has no prospect of going down, the change in Economy would not affect this because Guzmán said that he wanted to reduce it and we are in the presence of an increasingly small, expensive and short-term debt market“, Explain.
In this regard, the forecasts contained in the memorandum of agreement with the International Monetary Fund evaporated above all after the change in the international scenario with the war in Ukraine and the rise in oil and derivatives. As explained in the latest report from the consultancy Ecolatina“the greater payment of subsidies would exceed the expected increase in withholdings, while the erosion in purchasing power motivated the triggering of compensatory measures on the expenditure side”. A black swan that was darkened by the use and abuse of the tariff policy in its distributive dimension rather than in the reflection of internal costs.
In other words, the Government finds it increasingly difficult to finance itself and if it does so through the debt market, it must at the same time support the price of the bonds in a coordinated manner, so that all paths would lead to generating more monetary issue. , more inflation expectations and the consequent pressure on the official exchange rate, which is already overdue. A vicious circle in which the new economic team will have to continue fighting in order not to face a devaluation jump with its inflationary tail..
The risk is that there will be a stronger escalation or an abrupt devaluation and with it an inflationary jump. A change of plans that would shipwreck the objective set for the new management as a priority: that the economy adds and does not subtract at the time of voting.
