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Public debt debate: chronicle of an announced default (Part LIV)

Public debt debate: chronicle of an announced default (Part LIV)

An earthquake had shaken the start of the re-election campaign. In January 2018, Argentina had lost international credit. After the obscenities of 2016 and 2017, we would witness the devastating spectacle. Based on the results, every day the lies of Mauricio Macri and the best team of the last 50 years were discovered. The purpose of the economic decisions had not been, of course, to help the country from an “isolation” or the supposed “heavy inheritance”, but simply, to swell an endless number of wrong accounts that were not those of the public treasury. The world did not trust the Macri government, and compliance with the first agreement had already failed with the IMF.

But the implementation of the emerging economic program of the “second agreement, IMF II” did not loosen macroeconomic tension either. The fall in the level of activity deepened, only to temporarily decompress the exchange market and stop the inflationary spiral that had been unleashed. They tried to drive away the ghost of default. Anyway, bankruptcy would come with lacunza in August 2019, who would execute the “reprofiling of prepo” (default of the debt in pesos) and would generate the famous locution of Belocopitt: “they screwed it all up”.

The “IMF II agreement” did not allow the country risk to be lowered by 700 basis points, due to the fright generated by the economic team and the doubts about the financing of the public sector. Lowering the dollar from $41 at the end of September to $37, fixed-term deposits showed a strong increase of $171.6 billion, which the banks in turn invested in the purchase of Leliq, within the framework of the dismantling of the Lebac. But the exaggerated monetary restriction deepened the recessive picture.

In September, the economy contracted (-5.8%) year-on-year, the industry sank (-11.5%) and (-6.8%) in Octoberwhile the other available indicators showed that October and November had been lousy for activity and mass consumption, in a context of a sharp drop in credit, reduction in real wages (-13%) and job destruction. The economy laid off 52 thousand workers between April and September 2018.

The consensus of the “private lung economists” from the economic team, militated the story that the economy touched floor in the immediate quarter. This cheerful prognosis was based on the assumption that real wages stopped falling between December and February with the reopening of parities and the slowdown in inflation to a minimum of 2.2% per month in the first quarter of 2019. On the other hand, inflation was estimated to fall to 25% in 2019 (the real one was 54.7%) by tight monetary tightening, wildly outrageous interest rates, and a credit crunch. It would help to lower inflation, due to the harshness of the recession. The program was traveling a very narrow path, with a government full of uncertainties. For the colleagues we serve production and labor, we were derailing in slow motion.

The risks were too many. It was difficult to keep the exchange rate serene, and if that did not happen, it would force the use of the US$10,000 million surplus from the IMF. Even the extravagant monetary program to slow down inflation in a context of inflationary inertia, salary updates and rate adjustments, was infinitely precarious. The danger that a new appreciation of the peso and a very high real interest rate would compromise the minimum scenario of cyclical recovery. The conflict if they did not meet the “zero deficit” goal or the Treasury did not renew its short-term debt maturities would also lead to a more intensive use of IMF disbursements. But the most compromised was renewal of debt maturities in the local market and the rate of recovery of the economy.

Even if the election were reached without turbulence, the recessive and inflationary economy, with growing unemployment, would not be a positive factor for the ruling party in the 2019 presidential election. The next few months in economic terms were essential for the electoral result and the determination Who would be the next Argentine president? With the crisis, the sharp adjustment and the uncertain political landscape Lucia novelesco listen to those who proposed an agenda of structural reforms. At the end of Macri’s term, per capita income would be 11% lower than in 2015.

The data indicated a deepening of the economic decline, although a wide sectorial dispersion was observed. The credit crunch and high interest rates were hurting consumption and investment. Consumption was being greatly affected by the sharp drop in real wages, in a plot to erode consumer confidence. The consumption of durable goods exhibited surprising drops. Investment was depressed by declining expectations, collapsing corporate profits and damaging financial conditions. On the supply side, the deterioration of financial conditions forced companies to reduce inventories, which subdued the rate of capital and work utilization.

exchange market

In October, the excess of private demand over the supply of dollars was vaporized and the BCRA did not sell foreign currency. Between March and September 2018, the excess demand for dollars averaged US$3.6 billion per month, the BCRA and the Treasury sold reserves for US$25.5 billion, however, the value of the dollar doubled, going from US$20 to $40.

in octoberand, the excess demand for dollars evaporated due to the cruel monetary policy, the recession and a bilateral real exchange rate 60% higher than in mid-2017. Due to the recession, the demand for dollars for imports, tourism and hoarding fell sharply . The cash exchange balance-dollar operations of the private sector and those of the public sector-demonstrated that there were no “genuine dollars” despite the strong adjustment of external accounts.

In September and October 2018, the current account deficit was reduced, due to the reversal of the trade balance and the lower deficit in tourism. The formation of external assets also decreased, although it was not enough to offset the sharp deterioration of the capital account, a reversal of almost US$12,000 million: (-US$560 million) against (+11,100 million September and October 2017) . Nobody lent us, without the IMF disbursement of US$5,668 million, Argentina would have had to squander another US$4,000 million of its reserves to finance the external imbalance of September and October despite the strong adjustment that was being made.

The adjustment made was brutal, but insufficient for Argentina to continue paying its bills and giving away dollars, without the IMF subsidy.

Executive Director of Fundación Esperanza, Graduate Professor UBA and Masters in private universities. Master in International Economic Policy, Doctor in Political Science, author of 6 books.

Source: Ambito

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