This week the Government of Javier Milei took office and the Caputo Plan quickly demonstrated that the shock measures were a reality. On the one hand, they promoted a fiscal adjustment of 5% of GDP in 2024 and on the other handto increase the official dollar to $800. Given this The inflationary spiral that was already at very high levels accelerated with a rapid which leaves hyperinflation just around the corner. Will this plan be enough to regularize the economy? How long will it take and what does it depend on for the plan to work? let’s analyze point by point
Fiscal anchor: how it will be carried out and what risks there are
This week we could see that Caputo’s goal is to adjust GDP by more than 5% in 2024. According to a report by FMyA of the economist Fernando Marullon the side of incomewith the increase in withholdings on exports excluding soybeans, 0.5% GDP is obtained, through the PAIS Tax on imports (+0.8%), and with the fall in the VAT refund on purchases, the reversal of the increase in the minimum Earnings, and another 0.5% for money laundering, moratorium and Personal assets.
On the spending side, “the strong adjustment would come from subsidies (gradual adjustment of prices and renegotiation of concessions that implies 0.7% GDP), adjustment of public work (another 0.7% GDP) and transfers to provinces (0.5% GDP). Also, it would decrease slightly Retirements (even if they maintain current mobility) and social plans with intermediaries”.
Thus, he expressed, it would be validated an adjustment of 5.2% GDP (composed of 3% Primary and 2.2% interest). “Fiscal balance is reached, and there would be a little left over, which will surely be a negotiation tool in Congress such as Profits and Transfers to Provinces for governors,” they expressed from FMyA.
In this regard, a report from Romano Group of the economist Alfredo Romanoanalyzed: “The deficit goal proposed for 2024 will be crucial, for which indications were provided that the adjustment will be carried out in pursuit of achieving 0 primary deficit for the coming year. A more than challenging task considering that 80% of the expense corresponds to socially sensitive items and which have also been very affected by the inflationary liquefaction”.
They further stated that “The agreed anchor seeks to be fiscal and must not only be adjustment, but must also be credible.that the plan provides the necessary reliability that the market seeks, and that at the same time it will cut off financing to the treasury via the BCRA. In a plan with sufficient credibility on the part of economic agents, the adjustment could be the lighthouse that consolidates downward inflation, as the main symbol of austerity and prudence.“.
On his part for FMyA The risks to carry out the plan are the following: “The Milei Plan will encounter resistance in Congress; We imagine that the votes will be obtained and the suspension of mobility will be the most resisted, as in 2017. The second risk is the street. Although Argentina voted for change and the inheritance is heavy, The summer of 2024 will be difficult in economic terms. The government said there is no adjustment for social aid or human capital; We imagine that salaries will adjust within a few weeks to support the rise in inflation.”
In turn, since the 1816 consultant They said: “In the campaign, La Libertad Avanza was the space that had a desire for reforms but did not guarantee governability. Caputo’s announcements ratify Milei’s intention to make a very important turn in economic policy (with fiscal shock, rearrangement of relative prices and, for the moment, monetary gradualism). The main unknown was and continues to be governancein our opinion”.
Very high inflation: until when?
For FMyAthe biggest blow will come in December inflation that would rise to 27% and January would be around 25%. “We assume that in the second semester it will drop and end around 180% in 2024. Until March, salaries will lose against inflation and consumption will be depressed; but we hope that activity will reactivate later (a drop of 2.5% is projected next year),” they added.
For its part, Romano Group foresees a scenario with higher annual inflation. “In a scenario where the most extreme monetary reform is not carried outthat is, dollarize the Argentine economy, we consider that our base scenario remains at 352.7% by 2024. However, if the monetary reform happens in the first quarter of 2024our view is that inflation may tend to decline more rapidly, especially during the last quarter of 2024. In this case, depending on the value at which it is dollarized, we can expect inflation in the order of 250-280% by 2024“.
“It is difficult for us to see the CPI growing less than 25% per average month for the next 2 monthsconsidering the jump in the importing dollar (139% including the change in the PATS tax) and the fact that just to rearrange relative prices the inflation repressed during the Alberto Fernández mandate is around 40% . If we add to that an inertial component and the role of expectations, it is difficult to know where the ceiling for monthly inflation is and, therefore, what the social impact of the program will be. Price dynamics will have to be monitored weekly not only to think about the street, but also for exchange rate sustainability,” they said since 1816.
Source: Ambito
