What remains for Argentina to enter the path of macroeconomic stability

What remains for Argentina to enter the path of macroeconomic stability

A recurring theme in recent weeks is the evaluation of the first hundred days of the new government. In this there seems to be a discrepancy between the opinion of the great majority of economists, which is generally positive, and that of the common citizen, who seems to maintain support for the government, but highlights the bad situation it is going through. How are both things compatible?

Logically, the common citizen observes his personal situation and detects strong price increases combined with stagnant or poorly adjusted revenues; What’s more, in areas such as public services price increases have been notable. Something similar may be perceived by companies, which see their sales fall due to the loss of purchasing power of the population.

This perception confirms something common in economic analysis: people care about results and, specifically, in two crucial dimensions, inflation and employment or economic activity.

What do we economists pay attention to?

Economists know that these are the dimensions that most directly influence people, but we also understand that they are a consequence of economic policy, so we pay attention to other issues that are behind the scenes but are those that, in the long run, will generate the results in terms of activity and inflation.

Along these lines, the vast majority of economists highlight some key aspects of these other issues. The first and most important, the transition from fiscal deficit to surplus. Related to that, a strong monetary containment. The third, an honesty of repressed prices. Fourth, a sustained accumulation of international reserves by the BCRA. Finally, a gradual reduction of interest rates, both internal and country risk.

Where is there conflict between economists?

In the perception about the durability of these results, which the vast majority consider positive. By case, The fiscal improvement comes hand in hand with greater tax pressure and, at least in part, with the liquefaction of various expenses and payment postponements that will not last indefinitely.

The monetary containment occurred partially due to the placement of debt in dollars to importers, which involved withdrawing pesos from the market, and that process is coming to an end.

The The accumulation of reserves and the reduction of interest rates was facilitated by the persistence of a significant part of what we know as stocks.

Results of the new economic policy

Beyond these uncertainties, what results has the new economic policy been producing in those two dimensions that interest the common citizen?

In terms of inflation there are certainly positive results. Inflation, which had jumped to 25.5% monthly in December, fell to 20.6% in January, 13.2% in February, and we estimate that it would be lower in March.

Although March is a month greatly influenced by the adjustment of schools with the beginning of classes, our price survey detects a significant moderation of most of the CPI components throughout the month. Thus, the Core inflation was 9.7% between the third week of February and the third of March and would approach 9% in the fourth week of the month. In this way, March would close with a inflation slightly less than 13% in the GBA region, compared to 15% measured by INDEC in February. This implies that national inflation could be somewhat lower if a regional disparity such as that seen last month is repeated.

Can the slowdown in inflation continue?

The moderation of inflation can continue if the two conditions: the persistence of fiscal and monetary adjustment, and the absence of another jump in the exchange rate. Both are likely to be fulfilled during the second quarter given that the usual peak in foreign currency income from the harvest is expected, reinforced on this occasion with the recovery after the drought.

The fall in economic activity is the most negative aspect of the current situation and for which uncertainty is greatest.

Unlike what happens with inflation, there are no indicators that allow performance to be measured with precision and little delay. However, two things can be marked: The drop in CAME sales was smaller in February than in January (-25.5% vs -28.5%) and The Construya index, which measures sales of construction supplies, rose 6.8% monthly seasonally adjusted. In turn, UTDT consumer confidence left behind the contractions of December and January and increased a slight 1.2% in February and another 1.8% in March. All this suggests that it may be close to a floor.

Are the results analyzed enough to suggest that Argentina has already entered a path of greater macroeconomic stability?

Unfortunately not. I believe that we are facing an economic policy scheme that surpasses the previous one and is very well on the way to achieving that objective, but It will be of no use if it does not last over time, and this requires sustenance, both social and political. If there are results, people will probably support.

But political support seems more elusive; Ideological differences with the government and rejection of its ways are certain difficulties. However, the proximity of the abyss that was perceived at the end of the previous government may be a factor that generates support; If not to everything that the government proposes, at least to the fundamental economic aspects.

The processing of the new basic law and the May Pact will be important signals in this regard. Financial indicators show that there are investors who believe that We may be facing the beginning of a different and positive period. Time will tell.

Economist, director of C&T Economic Advisors and professor of Monetary Economics and Argentine Economy at the UCA

Source: Ambito

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