The two bicycles of Luis Caputo

The two bicycles of Luis Caputo

The (bicycle 2) or “single speed”, instead; is the bicycle of a lifetime in “Argentina”, Its simplicity avoids traffic jams in the “chain”, but with a fee. The thing is that they always occur at the most unexpected moment and Argentina “has been pedaling it since June 2018. An example is, the “bicycle to Cammesa” or, “biking to Cammesa”. The non-payment or default was attempted to be resolved by cycling them, and then offering them bonuses, which were initially rejected, and are now in the process of negotiation.

In that sense (bicycle 2), pedaling beyond the public works does not take into account the essential maintenance expenses that cannot be bicycled. Trains without technical service crash. Bicycle 2, to the provinces, is being financed with an increase in the rates of provincial and municipal taxes and the Country tax, which generates income of 2% of GDP, but ends in 2024.

The fiscal package adds revenue in the first year, with the reinstatement of the income tax, the eventual money laundering and the moratorium, for now, doubtful. The strong incentive to pay the personal property tax, paying five years in advance, is a patch. As we said, the important part of the great improvement exhibited ad nauseam by the government, can be presumed fragile, because it was achieved with “bicycle 2” and transitional regimes adopted in the temporary occurrence, and they only gave results, for a stage that it already dies


It was spread in recent days that, through DNU, the president ordered himeither to Luis Caputo’s partner, Santiago Bausili (BCRA), to lend the National Treasury US$3.2 billion, over 10 years, to pay debts in foreign currency. In exchange, the Treasury will provide the BCRA with Non-Transferable Bills maturing in 2034. Milei and Caputo biked the BCRA.

It is false, then, that the BCRA’s balance sheet is being cleaned. On the contrary, in this way it continues to be contaminated, since theThe dollars from the BCRA reserves will go to the Treasury and Caputo will leave you a non-transferable bond in exchange. In the last review, the cover-up IMF established that the primary surplus was 4 times higher than expected, however, manipulation, or snatching of $3.2 billion “live” was implemented, with the promise of replacing it in 10 years .

The fact of forcibly fixing interest rates and delaying the exchange rate does not help to stabilize the demand for pesos, although it works extraordinarily well for the “bicycle 1”.

Broad monetary liabilities such as Pases, Bopreal, Lediv and Legar, are growing at very high nominal rates, even with “subsidized rates”, strongly negative, funded by taxpayers and savers; which complicates the monetary cost for the deceleration of Argentina’s multi-causal inflation.

Monetary liabilities have grown at an annualized rate of 232% in just 5 monthsalthough it has never been linear nor does it coincide in the short or medium term with the inflation rate, it is a fact for monetarists. Meanwhile, the monetary base plus broad monetary liabilities grew 21 trillion, 64% accumulated and 230% annualized from December to April. The monetary base grew 38.6%, Passes 55%, and total monetary liabilities 50% during the months of Milei’s mandate.

We are in the presence of a very cruel program, which settled the scores in favor of the government sponsors. Milei believes it has a stabilization program, but Caputo and Bausili have become obsessed with creating “banking solidarity” or “bicycle 1”and they do not think of anything easier and legal to perpetrate the looting.

The bad minds in the market say that when the bicycle chain is cut, everyone will be thrown. There is no safety in braking if the chain breaks, there is no time to disengage from the pedals and recklessness can involve innocent people.

With the current monetary program and the sustained increase in rates, price inertia, the rate of Inflation towards the end of the year may drop to 6/7% monthly, says Domingo Felipe Cavallo. The same inflation as the average for the first semester of 2023 (second worst semester of Alberto Fernández’s 8 semesters) and higher than in the most unworthy year of Macri’s 4. Martin Guzmán should be called to apologize for having obtained better results than Macri, Alberto Fernández and Milei.

Neither the country nor the economy consist of “only fiscal adjustment”. In any case, given the theoretical framework vaunted by the government, a stabilization plan with a consistent monetary and exchange program is required to break inflation. Stabilization programs also coordinate expectations and, if correctly communicated, tend to distort price dynamics (Bob Lucas Jr.).

But “the only truth is reality” (Perón), from now on, public spending begins to rise, with two added drawbacks; trends impact inflationary expectations that when they worry them and generate more inflation, whatever the exchange rate in discussion of long-term equilibrium from Argentina. Obviously If everyone is right and Milei is wrong, with exchange rate delays, the expectation of a new devaluation is increasing (+10% in 2 days on blue), which does not cooperate to reduce the inflation rate.

We emphasize that, whether there is a new devaluation or not, the mere expectation that there will be another devaluation drives inflationary transmission mechanisms. Together, the monetary base and broad monetary liabilities are growing at a very costly price, adding difficulties to the slowdown in the inflation rate.

Despite “the applauding seals of the Alvear Hotel”, the hyper-recession continues to deepen. In terms of economic activity, there is no enthusiasm whatsoever. In April there was a 15.4% collapse in hypermarket sales (Source: Scentia). In March industrial activity fell 17.2%, the same as in December 2001 when De la Rúa resigned, having less than 1/3 of Milei’s public debt. The Public debt increased by US$ 11,000 million in April and by US$ 43,383 million in the yearnot including that of the BCRA or that of the Provinces.

The only recovery variable could be net exports, although estimates are being cut due to low yields (Expo-Impo), the former did not experience the drought suffered by Alberto Fernández, which dissipated US$25 billion in 2023, and Imports became ointment, due to the self-inflicted recession.

Private consumption would not be restored via salaries. It is false that they will stop losing against inflation, and it seems absolutely unlikely that they will recover from the collapse that befell them. In the same sense, retirements, pensions and social plans could not turn around their situation with this government. It is not in the will of this administration to do so. Public consumption is obviously not going to take off and, after the 42.2% drop in construction in March, a jump is not going to occur, because the cost in dollars escalates above the final price.

Investment in capital goods is unlikely without the lifting of the stocks, which seems increasingly distant. The growing deepening of idle capacity, after another drop in March of 21.2% in the industry. The utilization of installed capacity in the industry stood at 53.4% ​​in March, in lower end to the same month 2023, when it reachedeither 67.3%.

In summary, the Milei-Caputo program started with impressive “hype”, based on the destruction of salaries, retirements, default of primary expenses, etc. All this with liquefaction. Devastating adjustment policies were applied with maximum cruelty. It was done with the false excuse of avoiding a major crisis, which they subsequently inflicted on themselves, with destructive consequences for the majority of the country. The enormous damage of the self-inflicted recession by the application of savage adjustment policies has created an unbreathable social atmosphere.

Remember 4 milestones or social warnings, from April 10 to May 9. We do not know how it continues because with the current plan inflation will not drop to one digit annually. Stabilization does not happen, the objective of reaching Macri’s worst year is insufficient, since with debt, it was double the inflation that Cristina Kirchner left, without debt.

To become attractive again for real investment and leave behind this frustratingly depressive state of the economy, according to Keynes, the implementation of a stimulus program for aggregate demand is required: monetary and fiscal expansion, but this is impossible by default and by ideological convictions. But pro-market and pro-investment structural reforms are not viable either, because no one lends us a dollar and investors and businessmen do not believe in this government, even though they celebrate its cruelty. Layoffs are coming in the private sector, just when social resistance began and the opposition is ready to fight.

Director of Esperanza Foundation. https://fundacionesperanza.com.ar/ 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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