The big question that permeates public dynamics today is what portion of the announcements made before the elections and those formulated afterwards, Javier Milei’s government will be able to carry out in a timely manner.
Diagnosis. In the President-elect’s manual it is that the mother of all economic problems is the lack of growth in recent decades. He speaks of a century of decadence, where he finds little support among other economists, but he does find more echo when he takes it back 50 years ago. Almost, we would say, with the crisis hibernated in Gelbard’s failed “zero inflation” plan that led to the mega devaluation and lack of price control of 1975.
The sequence would be that the lack of growth of an economy that had stood out for its dynamism slowed down social advancement, intensified conflicts and, supported by the policy of growth in public spending especially after 2006, undermined the macroeconomic balance that evaporated The reserves, first, decapitalized the economy, later and ended up generating inflation with debt to finance it. The consequence would be verified in the growth of structural poverty (projected for the end of the year at 43% according to the INDEC methodology).
Many analysts see the antecedent of the “Rodrigazo” as similar in its origins to the present, particularly the tight control of prices that ended up distorting them and led to an inflationary blow to rearrangeand. This is not new: concern about the acceleration of prices was aggravated by the dispersion according to items that was widening as inflation accelerated. Thus, while the subsidized rates (almost two thirds of the total), the goods included in agreed programs and everything that was based on the delay of the official exchange rate (30% before the elections this year alone), They were falling further and further behind and therefore pressure was accumulating and the gap to be closed increased when it was decided to reestablish general balance. What happened a few weeks ago with fuel and the panic over its electoral impact exposed the precariousness with which the entire price containment system is amalgamated. That is to say, any adjustment to a variable, seeking partial balance, does not necessarily lead to the general balance. A true Tetris that quickly convinced the technicians of all the teams that there is no room for changes.
The simplified solution to this diagnosis is to lower the portion of public spending again in such a way that, without the need to increase tax pressure, the Treasury’s red-hot monetary financing can be eradicated. Javier Milei He popularized his campaign with the chainsaw and “the caste” as the recipient of the adjustment to achieve it. But once anointed at the polls, he was encouraged to quantify the dimension of that effort: 15% of GDP. To compare it, Mauricio Macri Expenditure dropped by 2% of GDP in order to alleviate the tax situation of the private sector. Is that objective realistic?
The numbers rule. According to data prepared by the economist Salvador Vitelli on data from the Ministry of Economy and INDEC, It is estimated that for this year total public spending (national, provincial and municipal) will rise to 42% of GDP. However, that strictly attributed to the President’s sphere of responsibility does not reach 30% of the total. That is, a 15% pruning would imply a 50% reduction in the total, an amputation without anesthesia. With his economist suit, Milei had to clarify it quickly before dismantling the building with feet of clay: This figure is made up of two factors, 5% of the operating deficit plus the financial deficit of the National State and another 10% of the so-called “quasi-fiscal” deficit, which arises from the financial burdens that must be faced through Central Bank operations to sterilize the amount of money that it has to issue to cover the Treasury red or the payment of old interest in pesos.
Since 2018 this has been instrumentalized through Liquidity Letters (Leliqs) which were intended to stabilize the amount of currency in the economy and cushion shocks. But from use to abuse there was only one step: economist Sebastián Menescaldi estimates the stock of these debt securities in pesos at just over 9% of GDP, which constitute a true snowball that seems unstoppable.
For the “hard” part of the deficit, the proposal is committed to a radical solution: closing the financial tap and moving non-stop to a “zero deficit” scheme but with some fields in which it could go beyond declamation. Considering that 50% of public spending is pension spending and between 5% and 8% is social spending (pensions, plans, subsidies to individuals), the margin that remains is smaller and that is why it targets three different segments: state spending on construction public (supposedly new), the red of public companies (it is estimated that in total this year it will reach 2.5% of GDP) and different subsidies to companies and sectors that Minister Massa had already proposed eliminating in the 2024 budget as “tax expenditure” and add up to 4.5% of GDP. Of course, much of this spending is tied to acquired rules and rights (such as special promotion or tax relief regimes) that are difficult to resolve. This entire cut is difficult and uneven to implement and is probably subject to negotiation if a rule is required to authorize it. Above all, because behind each expense there are groups of people, areas or sectors for which the vital equation with which they carried out their activity changes. For this reason, it opens itself to innumerable compositions of form, legality and participation so that, effectively, this leads to substantial savings and not just rhetorical ones.
Endless. Finally, the most important game is played in the financial field, which is the one that accumulated the deviations of months of disaster in the fiscal accounts. The tendency to subordinate all fiscal and monetary prudence to each election was increasing the balance to be settled. The Leliqs were intended as a way to absorb excess monetary issuance, and they were also used to place them in banks, which in turn supported financial placements by companies and individuals. Rescuing them suddenly or for the market to reject the renewal would imply a flight from the peso towards other assets, with the stardom of the traditional escape valve: the dollar. For the economist Fernando Marengo, director of BlackToro, the Leliqs are a problem that must be removed from that drama because they accrue a negative interest rate and any wrong intervention will affect the functioning of the banks that thus fund the deposits they receive. Here the figure of a Yenga would be better suited, in which removing the wrongly placed piece could cause a disaster. To graph it, in just two days (Wednesday, November 22 and Thursday, November 23) 60% and 90% of the maturities were not renewed; they sought another shorter-term refuge so as not to lose track of the next measures that could affect the stability of your wallet.
Meanwhile, the “blue” segment, such as the financiers, lived firsthand the self-fulfilling prophecy: with the Government defeated, there would be no more incentives to put a ceiling on these exchange rates, widening the gap with the official dollar and endangering the income of foreign exchange to, at least, continue to keep emergency imports in vegetative life.
With negative reservations that the consultant Invecq estimates they will already be at US$-11,000 million by the end of Novembera devaluation to oxygenate the market encourages the discussion of when and how much. The Economy solution had already been to prepare a “mix” to settle part of it at the official exchange rate and the same at the financial rate (CCL). From 70%-30% it went to 50%-50% and that may be the way to gradually devalue until it is up to the next economic team to make the decision to temporarily unify or segment, but with more realism. , the troubled exchange market.
