Economist Orlando Ferreres did not hesitate this Wednesday at a conference on-line organized by the Mediterranean Foundation.
At the time of speaking on the march that the Argentine economy shows, he summarized: “The recession accelerated by the pandemic is monstrously big.”
The estimates made by his consultant –Orlando Ferreres y Asociados– leave no room for doubt: he projected a fall of between 12 percent and 13 percent of the gross domestic product (GDP) in 2020, with poverty reaching 50 percent.
In parallel, inflation would close at around 45 percent, which would imply a drop in real wages of 11.5 percent. That, added to unemployment that would reach 15 percent of the economically active population (PEA), is what would explain why one out of every two Argentines ends the year in poor condition.
“We are coming out of the biggest fall in Argentine history,” said Ferreres in the virtual talk in which 250 businessmen participated.
His estimate is that the second quarter, the one most affected by Covid-19, and social isolation measures to prevent it will culminate in an economic slump of between 17 percent and 20 percent.
Although he appreciated that “month by month the indicators begin to improve”, he considered that the economic recovery and the departure of the high indicators of poverty will be slow due to the low levels of private investment in the country.
“Gross domestic fixed investment has been falling at a rate of 25 percent; it is at just 12 percent of GDP. It is a lower value than the amortization expenses, it is not even enough to cover capital wear and tear ”, expressed Ferreres.
In this regard, he exemplified that these levels of investment are not only insufficient to execute new routes, but also to repair or patch up those that are already built.
From his point of view, the main stumbling block for investment is huge public spending, which went from representing between 28 and 30 percent of GDP to 46.5 percent this year.
For this reason, the fiscal deficit, which closed in 2019 at 0.5 percent of GDP, now stands at eight percent and by the end of the year would be reduced to 6.5 percent, a very difficult rate for the National state.
Ferreres recalled that for next year the impact of Emergency Family Income (IFE) and the Emergency Assistance Program for Work and Production (ATP), which are the plans that led to spending at such high levels, should no longer be felt , with a very high monetary issue.
According to the economist, the expenditures of the three levels of government should be around 95 billion dollars and currently they are almost double: 180 billion.
“It is not about devaluing more, but finding a solution to the number of employees, retirees and others that the State has. The hardest thing is to find something for public spending, it is the main factor to improve investment levels, “he summarized.
Kind of change
While delving into the dollar, meanwhile, he considered that, if an average is made of the different exchange rate quotes that can be accessed through formal channels, the value is located at 82 pesos.
“Equivalent to theoretical equilibrium parity, adjusted for inflation in the United States,” said Ferreres.
In any case, in order to sustain this fragility in the exchange rate and the fiscal accounts, he stressed the need for an agreement to be reached with the bondholders for the external debt.
In this regard, he said that the negotiations are advanced and that what the creditors are claiming is not so far from what the government is proposing, so he recommended that they be fixed to avoid further damage to the economy.