The President of the Nation presented the Budget 2025 with a message before the National Congress, in which he plans to leave behind a 2024 to be forgotten. Among the main projections are the rebound in activity levels (+5%), inflation of 18.3%, an official dollar of $1,207 at the end of the year, trade surplus (USD20 billion), primary surplus (1.3 % of GDP) and financial balance. Both from the announcement and from the facts (veto of the retirement law included), a series of continuities emerge regarding the economic policy guidelines for next year, while doubts continue regarding what the monetary regime will be to which we we headed.
The “zero” deficit is not negotiated
Among the new features of the project is the announcement of a tax rule explicit by means of which the National Public Sector must close this (and each of the subsequent years) with a financial result – of minimum – in balance: given the amount to be paid in debt interest, if the effective income were below those projected by the Government in the budget, expenses must also be cut in equal proportion.
In this way, with expected revenues totaling 16.5% of GDP (compensating for the reduction in the country tax with withholdings, fuel taxes and non-shared profits), and an interest payable account of 1.3%, at primary spending has room to grow by just over 15%. At the head of the economic team, ensuring flows should accommodate the rest of the melons.
The truth is that beyond the fiscal issue and the nominal anchors (exchange rate first, aggregates later… but just in case, also exchange rate), the Government finds it very difficult to get rid of a most eclectic heterodox drive when it comes to ensuring the successes of a transition that today is moving in reverse, while continuing to accumulate costs on the real side. With the 80-20 blend in force, appreciation and the international debt market closed, the exchange balance is on track to end the year as it began, with strongly negative net international reserves, while the consolidated debt of the National Treasury is already went back to square one. Stocks are not forgiving.
It’s not you, it’s me
The Government’s reading is that the recurring macroeconomic imbalances come from a recurring failure of the public sector to comply with its budget restriction, generating a deficit that, regardless of how it is financed (external debt, internal debt and/or monetary issue), ends up appreciating the rate of real exchange, making exports more expensive and imports cheaper, which would explain the imbalances on the external side. Rather than lacking foreign currency to finance capital accumulation, you have plenty of exchange rate.
I wish it were that simple. When reviewing our own history, there have been several processes of intense adjustment of spending, which, given the magnitude of the stocks, did not however manage to stabilize the imbalances, and even fed back into high inflation regimes through changes in relative prices. . Nor is the coexistence of external over-indebtedness with credit rationing new, nor is the financial fragility of having your currency damaged (which threatening to replace it is surely not going to help). We simply cannot ignore the effects that the magnitude, duration and recurrence of such phenomena have generated on the behavior of those who make decisions of all types and sizes, and that have historically led to strong redistributions of income and wealth, enough to make the world fly. airs any attempt at balance such as the one proposed.
In other words: the tensions that the Government faces do not derive from the excess pesos, as it seems to believe, but from the doubts that everyone had and have about the missing dollars. It is the financial stocks in foreign currency that pose a serious challenge to sustained growth, as well as the pressing need to: (1) move towards a sustainable monetary regime, including micro- and macro-prudential measures (and no, they are not the same than the CEPO); and (2) define a productive strategy that allows for better international insertion, through an intelligent industrial policy that takes advantage of the enormous opportunities that exist today.
Nothing is free. Just as macro instability affects the structure, weakening institutions (financial, tax, regulation and supervision) or further deepening the productive disarticulation, not only make the economy absorb shocks less, but also create a favorable scenario to continue generating of coordination failures.
The adjustments in Argentina do not operate close to the balance that the President talks so much about, and on the contrary generate non-linearities of all kinds, which can be highly divergent. It alters effective demand, discourages investments and damages productivity. Prices but also quantities change, markets are lost, we renounce key technological trajectories (highly dependent on what happens within the firms) and the links between companies of all sizes and sectors are deflated, which means fewer employment opportunities but also less dollars. And without dollars in the Argentine economy, there is no love.
CECA economist, former BCRA vice president
Source: Ambito
