A financial guru anticipates a budget adjustment and warns about inflation

A financial guru anticipates a budget adjustment and warns about inflation

The Argentine economy enters a scenario of fragmentation policy similar to that experienced in the year 2003with a structural problem of the economy that it is more serious than in the period 2001/2003.

In the 2003 elections the winner was Carlos Menem with 24.45% of the votes, in second place, Nestor Kirchner with 22.25% of the votes, third Ricardo Lopez Murphy with 16.37% of the votes, fourth Adolfo Rodriguez Saa with 14.11% of the votes and fifthto Lilita Carrió with 14.05% of the votes. So far 5 candidates with 91.23% of the votes.

This fragmentation It is a probable scenario for the 2023 electionsgiven the political circumstances that the different political groups live, where personalism weighs more than government programs.

Let us remember that in 2003 Néstor Kirchner was elected president, since Carlos Menem did not run for a second round and had to govern with a fragmented Congress, although it aligned the entire Peronist structure in their benefit, which added up to 60.81% of the wills.

In economic matters, between 2001 and 2003, Argentina had a fiscal deficit due to interest payments of the debt inherited from convertibility, however, the country had a primary surplus, this implied that income minus expenses gave a positive result. This allowed him to eduardo duhalde a great margin of maneuver, since it devalued the monetary sign and prices did not spiral upwards.

At present, between the years 2021 and 2023, Argentina registers a strong primary fiscal deficitthis implies that income less discharges has a negative resultwhich finances with monetary issue because nobody lends money to Argentina. If, at this time, the government decides to devalue the currency sign with the large budget deficit and issuance, it is very likely that the economy is headed for a hyperinflation event.

The cart before the horse

It is recommended don’t put the cart before the horse, in the Argentine economy we must, inexorably, go to a budgetary adjustment, and later, look for the ideal equilibrium point of the exchange rate. Going the other way will lead us to a problem that is difficult to solve.

Argentina has tax revenues for the equivalent of 17.7% of GDP, while current expenses add up to 18.3% of GDP and capital expenses 1.7% of GDP. This implies that we have a primary deficit of 2.3% of GDP. Argentina, before taking exchange measures, should address or resolve this chronic deficit that it has had since 2011.

Our country currently pays interest for the equivalent of 2.0% of GDP, this implies that you spend more on interest payments than on capital spending (roads, bridges and infrastructure in general) that results vital for better production logistics.


the next government will have to work to make a tough budget adjustment and, at the same time, work on politics monetary and exchange rate. We cannot devalue and then see what happens to the budget.

political fragmentation It is the same today as it was in 2003., personalisms surpass government proposals and everything is based on disqualifications. If fragmentation prospers, it will be difficult in the future to achieve parliamentary majorities for structural changes.

In economic matters, in the years 2001 to 2003 the country had a primary surplus and reached a high deficit due to the payment of interest on the debt. We currently have a primary deficit and this does not give room for maneuver to a significant devaluation of the currency, because this would open the way to hyperinflation.

The strong rise in stocks and bonds this weeka is the correlate of a search for coverage of financial surpluses. A country that has zero real reserves shows bonds that have negative rates, due to the lack of coverage in the face of an eventual inflationary spiral or devaluation of the monetary sign. This is a sample that in Argentina the ducks shoot the shotgun.

The country is facing a different challenge than in previous vivid yearsalready known recipes cannot be applied. Entrepreneurs need to be returned the profitability that was ceded to the State. Without a cut in spending and taxes, it will be difficult to get out of the current recession. Devaluation for devaluation’s sake is not the way.

Source: Ambito

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