Fausto Spotorno: The Government is right to defend fiscal balance as best it can. From an economic point of view, promoting the Bill without having a clear idea of how the resources are spent is quite irresponsible. However, for me the signal is political. The Government’s main weakness in Congress lies in not being able to stop this type of thing, nor being able to negotiate with the allied blocs. These are the market’s concerns. The political signal is the most worrying thing about Milei’s government, which is politically weak today. The question is how this will continue. If Milei vetoes what was approved in the Senate and it remains there, that’s it. If Congress insists, things could get complicated for the Government.
Q: Do you think that this political weakness can be balanced by the support that the Government has at a social level? Or is that factor also deteriorating?
FS: It would be logical that it would deteriorate a little as time goes by, but that it weakens a little is not a surprise to anyone. On the other hand, it is true that the recession is starting to get tiring. It is important that a government with political weakness in Congress relies heavily on social support, as it has a floor of support that it cannot breach.
Q: In that sense, is there no way to present an alternative to finance the expenses involved in the recomposition of salaries?
FS: Congress does not want to run the risk of raising taxes or issuing debt to alleviate the fiscal deficitestimated at 1.2%. All existing economic subsidies would have to be eliminated in order to redirect expenses. This is important. The recomposition of Profits would not imply major changes either, it would represent only a third of what that expense would generate.
The difficulties in getting out of the trap
Q: If the Government is focused on speaking to the market, why is the country risk at 1,500 points?
FS: The market sees that the Government has not yet found access to financing due to the difficulties in getting out of the exchange rate trap and also warns of the political weakness that I mentioned earlier.
Q: What pending issues does Javier Milei have to resolve in order to escape the trap?
FS: The Government has a transitional economic program, the famous phases that Caputo mentioned. The transition plan is fulfilled with the end of the currency controls. First, it prioritizes lowering inflation and putting the BCRA’s accounts in order. Once this plan is finished, Milei’s real program should begin, which has to do with dollarization and reforms. This plan, for now, is not yours.
Q: In the logic of Milei’s plan, is it possible to celebrate the slowdown in inflation and the rebound in activity at the same time?
FS: The Government, between economic activity and inflation, is betting on lowering inflation. It is difficult to achieve economic growth with a price level outside of international standards. Now, a fine balance must be found. Inflation must be lowered, while at the same time raising some prices that are out of date, such as tariffs or wages. But when these movements are made, they must be more compressed than when there was a monthly inflation of 5% or 10%. If I have a 4% inflation and the tariff increases by 20%, I have little room to correct prices, and the compression of margins is stronger. That is why it takes time for the economy to recover, because as soon as it recovers a little, prices increase and so on, until a new equilibrium is found.
Q: Can the government bring inflation to 0% by the end of the year?
FS: I don’t see 0% inflation. The government has to better manage the alignment of expectations. I understand that it is difficult because this part of the economic plan is more delicate. When the exchange rate is released, there will be variables that cannot be controlled.whether the amount of money, the interest rate or the exchange rate itself is chosen, the other two will be left to the market to decide. The Government does not have all the levers and here it has to decide what risk it runs and what risk it does not run; it has to be more flexible.
Q: Furthermore, the international context does not seem to contribute to maintaining a stable exchange rate.
FS: No, and even less so if there is a lack of credibility in Argentina. Converging to a theoretical exchange rate is difficult if the market does not believe that is the exchange rate.which is why at some point you have to make the leap after completing the convergence plan.
Q: Do you notice that the market is demanding more than ever regarding the timing of the lifting of the currency restrictions? It is clear that any administration would have had a hard time getting rid of the exchange restrictions.
FS: Could be. It must be understood that the exchange rate restriction leads to putting patches on productivity. Starting with commercial debt, followed by people who are left without stock or with inventories half full, subsidiaries that are not paying dividends, then the entire market is patched up.
Q: Do you think that the fresh dollars from the Fund and the money laundering are the Government’s bets to obtain reserves?
FS: I have more doubts about the IMF, it is more a seal of quality than the inflow of resources. I have more faith in money laundering. It is more likely and useful for the Government than the IMF funds, which are quite restrictive, and the Government wants to keep its hands fairly untied.
The green shoots are delayed
Q: The government promised that at the beginning of its administration there would be a “bitter pill to swallow.” In this second half of the year, wouldn’t it be time to start seeing some green shoots from that effort?
FS: I imagine a second semester better than the first, but these outbreaks take time. Inflation is a little lower and consumer confidence is showing a rebound. But The government will only be able to show more significant achievements next year.
Q: Salaries are showing a slight recovery, at least in the private sector.
FS: Today we see a rebound in wages, but increases in rates, prepaid health plans and fuel overshadow it. Our calculation is that if we assume that consumption, transportation, food, education and public services expenses remained constant, all the increase in real wages was absorbed by these increases.
Q: What do you think is the role of the Economic Advisory Council and how did you leave it?
FS: The Economic Council has the responsibility of informing the Government if there are opportunities that Argentina can take advantage of, but it does not execute them nor is it made up of public officials. I am an analyst, a consultant, I appear in the media, I made a lot of noise every time I spoke because it was not understood from which side I was speaking, so I thought it was responsible to leave. That said, I was surprised by Milei’s tweet because it had the best vibe and I still do, and I think that the economic plan is well laid out in general. In any case, as an economic analyst my role is to say: be careful that this part of the plan is more delicate and we should think better about how to make the market form expectations so that it helps the economic program, and not make mistakes in that sense.
Source: Ambito
