A puzzle with pieces that don’t fit


Miscalculation is inevitable in the era of the pandemic. But if the margin of those errors exceeds the reasonable, the problem may be in the assumptions used.

The national government made an aggressive proposal in April to restructure the debt, perhaps thinking that at this point in the world crisis there would be a host of countries in default, which would drag creditors to accept it.

That did not happen and the outcome remains open, which affects the economy’s performance, while the bonds continue to earn more than $ 300 million a month.

In mid-March there were enough warnings that the massive testing of the population would be key for the time of the reopening, while on the fiscal level, the demand for extra funds advised saving on items linked to high state salaries, as Uruguay did. .

These preventions were scrapped, making the health issue look very complicated in Amba, while the explosive issuance of pesos has led to a scenario in which the Central Bank may have to choose between validating an acceleration of inflation or starting to restrict credit to the private sector.

In the chapter on the preservation of assets for the post-pandemic stage, the balance is far from positive: the cases of Vicentin and Latam bear witness to this, together with the recurring announcement of closings of SMEs.

To evaluate the present and the probable future of the Argentine economy, it is key not to forget that we are passing the ninth year of stagflation. There are problems on the demand side (consumption, exports, investment), but also on the supply side, due to the deterioration of incentives to invest and produce. Both sides of the scissors matter.

There is no need to argue too much about how fragile the situation is. In fact, in the first quarter gross domestic product (GDP) had already fallen 5.4 percent year-on-year, when confinement had barely started. In that period, Brazil and Chile still exhibited positive figures.

According to the latest report from the International Monetary Fund (IMF), the world economy would suffer an unprecedented contraction of 4.9% in 2020, after growing 2.9% last year.

Despite these numbers, the stock indices of developed countries have been recovering since March, largely due to the brutal monetary expansion carried out by their central banks, with the US Federal Reserve at the forefront, which poured 3.3 trillion (millions millions) of dollars.

The moderate losses suffered by savers in the developed world would allow a recovery in demand from the third quarter, as long as the new waves of coronavirus infections do not have the crippling effect of the first outbreaks.

What happened here

In Argentina, the measures adopted to moderate the negative effects of confinement and the restrictions to operate have so far reached three points of GDP, basically due to higher public spending. The financial facilities that were also implemented add two points of GDP to that arsenal.

This will not prevent GDP in the second quarter from registering a drop of the order of 15% year-on-year.

The lack of an anti-cyclical fiscal fund led to financing the emergency measures with the “little machine”. The issue for this reason would reach 1.4 trillion (million million) pesos in 2020, to which we must add 300 billion by the end of the year for the interest paid by the Central Bank for the instruments (Leliq and passes) used to absorb part of that liquidity.

Compared to June 2019, there are 76% more banknotes and coins circulating, while cumulative inflation in 12 months is 40%, but the price of the dollar in free markets has risen 180%. In turn, after reaching a level that could be considered equilibrium in 2019, public spending measured in dollars (official) is increasing this year by 25%, which is not a good sign for the external sector or for the tax pressure that falls on the formal private sector.

The eventual correction of these variables may complicate the performance of the economy in the second half. It will be when the Central Bank faces the dilemma of validating the acceleration of the underlying inflation in the monetary issue or of continuing to absorb liquidity with Leliq, widening the quasi-fiscal deficit and restricting the supply of credit to the private sector.

A successful exchange of the external public debt is a necessary condition to recover the ability to manage macroeconomic variables. Although not enough. Let’s see:

Negotiation. Since April, the differences between the Government and creditors have been considerably reduced, one third by less claims by the bondholders and two thirds by what the Treasury yielded. Time plays against it, since the interest package accrued by the bonds to be exchanged fattens the account to be paid by 350 million dollars per month, while differences remain due to the legal clauses. Last minute signs indicate that at least a large group of creditors may be close to signing.

Without funds. Even if an agreement is reached that does not leave lawsuits pending, the swap will not give Argentina “fresh money”, without it being clear when an IMF credit expansion could be managed. Therefore, it is key that fiscal policy begin to play an anchor role for inflation and issuance expectations for 2021, to prevent the market from “correcting”.

The nine years of stagflation are also due to problems on the supply side, due to the deterioration of incentives to invest and produce. In fact, if Vicentin’s nationalization prospers, the interferences with the sector could return, as occurred during the 2012 to 2015 stocks, which led to less grain production.

Similarly, the closure of Latam operations has exposed the “Argentine cost” that blocks the country’s connectivity and costs billions of dollars per year: from capturing 0.5% of the world tourism market in 2011, Argentina now it only has 0.35%.

On another level, the freezing of tariffs and the lack of infrastructure are affecting the gas supply, which would drop this year by 5%, which would force liquefied gas imports to increase by 40%, and fuel oil imports by 20%, in both cases in volume and in relation to 2019.

* Vice President of the Ieral of the Mediterranean Foundation.

(Illustration by Eric Zampieri)


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