The fierce monetary compression announced and its strong impact on credit that fell precipitously, constituted a very fierce combination. There was a significant addition to the demand for dollars from foreign investors who chose to unbundle their Lecap holdings, putting accelerated upward pressure on the exchange rate.
From the non-heterodox monetarist approach, it was obvious that with a single instrument (Leliq) it was difficult to achieve the objective of the monetary base, which consisted of keeping the dollar calm and reducing the volatility of the interest rate (20% in 4 weeks, from 70% to 50% and then to 70% again). An orange light came on, not all Leliq expirations had been renewed.
Likewise, from the short-term monetarist approach, monetary rigidity was fruitless to stop inflation, in a context of permanent adjustment and a residual pass from the 2018 devaluation of 100%.
With greater weakness in economic activity, tax collection was falling, making it difficult to meet the fiscal target promised to the IMF, although the multilateral entity authorized a primary deficit in 2019 that could extend to (-0.5%) of GDP instead of “zero”, as the obsequious minister Dujovne proposed.
The Fundación Esperanza projection was for a primary deficit of 1.5% of GDP, which would prevent the country risk and the domestic interest rate from falling. The destructive effects of country risk and, consequently, the interest rate on economic activity and the level of employment, were undeniable, although we had not yet seen everything, compared to what was to be unleashed months later.
In another vein, the government’s political strategy of demonizing Cristina Kirchner negatively affected, due to the stigmatization that developed economies have, their perception of popular governments in Latin America. An adulterated perception, since after the 1990s and the resounding failure of the neoliberal governments, it was the populists who managed to reduce fiscal and external deficits, pay off debts, and increase the reserves of their central banks.
We explained it to the banks in New York, that contrary to what was collected from the stable cast of Argentine ecolobists, It was during the period of the Kirchner governments that the debt was paid, after the default caused by “Los Simuladores”, market-friendly economists (2001)..
Again, the extravagant growth of debt had been in the hands of many of the same technopols of 2001, who from the beginning made up the national cabinet. It was them “bad boys”although pleasant for the banks, which those of the movie “The Heist,” where Robert Redford and Paul Newman swindled and conned, but looked sweet to the financial crowd.
In April 2019, we were in the midst of stagflation, which would register a negative GDP variation of around (-1.8%), inflation in the order of (42%), and a drop in employment of around (-3.5% ), if nothing changed violently. This context of predictability had a transition scenario that could become messy, where it was not obvious that the dollars in Argentina would be enough to supply a demand of US$18,000 million.
In a scenario of declared financial and exchange rate instability, with no possibility of activity recovery, there would be a greater drop in employment and the exhaustion of permanent adjustment. Even if the CGT did not react, the social field could get out of control, with such an unfavorable economic scenario.
In the electoral contest, the “ceiling” of Cristina Fernández began to rise. Nobody wanted an overwhelming financial crisis, especially Cristina Kirchner. In Argentina we knew that unstable financial dynamics could become explosive. If the dollar and the country risk were not stopped at the same time, the agony would be short, but with devastating consequences. If, on the other hand, everything continued its mediocre course, at the end of Mauricio Macri’s term, we said that the GDP would accumulate a drop of around (-5%) in four years. And that’s what happened.
The continuation of the government was already conditioned, a unique trap had been set for the next president. A new debt restructuring that would include the IMF, as we have been stating. If the path of growth was not resumed first, it was inevitable to default on the debt, but the possibility was ruled out, dogmatism was in charge and the fear of the unknown suffocated them.
The local media tried to make Cristina look like a real criminal, but they couldn’t get a single ruling against her. The sentence was in the media and from there it was transmitted to ordinary people. They did it. Outside we were very aware of explaining against the current, in our same seats there had been nine soothsayers and sorcerers for each one of us.
The economic reality was contrary to the perception and the campaign of the Cambiemos environment. With citizens of another country, and communicative economists without prejudices; the performance of the 12-year government of Néstor and Cristina Kirchner would have become a “Harvard case”. Unfortunately, having a lot to show, the former president did not build her profile to the world. It was not necessary to betray any conviction to explain in developed countries what had been done in Argentina.
INFLATION DID NOT STOP
Inflation accelerated sharply in March 2019. In January it was 2.9%, in February 3.8% and in March 4.7%. At the same time, “inflation expectations” exhibited a significant increase.
As reported by the friendly UTDT (Torcuato Di Tella University), expected inflation for the next 12 months had risen to 40%. This acceleration of inflation in 2018 and 2019, and the expectations that continued to be systematically revised upwards, highlighted the enormous difficulty facing the government.
The adjustment of the prices of the services in this model of “crony capitalism”proposed an indexation of permanent contracts, in particular, of energy companies: oil companies, oil refineries, fuel transportation and sales to the end user at service stations. The electric power industry, including electricity generation, electricity distribution and sales, kept increasing their prices. In reality, the president and his ministers did what they were asked to do, favoring their friends, businessmen, and CEOs of these companies..
Acting contradictory to “their presumed convictions”, they frightened the world with the announcement of establishing a price freeze of a dimension unknown to the actors. In this scenario, food companies increased their prices for citizens, for 12 months.
In conclusion, it is shown, once again, that monetary rigidity is ineffective in Argentina to lower the inflation rate, per se.. However, the international technocracy and its local subordinates imposed it in an authoritarian and cruel way. We were going from bad to worse, very rapidly.
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.
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