“The risk of a ‘Rodrigazo’ has not disappeared, especially if, instead of applying effective measures to control public spending, creative accounting is used to try to deceive economic agents”, Cavallo noted in a new post on his blog.
The former official stated that “with creative accounting the Government will not be able to influence inflationary expectations” and warned that “on the contrary, the lack of clarity of the fiscal accounts only adds uncertainty about the course of inflation in the coming months.”
“I still think that the best result that Sergio Massa can achieve is that the average inflation rate does not exceed 6% per month (or 100% per year) until the end of the year”he reiterated.
for horse “Control of public spending is the only tool that the Government has available to prevent the inflation rate from jumping above 6% per month.”
In that line he explained: “Although it was tempted to do so during December and part of January, the government will not be able to delay the official exchange rate any further. It will not be able to lower the interest rate or sterilize more than what the expansion of the monetary base has been doing.” Cavallo assured: “If you tried to use any of these instruments, you would be risking a plateau in the monthly inflation rate of around 6% per month and the probability of a devaluation jump capable of generating a ‘Rodrigazo’ would increase.”
Then he marked a substantial difference between the information on the public accounts for January published by the Ministry of Economy on a cash basis and that prepared by the Congressional Budget Office (OPC) on the accrual basis.
In the first, the result was a deficit of $223 billion pesos and in the second a surplus of $325 billion.
Cavallo points to “creative accounting” to make the figures look more convenient for the Government, but that “do not deceive” the economic agents.