Almost like a paradox, the declared market-internist policy promoting consumption as the engine of economic activity and the distribution of income between sectors, as a lever for development, found a sudden reality check this summer.
Suddenly, what had been announced as a distant threat turned into a nightmare: the agro-export sector that had provided dollars with historical records in 2022 and 2021, stopped. The drought worsened and with it began a chain movement that not only altered exchange rate stability, but accentuated the fiscal imbalance and ended up pushing the economy towards recession.
stop! The indicators for the first quarter show that economic activity would continue with the stagnation that began in the third quarter of last year and the last part of 2022. Partly due to the external suffocation caused by the stocks with which the economic authority tries to ration the chronic shortage of currencies and whose administration ended up hindering the normal supply of inputs towards the production that had been rebounding from the basement of the pandemic. But also because of the inflationary expectations that mutated the optimism of the minister Sergio Massa November (when the CPI rose “only” 4.9%) due to confusion, fault of the index that doubles the forecast for this time (7% as a floor against 3.5% per month that was expected before the end of the year).
Perhaps similar to the initial underestimation with the Covid19 epidemic, the true disaster was not calibrated which, for an economy that had not yet found its macroeconomic balance, means the affectation of the main source of exports. There are fields in core areas where the loss this campaign is almost total and the average for northern Santa Fe and Entre Ríos, for example, is around 40% loss.
The drop in exports and the consequent tactic of resorting to one more round of the import tourniquet deprived the Treasury of one of its main sources of income: it represented 12.5% of the total in 2022. But, unlike the other taxes, those linked to foreign trade have a direct impact on federal fiscal accounts because they are not co-participated like the rest.
At the same time, the successive Export Increase Programs (PIE) that youernished by setting an exchange rate of $300 in their latest version, implying a loss for the Central Bank that increases the fiscal deficit and the need to finance this reconstitution of reserves. It was expected that up to US$ 9,000 million would be liquidated during this entire phase, but the results are projected well below that number. In part, due to the conditions for entering said program that make liquidation difficult and also because there is a shortage of product (some were liquidated earlier and others are simply not available due to the low productivity of the land this year).
intense red. Thus, the accounts for the first quarter of the year showed a larger fiscal deficit than the one committed to the International Monetary Fund. The consultant ecolatin estimates that, despite the marked real adjustment in primary spending in March, “the collapse in income led the Government to increase the primary red and fail to meet the fiscal target agreed with the IMF for the first quarter, with no less than a deviation.” Specifically, the primary red accumulated under the metric of the agreement with the IMF reached $690,000 million in the quarter (0.4% of GDP, according to its projections), 56% more than the fiscal goal established with the Fund ($441,500 million). And the primary deficit in the first quarter was the third highest in the last 30 years. For the consultant’s estimates, the impact of the drought is so strong that “if the collection of export duties had remained stable in real terms, primary red in the first quarter would have been barely 40% of what was evidenced, and the goal agreed with the IMF would have been exceeded”, indicates.
cascading. The combined situation of less economic activity, higher inflation and the aforementioned drop in exports form a cocktail of fiscal instability. The latest macroeconomic report from IERAL analyzes that the drop in the pampean agricultural harvest is expected to be even higher than that registered in 2009, another year of drought. “A large part of the macroeconomic phenomena registered in 2009 will be repeated in 2023: contraction of both exports and imports, year-on-year drop in the level of activity for several consecutive quarters, losses of the Central Bank’s international reserves and greater fiscal imbalances”, anticipates. But, unlike what happened in that year when the inflation rate ended up slowing down, in 2023 it will hardly be repeated. “All these effects enhance the instability of the Argentine economy and put even more pressure on the exchange market, as we have seen in recent days.”, he concludes. A vicious circle that feeds back into the crisis.
For Nadin Arganarazdirector of Argentine Institute of Fiscal Analysis (IARAF) tax collection started the year “at two speeds”: that coming from foreign trade (imports and exports), with a significant real drop and, on the other hand, a slight real increase in those related to the domestic sphere, although evidencing a lower level of activity. However, he maintains that from now on the impact of the drought will be more significant in export rights, but also in the drop in economic activity related to the harvest and will impact the related collection (check tax, fuel , etc.).
“Thus, it is possible that this year this fact, in addition to other indirect effects, could subtract between 0.7% and 0.8% of the GDP in the collection of the National Treasury with a strong impact on the committed fiscal goal”, explains Argañaraz. In his opinion, for this reason, for two months a readjustment of goals with the IMF has become a priority to avoid situations of uncertainty. His proposal was to leave the fiscal deficit at a minimum of 2.4% as a goal, to prevent the chain effects of the drought from continuing with a “procyclical” fiscal policy in the midst of a recession. “Now it is what the economic team is looking for, but I do not see that it is feasible to continue lowering spending to provide resources ”, concludes.
This peculiar chain of happiness will surely be cut as the impact on the regional economies of the bad campaigns is felt with the consequent drop in collection due to economic activity tied to the luck of the sector. Perhaps in the months in which the weather is finally good news for the countryside and, once again, a good harvest will once again throw a lifeline to the country that almost forgot that it continues to depend on good prices and random weather.
