A little cooperation. Review history, Néstor Kirchner did not threaten, nor did he believe that the end of the world was coming. He endured. Enduring is “the ABCs” of a ruler. Utopian slogans don’t work, because playing Che Guevara with the IMF doesn’t add up. In a negotiation, a lawyer (Sergio Massa) walks around giving in or breaking and smiling. The novelty is that Massa “sends them to the front.” And, when a due date arrives, if the dollars to pay are not there, we will have to see what happens because we are the biggest customer of the bowling alley. The good thing about Massa is that lawyers are not afraid of the police like economists. Some enter the police station taking out metal and the officers are afraid of screwing up, the others wrinkle like raisins and pass them around like a fallen wire. It is the experience we learned from restructuring private debt, with the help of expert lawyers, only in extreme situations.
Macri, Prat Gay, Caputo, Sturzenegger agreed in 5 minutes. They agreed badly for Argentina, obviously. They did not get qualifications even close to those of Bolivia, they never paid less than 7 or 8% annually (speculative degree) 3.5 or 4 times more than what the populist, dirigista and left-wing statist government of Evo Morales paid. The benefit of fixing in 5 minutes did not improve costs, never in 4 years.
According to Cruces, if in 2013 there was a willingness to resolve the problem on reasonable terms, recognizing certain rights of the litigants, it was not even necessary to pay everything they asked for. The results of hold-out litigation showed that the majority agreed (1976-2010) Source: Schumacher, Trebesch and Enderlein, 2014a.
But Macri, Sturzenegger, Prat Gay and “the Messi of finance” fixed it in 5 minutes. The enormous capacity to place debt that it offered a country with very low debt levels (Dujovne)allowed him to return to the global financial markets with unusual speed. In the first year of the Cambiemos Government (2016) the placement of external debt was around US$42 billion. With a third, the dollar would have been flat all year.
As of December 15, 2015, the total estimated debt with the private sector and multilateral organizations was US$ 83,710 million (20% of GDP; 13% of GDP with the private sector, 7% of GDP with international organizations), “ zero with the IMF”, ended up being 5.5% more of the GDP, only with the vulture funds, reaching a total of US$ 106,000; 31% of GDP in intra public sector debt – and 5.5% of Lebac’s GDP.
The ideological approach that implied the apothegm “return to the world” became in just 2 years a self-inflicted damage at the service of the disaster of domestic economic policy, taken advantage of by the close link between the economic team and international banks and investors, after a decade of debt relief. The visit of Obama, Trump, Renzi, Hollande, Merkel, Macron and the G20 party itself never made a difference in terms of investment and business for Argentina.
In the exchange market, they went from a fixed exchange rate system with capital controls to an exchange rate system with dirty floating without controls and an autonomous monetary policy (Prat Gay-Sturzenegger), they collapsed the control scheme and unified the exchange market, as Milei wants to do.
Since January 29, 2016, US$2 billion in reserves were lost in just 33 days. In addition, withholdings on exports were eliminated and the non-taxable minimum on Profits increased, while electricity and gas rates increased extravagantly. Much less than what Milei proposes.
The Lebac and call rates were established between 36.5% and 38%, allowing a level never reached before, with the dollar ironed. The BCRA accumulated losses in the future dollar market of more than $75,000 million ($42,450 million in December 2015, $9,000 in January 2016, and $25,000 in February 2016) due to the effect of the devaluation. Against his own opinion, the economic team that also included Carlos Melconián (BNA), appealed almost exclusively to a contractionary monetary policy without fiscal correction. It’s not that Melconián didn’t notice, but he just wouldn’t leave, that’s why they fired him. Thus, credit and the level of economic activity suffered excessively. The “zero poverty” government of Macri and Patricia Bullrich began its mandate with devaluation, acceleration of inflation and a drop in the level of activity.
Although goals were set to gradually reduce the fiscal deficit and inflation, for 2016 a primary deficit goal of 4.8% of GDP and an inflation goal of 20/25% were announced, which in reality were 7.5% and 41% respectively. . In another order of things, investment reached just 14 points of GDP, the lowest ratio in the entire region, and lower than in all previous recessions. In terms of investment, from the beginning, the Macri Bullrich administration and the aforementioned economists could not generate optimism, quite the opposite. As GDP did not grow, the capital/output ratio fell.
Likewise, a part of the capital stock became less productive as a consequence of the gradual elimination of the necessary subsidy for energy and the increase in the supply price of gas to stimulate production – absolutely unnecessary – which affected the competitiveness of gas-intensive industries. The new party of Milei and Macri want to do the same thing again, but faster. The year 2016 ended with a drop of (-2.3%) in GDP, instead of 3.5% growth as the economic team had predicted. A forecast error of around US$30 billion.
According to the study cited, the final result of the Argentine public sector (national + provincial + municipal) as a percentage of GDP: 1961-2013, provided an average deficit 1961-2013 of 4.2% of GDP (Juan José Cruces, PhD in Economics, University of Washington, rector of the Torcuato Di Tella University). So if we removed the 7 years of surplus and 3 years of low deficit from the Kirchner period, we would have exceeded the 7% deficit, including the convertibility period. Phew! Kirchner would have been the envy of Alsogara and Dr. Alemann. This is data as Bullrich says, which promises to end and destroy Kirchnerism. Crazy, because private banks and the IMF do not lend to populism, then they come and pay the bill for those who promise to reduce the fiscal deficit.
Everywhere, but especially in Argentina, public debt historically stops the accumulation of capital, puts the stability of the economic and financial system at risk, making it impossible to manage monetary policy and later it is difficult to avoid social outbreak (2001 ). The high twin record deficits of 2017, through debt, redistributed the burden projected for the long term and became a serious inconvenience, registering a dizzying amount in just 2 years. In December of that year, the maximum of almost 3 decades (around 13% of GDP) had been reached.
The Macri inheritance would be very heavy. Successive governments would be forced to raise taxes or lower primary spending to pay off debt. However, if they had reached budget balance, if the markets and multilateral credit organizations agreed to the simple roll over (permanent renewal of debt), they would have to place more debt (only in the country, because Macri lost international credit in 2018 ), to pay interest on the stock, or it would grow consistently with the average interest rate that would accrue. And, about wet rain, COVID-19, war in Europe and drought.
Authenticity is the key to a leader who builds leadership effectively. With concrete facts that support his statements, since the fundamental assumption to produce political or financial credibility is that the one who makes a commitment fulfills it, so that he can be trusted.
Milei changes plans all the time, one day he dollars and another he doesn’t; Melconián and Bullrich do not have a history of credibility in informed society, and only Alejandro Fantino and the businessmen who finance the Mediterranean Foundation considered the details of the plan that excited Melconián. Doubling down, the candidate said that if there is political and union resistance to changes in labor standards in Congress, “I will make a DNU and I will repeal them in two minutes” (Télam). She doesn’t always zanate, as Milei, the doctor, says: “She doesn’t fuck with me.” She tells you that she is going to govern by decree and with sticks.
UBA Postgraduate Professor and Master’s Degrees at private universities. Master in International Economic Policy, Doctor in Political Science, author of 6 books. @PabloTigani
Source: Ambito
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