The details of the economic plan that the opposition insistently demands from the Government are beginning to be revealed behind the lines of the definitions that the officials are making. In recent days, important clues have emerged as to what the objectives will be in terms of prices, wages and exchange rate.
The Labor Minister, Claudius Moronibleached that the goal with which they will work officially in the parity will be 40%. With that figure in mind, the updating of the minimum wage will be defined -which, in turn, influences social assistance programs- and, above all, it will be the reference when adjusting public wages -which, for its part, influence the pension indexing formula.
And in suggestive coincidencefrom the central bank the devaluation rate was accelerated at a rate that, if projected annually, is around 40%. In other words, it is suggested that a strategic objective will be to keep these expenditures unchanged in dollar terms, one of the fundamental data in the negotiation with the International Monetary Fund.
That strategy gains importance after in 2021 a “dollar inflation” of 25% was recordedas a consequence of having resorted to the classic exchange rate anchor tool in an attempt to moderate price increases.
Now, the IMF has especially recommended that there be no worsening of the exchange delay. But economists’ estimates suggest that it will be difficult for the slide in the price of the dollar to speed up too much without in turn generating an escalation in inflation.
So the scenario that appears possible for the economic team is that of part of public spending evolving along with the exchange rate, while the recaudation tax does it accordingly with higher inflation.
The Government aspires to repeat, thanks to the high prices of commodities at a global level, a comfortable surplus in the trade balance, around US$10,000 million, which in turn will impact tax collection, given the growing importance of withholdings on agricultural exports in the AFIP box.
In recent weeks, the rate of devaluation has accelerated to a level of 40% annualized, a figure that coincides with the proposed goal for salary negotiations
Looking for the salary anchor
To achieve that goal, it is key that there is no “overflow” in salary negotiations, particularly those of state employees. Not by chance, the minister Martin Guzman It emphasizes the need for an agreement on prices and wages that serves as an anchor for inflationary expectations. And, in this framework, the minister has spared no praise for the “responsible attitude” of the trade union leaders that have kept their claims within the margins suggested by the Government.
But that containment is becoming increasingly difficult. Guzmán counts against him the experience of 2021, when he convinced the unions to close agreements around 35% because the official inflation target was 29%. When the erroneousness of the official forecast became evident – something that happened before the end of the first semester – the demands for the reopening of the negotiations have already begun, with cases where there were up to two revisions by inflation.
In the particular case of Public employees, which came from a real salary loss of 24% accumulated in the previous two years, the Government promised that they would not be the adjustment variable again. And as a guarantee of this, Minister Moroni guaranteed that there would be revisions when the official inflation target was exceeded.
The reality, however, marks that there was a loss. Because although in the measurement “from end to end” the state-owned companies had a recovery of 2.7%, when the annual average is measured -which is the one that marks purchasing power in real terms- there was a fall. According to the consultant Ecolatinathe fall reached 2.7%, which implies a loss in income for the fourth consecutive year.
worse was the situation of retirementswhich despite a nominal improvement that exceeded inflation, actually had an average improvement of 38%, which implies a fall of 9%.
The hidden cost of lowering inflation
This is the situation for which, both from economic orthodoxy and from Kirchnerism, Guzmán has been accused of using inflation as one of his main tax collection items. In other words, that he took advantage of the “liquefaction” effect on public spending.
The situation has reached the point where some experts have insinuated that the minister’s projections deliberately underestimate the expected inflation, to accentuate that liquidizing effect. One of the most explicit analysts in this regard was Charles Melconianwho affirmed that “the Government needs inflation to do the dirty work of liquefying public spending that it does not dare to cut.” And based on that statement, he insinuated that there is no real decision to stop the inflationary rhythm, because that “would create a problem.”
For his part, Jorge Vasconcelos, chief economist of the Mediterranean Foundation, put numbers to Guzmán’s tactics: “With two-thirds of primary spending indexed, every 5 points of drop in inflation triggers an increase in outlays of 0.3 points of GDP.”
This implies that if the official goal of lowering inflation to the 40% range were met, that would add to the minister an extra tax pressure of 0.7 pointsan enormous figure if one takes into account that Guzmán publicly celebrated that the IMF had only demanded a fiscal cut of half a point.
Also, economists are skeptical about the effectiveness of a rate hike of interest it may have to curb inflation in this context, and they warn that it can increase the “quasi-qual” deficit – that is, that of the Central Bank.
Of course, for the objective to be met, it is required that for the second consecutive year the unions trust the official projections of the Government, something that is proving complicated. For now, there are already unions that are proposing improvements greater than 50% for the new parity.
Regarding the segment of state workers – some 200,000 who depend on the central administration but more than three million If the employees of provinces, municipalities and autonomous entities are counted-, an agreement has just been signed that improves the 40% increase granted last October. In this way, the 2021 parity closes with an improvement of 54% “between points”.
However, the critical sectors of the union leadership assure that it is far from having achieved a “victory over inflation”. They remember that the improvement applies to a salary level that last May was at one of its lowest historical points. And that the effect of the improvement having been in seven installments implies a loss of purchasing power on average.
Now, with the new agreement, the witness category of the majority agreement will go to a salary of $58,998, something that led to criticism within the ATE association, for being 22% below the poverty basket published by Indec.
So the union leaders are receiving increasing pressure from their bases to toughen the claim when the time comes to reopen the joint venture. By next May, if the projections of private economists are fulfilled, inflation will have already exceeded an accumulated 21%, which will make the 14% in two installments that has just been signed seem like a small patch.
Minister Moroni will have to maximize his negotiating capacity to continue supporting his argument that there will be no real losses against inflation if a base of 40% is taken.
The capital market responded positively to Guzmán’s auctions, but there was a marked preference for securities indexed to inflation
Meanwhile, Guzmán continues to give signs on other planes. For example, in the matter of taking on debt in the local market to finance public spending, one of the points where skepticism is also perceived on the part of economists, who doubt the capacity of the minister to sharply reduce its dependence on the Central Bank -whose assistance to the Treasury will go from 3.7% to 1% of GDP in a year-.
In recent days, his call for tender before a new expiration date of bonds was the opportunity to demonstrate that the market responded positively to him when he went out to fund. In numbers, he managed to “roll” the debt by 169% at the start of the year.
But behind the good news there are also yellow lights: economists warn of a strong preference for CER-adjustable securities, which hints at a worsening of inflationary expectations by investors.
In the last operation, the demand for these indexed titles was 70% of the money that Guzmán got. Another demonstration that few trust that the “normalization” of the economy under the new agreement with the IMF is based on a fall in inflation. An inflation that, for now, is perceived as the most effective tool – both economically and politically – to fulfill the promise of reducing the fiscal red.
On the other hand, voices of concern are beginning to be heard in the business world, in the sense that Guzmán’s appetite for debt in pesos will end up definitively displacing the SME sector, which will find it even more difficult to access bank credit.
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