The precise description of the waiter’s task seemed to me a fantastic metaphor for the Argentine economic reality. Why? Well, the problem you face Alberto FernandezAfter two years of management, it has borders similar to those of the waiter. In the first place, a strategy on the Argentine economy must be ordered to put it into operation. Argentina faces a huge set of interrelated macroeconomic imbalances which require, first of all, a fair evaluation of their specific gravity before putting them on the tray. Let’s start with one that we all know:
INFLATION. An endemic problem in our country that anyone who promises to solve it ends up aggravating it. How do we correct this imbalance without compromising the economic growth of the country and transform it into something sustainable over time, especially still in an international inflationary context.
OFFICIAL DOLLAR. Throughout 2021, attempts were made to use the dollar as an anti-inflationary anchor. It did not work out. We started the year with a wholesale dollar of $ 85.11 and we are closing it with a dollar of $ 102.73, a 22.78% devaluation against inflation that will be above 50%. The deterioration in the MULTILATERAL REAL EXCHANGE RATE was very marked, beginning in January at 124.03 and closing in December at 102.63 (with Brazil at 89.77). Ergo, this year the dollar should acquire a greater rate of devaluation without this accelerating the sustained inflationary process that our country is experiencing today and without triggering, even more, the gap with financial dollars. No minor task.
THE FISCAL DEFICIT. Another of the points of greatest attention is this chronic problem and it is one of the neuralgic points in the framework of the agreement with the IMF. As of November, we have accumulated US $ 17,117 million to the average wholesale dollar. Its correction and adjustment will be necessary without this having a negative impact on the performance of the economy and the collection and social indicators.
THE MONETARY ISSUE. Daughter of the fiscal deficit and responsible, to a great extent, for the inflationary process. $ 1,925 billion pesos issued during this 2021 place this figure in historical values, it is the one with the greatest assistance on GDP since the exit of Convertibility. At the same time, more issuance forces the BCRA to greater absorption via leliqs and passes, driving a growing ball of loans and paying more and more interest.
THE INTEREST RATE. The key that no one wants to use but that given the macro imbalances (inflation beats the rate by a landslide) and the rising emission, it will surely be a priority to analyze. Even the IMF already asks for it, speaking of “an adequate monetary policy with positive real interest rates” (something that the BCRA has already anticipated, we will see). This may make placements in pesos more attractive, taking pressure off the dollar, but it adds up strong in the bill of the interests that the BCRA must pay to the banks (quasi-fiscal deficit.) In addition, a significant rise can “cool the economy” via more expensive credit, and nobody wants that.
THE BCRA RESERVES. The year 2021 began with US $ 39,501 million and ended the year at US $ 39,500, despite receiving US $ 4,334 million in SDR from the IMF and having a trade surplus of US $ 14,352 million accumulated until November . The BCRA spent it selling dollars in the financial market to contain the gap instead of using the strategy of strengthening reserves and hitting expectations. It is key to accumulate reserves in this 2022.
POLITICAL BALANCES. The political board plays a key role in economic reality and expectations. Alberto must find the balance within the governing coalition and outside of it. In a year prior to the presidential elections where it seems that, for some, “the worse the better”, I think it will be difficult. It was already seen with the budget and Personal Assets.
THE ADJUSTMENT OF RATES. Subsidies are in the order of US $ 10,500 million in 2021 and it is estimated that by 2022 they could reach US $ 11,300 million according to a report by the Argentine Institute of Energy General Mosconi. It is necessary (and it is part of the agreement with the IMF) to get out of the freeze without it decisively driving the inflationary process and hitting the working class. Segmentation is key. But we have already seen that such a task is not easy. Homes, businesses and industries require rationality.
PARITARIAN. Wages have categorically lost the fight with inflation. Since 2018. It is useless to win a month from inflation and take a photo. This process needs to be sustained and vigorous. And for this, inflation must flow downward in a sustained manner, GDP upward and wages as well. This is difficult to achieve if the rest of the imbalances mentioned are not corrected.
EXCHANGE GAP. Another one of the evils that flies over the economy. The gap is “DEMAND AND EXPECTATION”. Since April 2020, the gap has exceeded 50% and ranges between 80% and 100% in this second semester. The challenge is to reduce these figures, but for this the market must see the waiter delivering each order to each table, without breaking a glass. At the slightest mismatch, the gap flies.
Each of these vectors constitute elements that interact with each other constantly, in the same way as the elements of different specific weight in a waiter’s tray. To name some of these interrelationships, we can say that the deficit pushes the monetary issue and it drives inflation. The issue requires greater absorption by the BCRA, paying a higher rate and increasing the quasi-fiscal deficit.
The exchange rate delay complicates the strategy of accumulating reserves, but in turn, a devaluation can be a wildfire in prices. The excessive adjustment of tariffs and fuels can be inflationary and recessive, but without adjustment in this component, the fiscal deficit can be bigger and bigger, putting even more pressure on the issue.
Inflation erodes the competitiveness of the dollar and forces controlled micro-devaluations to accelerate, but at the same time it can allow the government to correct the deficit by increasing real revenue by making a moderate spending adjustment.
In turn, inflation has price-wage inertia, but the latter cannot lose purchasing power again, because that would impact consumption and growth and collection forecasts. The exchange rate gap needs to be reasonable, but that requires a greater supply of dollars in the official (more flexible stocks) and in the parallel, something that can go wrong since the BCRA does not have robust reserves to face a run and the sector’s dollars private do not appear.
In short, Alberto’s task is similar to that of the waiter. You must devise a strategy for placing each item on the tray with its respective specific weight. Then you must think about the best way to go and adjust with each step the circumstantial imbalances that occur, without losing sight of your final goal. Reaching 2023 with better results than those obtained so far in global terms. Not a minor task and quite difficult to manage.
To close at this point in the note, the reader will believe that I forgot the most important thing. The agreement with the IMF. I did not forget, that agreement requires a credible financial plan and possible compliance, approved by the National Congress. This constitutes the tray. Without a plan there is no tray and without it, things can get much more complex.
Source From: Ambito
