He RIGI, The so-called capital flight and external debt constitute the logical core and essence of the economic model that is being implemented in Argentina. Therefore, the model itself guarantees that, except at certain specific times, the main tendency is that – in net terms – dollars do not enter but, on the contrary, go out.
The convertibility and stability Cavallo’s growth in the 1990s was made possible by dollars from privatizations and foreign debt. But dollars tended to flow out, so the deindustrializing model that generated unemployment and poverty collapsed after 10 years.
This type of model is not sustainable, its own logic tends to collapse. Currently, what is being discussed is how its sustainability will be resolved temporarily and the time that this temporary resolution will take.
He IMF and the government have the same main objective and They share the essence of the model beyond discussing this or that modality of it.although in the current situation they emphasize different concerns and stress different aspects to carry it out.
What the IMF is asking for, what Milei is proposing
He Fund congratulates Milei for the change of course economic that is being executed, due to the adjustment and the sanction of the Law Bases.
The main approach of the IMF is that the government carries out a increase in the official exchange rate by around 30%unify the exchange rates and the restriction on access to dollars or “stocks”. Until this happens, he would not be willing to grant a loan of about 10 billion dollars that the government is requesting to reduce the devaluation pressures, due in part to the relative scarcity of dollars in the form of reserves of the BCRA.
Simultaneously, the IMF conveys to the government its concern about the “Social situation”. Concern is not a philanthropic character: it is not interested in itself. suffering of the majority of society but the reaction that it may have to the intended consequences of economic policywhich in this respect can be summarized as the decrease in real income and unemployment. For this reason, the body dominated by USA talk about “governability” to carry the model forward.
Although it may seem paradoxical, governability is attempted to be achieved by disciplining through wage cuts and increased unemployment and povertycombined with social assistance, mass media disinformation, repression, increasing co-optation of formally opposing sectors and, in the case of truly opposing sectors, exacerbation of their internal differences to prevent the unity that would be a condition for the possibility of an alternative to the current model.
Milei maintains that the devaluation, the exchange rate unification and the lifting of the cepo which requires the IMF would result in inflation (wasn’t inflation generated exclusively by the monetary emission for Milei and team?), with the consequent deteriorating income and deepening recessionunemployment and poverty. This would put at risk “the “governance”.
It is noted that this is a debate on the best way to achieve the common goal and not a discussion of objectives.
Nothing strange: in The US also faces dilemmas and mutually exclusive goals with its current economic structure.: they want to lower the inflation by increasing the interest rate, but they are concerned that the rate hikes lead to recession and unemployment.
Cavallo’s concrete transitional “solution”
Horse, he Father of the nationalization of private external debt in Argentinatries to bring positions closer together to achieve the common goal.
Specifically regarding the exchange rate, Horse proposes a Initial increase of 10% of the official dollar to recover part of the ground lost due to the exchange rate inflation caused by the devaluation in Decemberbut without having as much impact on prices as the Fund’s proposal and, then, a monthly increase that more than doubles the current one 2% to try to align the evolution of the exchange rate with that of inflation.
In 2018, it was stated that the IMF did not could give enough dollars to the Macri government in relation to the situation at that time. They could not have approved the loan for him 57 billion dollars for the amountthe statutes of the Fund and the lack of endorsement of the Argentine Congress and, nevertheless, the American official in the IMF Mauricio Claver Carone He explained that it was done for geopolitical reasons. That’s right: the economic aspects did not weigh in. “macroprudential”.
These types of debates and negotiations usually find their resolution – that is, that the crisis is postponed by changing form- when it focuses on priorities: at a time of fragmentation, growing disputes and tensions in the world, most likely, after some modifications in the implementation of secondary objectives, the IMF again put the country into debt and almost finish annexing it for only $10 billion more.
Colophon
Sooner rather than later, a country that in a stylized way generates exports fewer dollars than it needs to cover all its commitments -the imminent outflow of dollars from local transnational holdings, remittance of profits from foreign firms, debt payment, unsustainable consumption patterns- has a limit for the free exchange market, much more so if we add to this the amplification of this problem by the new deregulations in general and those of the RIGI in particular.
As experienced in the final stage of both the model convertibility as of the Macri governmentthe exchange administration or the so-called “stocks” It is, before a economic policy instrumentthe manifestation of the relationship of the Argentine economic structure with other more productive economies. That’s right: the exchange administration or “stocks” is a consequence of the logical limit of the Argentine economic structure in general and of the model in progress in particularIt can be managed, attempts can be made to improve or surpass it, but it is based on this relationship that exists independently of the economic policies that are deployed.
Current political macroeconomics tends to make this relationship is much more negative for Argentina by means of the deindustrialization, the drain, he indebtedness external and the RIGI.
Economist at UBA-UNDAV. @Pablo_Ferrari77
Source: Ambito
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