The economic and financial performance that the Government of La Libertad Avanza (LLA) has been showing is weighted in the markets and especially in financial circleslocal and international, in addition to one or another consideration. However, some of the main global economic consultancies, such as Oxford Economics or institutions, such as Institute of International Finance (IIF), in general, more independent, in their opinions, than bankers and investment fund managers, although they also recognize some achievements, They do not stop raising doubts and “buts”.
In this line it was added Pantheon Macroeconomics which also raises questions about whether the persistent recovery and disinflation will continue in our country. The analysts of the British consulting firm released a report on Argentina, in the run-up to the Republican electoral tsunami, and, perhaps, although they fall into some commonplaces with respect to their colleagues when it comes to doubts about the libertarian experiment, on some key issues They are more forceful.
On the one hand, They are aware that if the Government devalues, that can generate social and political turbulencebut at the same time they warn that exchange rate appreciation is unsustainable in the long term. And, on the other hand, they warn that the level of debt and the unstable external scenario make more vulnerable to the country with the consequent risk of default. Let’s see.
“President Milei’s economic policies have produced mixed results in recent months: they successfully curbed inflation and controlled the fiscal deficit, but these measures have had a high social cost, reflected in an increase in poverty and growing discontent. , although currently contained, among the population”the report starts.
After considering the inflationary slowdown as one of the main successes of the Milei administration, they remember that inflation is still high in year-on-year terms, but the downward trend is well underway after reaching a maximum of 289.4% in April 2024.
This benign outlook, they explain, has been reinforced by especially encouraging recent events such as the resumption of dollar purchases by the BCRA in October, to which money laundering contributed, to which is added the reduction of the exchange gap. “This convergence represents progress towards the elimination of exchange controls and the unification of complicated exchange markets,” says the chief economist for the region, Andrés Abadia. Also noteworthy is the drop in country risk to 2020 levels, reflecting greater investor confidence, and the reversal of the chronic fiscal deficit, achieving the ninth consecutive monthly financial surplus in September.
Economic activity, under strong pressure
“However, these macroeconomic achievements have had a high social and economic price: Economic activity has been under severe pressure this year where key sectors, including construction and retail, have been severely affected by the adjustment process, with a consequent negative impact on social indicators. (more unemployment, poverty and extreme poverty at record levels, and higher cost of living due to the elimination of subsidies for public services). “It is not surprising that social unrest has increased in recent months,” says Abadia, who believes that the Government has to balance macroeconomic stabilization with attention to the social needs of the population. Hence I point out that “The reactivation of the economy and job creation will be crucial to mitigate the impact of austerity measures.”
The good news, he adds, is that the worst of the economic cycle is probably already behind us: the recovery has been driven mainly by the primary sectors, but activity in key subsectors and industry is also stabilizing. “We hope that “economic activity will improve in the coming quarters, thanks to lower inflation, the increase in raw material prices and the increase in real wages.”
While a gradual stabilization of the labor market will also help, the consultancy predicts a 4% drop in GDP in 2024 and a 3% rebound in 2026. “Improving business and consumer confidence also points to better times ahead, offsetting the risk signaled by the deterioration of Milei’s approval ratings, but we expect an upward trend to consolidate soon as numbers improve.” of activity.”
Dollar: exchange rate appreciation is unsustainable in the long term
However, they warn, risks persist: “The lack of a favorable majority in Congress is a threat to the political sustainability of Milei’s economic measures in the medium term; the Government could face significant difficulties in maintaining its agenda of fiscal adjustment and economic deregulation.”
Furthermore, they remember that Argentina suffers from structural problems that threaten its long-term stability, and in that sense they emphasize a key problem: the persistent overvaluation of the peso, which reduces the competitiveness of exports, stimulates imports and contributes to the depletion of the country’s foreign exchange reserves, among other things.
Now, they are aware that “a strong devaluation of the peso could lead to serious social problems and cost the government politically.”but maintaining an artificially overvalued currency is unsustainable in the long term”.
The constant threat of the rdefault risk
Therefore, “The sustainability of Milei’s economic model will always be in questionnot because of his ability or willingness to address all of Argentina’s problems, but because the poor state of the country when he was elected and the obstructionism of the opposition. For now, the high social cost could make the continuation of these policies unsustainable if social indicators do not improve soon, despite the notable macroeconomic achievements so far.”
Meanwhile, “The high existing debt burden and the unstable external scenario leave Argentina vulnerable, which means that the default risk remains a constant threat, although less than when the Milei administration began.”
Although the ongoing negotiations with private banks and the IMF to guarantee debt repayment, along with the approval of Argentina by the Financial Action Task Force (FATF), underline the first fruits of gradual economic stabilization and increased investor confidence, “The sustainability of Milei’s policies will depend on its ability to maintain solid economic growth, improve the living conditions of the population and promote investment, productivity and job creation. “We believe it will be successful, but it will be a long and complicated road.”they conclude.
Source: Ambito
