The economist Lorenzo Sigaut Gravina analyzed the difficulties that the Government faces in the face of the exit of the exchange rate. The strategy of using a low official exchange rate to curb inflation has been effective to some extent, but he warned that this creates other problems and “generates exchange rate pressures in the near future.”
“The real exchange rate has appreciated a lot, but not enough”he explained, adding that inflation remains high and that expectations have not improved significantly.
For the director of macroeconomic analysis at the consulting firm Equilibra, the dependence on the Central Bank’s reserves and the lack of solid capital income complicate the picture. “The Central Bank has very few reserves, and the only way to finance the deficit is with work or through external capital, as was done in 2017 during the government of Mauricio Macri,” he noted.
However, he warned that this strategy is risky, since it could generate exchange rate pressures in the near future.
Veto of the University Financing Law
The economist Lorenzo Sigaut Gravina analyzed that increasing university resources as proposed by the Congressional law has a “low fiscal cost” for the country. The economist referred to the Educational Financing Law, the country’s fiscal situation and the measures that Javier Milei’s government could take in response to current economic challenges.
The director of macroeconomic analysis of the consulting firm Equilibra, assured that compliance with the Educational Financing law has a “low fiscal cost” in terms of the Gross Domestic Product. Despite the presidential veto, Congress could muster the votes necessary to ratify the law.
Given this possibility, the economist stated that the fiscal impact would not be significant, but emphasized the importance of defining “Where will those resources come from?” to cover this new demand in the budget.
Although it is not a high cost, for Sigaut the challenge lies in reorganizing the budget items to ensure that these funds do not compromise other key sectors of the economy.
In turn, in an interview with the Noticias Argentinas agency, he recalled that important adjustments have already been implemented, but highlighted that, although the first months of the year reflected the harshest impacts of the adjustment measures, “the level of activity has stabilized and is slowly beginning to recover.
However, he warned that social pressure could increase if promises of economic recovery do not materialize soon.
Fiscal adjustment and social unrest
The economist also analyzed the balance between fiscal adjustment and social discontent, pointing out that the Milei government has achieved important support despite the austerity measures, but warned that that support could be ephemeral.
“Initially, society supported the president, even in the toughest decisions, but there comes a time when people begin to ask: for how long?” he explained.
This social exhaustion is reflected in indicators such as the fall of the middle class. In the City of Buenos Aires, the middle class has decreased from representing 55% of the population seven years ago to just 37-38% today.
This contraction erodes the political power of the Government, generating concern in the business community and in the markets about the viability of measures such as exiting the exchange rate.
Source: Ambito
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