Emanuel Alvarez Agis published an analysis of the impact of the agreement reached between the national government and the IMF. For the economist, that pact “It suggests aggravating the recession through fiscal adjustment and, in the same operation, accelerating inflation through tariff increases (ie, reduction of subsidies). A match to face a drought What could go wrong?he asked himself.
Through an extensive report, Álvarez Agis affirms that “The fiscal challenge of maintaining the original goal with the IMF is then enormous”.
The analyst refers to the fact that the goal of 1.9% fiscal deficit for this year was not modified. In fact, for the economist to be able to meet this objective is recessive and inflationary and he explains it as follows:
- The drop in collection due to withholdings derived from the drought will be in the order of 0.3% of GDP, or 0.4% if the government follows the IMF recommendation, that is, avoiding the use of tools such as the dollar-soybean.
- The drought will imply a direct negative impact on GDP of -2.4%.
- If it is taken into account the contraction in the supply of foreign currency, in the order of -US$ 18bln, the economy as a whole could suffer a fall of -3%.
- This drop in activity that could be ruined by growth in 2023 will then be aggravated by an additional adjustment in public spending of the order of 0.4% of GDP. Without taking second-round effects into account, GDP starts 2023 with -3.4%.
Based on the Fund’s recommendations, the drop in these resources should be compensated for “of a more aggressive segmentation of rates”. He believes that this recommendation couldeven have a “legal obstacle”.
It is that the upper segment of consumers will receive zero subsidy this year and, therefore, to meet the fiscal goal, a cross-subsidy scheme should be entered into (that the “rich” pay more than the cost of energy so that the “poor” pay less), something explicitly prohibited by the current regulatory frameworkexplains the director of PXQ.
The fiscal challenge of maintaining the original goal with the IMF (1.9%) is then enormous, Agis sentence.
Along these lines, he argues that “It does not seem that the IMF wants to act according to its traditional mandate to avoid balance of payments crises that could have contagion effects”. He refers to the fact that the Fund is the lender of last resort to help countries face problems of lack of foreign currency.
He also reproaches the multilateral organization for not taking into account “the overcompliance of the fiscal goal of 2022, with a deficit of 2.3 instead of the commitment of 2.5%” as if the IMF did not ponder “the severity of the negative shock facing Argentina in 2023”.
Recognizes that “In the current context, a relaxation of the fiscal target to try to mitigate the impact of the drought could be counterproductive, since the financing of this increased spending would have to come either from a highly demanded domestic debt market, or from the monetary issue ” given that a stimulus to demand without a correlate on the currency side would be a worse solution than the problem.
Álvarez Agis’s proposal
Agis slides a proposal that many would consider reckless when wondering if it is not time to evaluate continuing to meet the goals established in the current agreement with the IMF.
And he explains that “The only relevant default that Argentina could have in 2023 would be with the IMF itself” and launches its proposal: “maybe it’s time to evaluate it”… Today we believe that an agreement that does not acknowledge the impact of the drought is condemning the country to a major economic crisis, with unpredictable consequences, not only economic but perhaps also political”.
Finally, he concludes by citing John Maynard Keynes “When circumstances change, I change my mind. What do you do?” (cited by Malabre (1994), Lost Prophets: An Insider’s History of the Modern Economists).
Source: Ambito
