Anchor inertia of the model

Reordering the macroeconomics is a very complex task, but the path chosen by the current government is wrong. The economic legacy received was very poor with mega stocks, exchange rate lag, high and fast inflation, fall in real wages, high fiscal deficit, growth of BCRA’s payday loans with very high interest rates, sudden fall in credit, strong growth. Debt with importers, inventory fall and all the effects it created on real economy and living conditions of society. Reordering this macro is a very complex task, but a short-term race governed by fiscal logic, and destroying the state and the real economy is clearly not the way to go.

The current government opted for a sudden hike in the currency exchange rate with the intention of allowing it to price its total exchange rate under the extreme logic of free market dynamics to correct the exchange rate lag. And further worsens the quality of life of already affected people. He tried to give a strong signal of fiscal reform by carrying out a brutal adjustment based on cuts in the provinces, public works and the complete suspension of pension benefits. The state’s massive announcements of layoffs and downsizing were often necessary, but with little impact on large numbers and serious damage to the functioning of many public services. Instead, these are advertisements that allow some support from a society fed up with a state that is becoming increasingly large and ineffective. However, one of the key elements in this financial system, energy subsidies, is postponing their restructuring, fearing the impact they will have at a time when there seems to be a floor on disposable income and inflationary dynamics.

In these six months of the government, indicators show a strong negative impact on the real economy, where there is a significant level of entry into recession, resulting in job losses. After a sharp improvement after the inflation rate adjustment, the inflation dynamics slows down. The latter sets up expectations in many sectors of society, indicating a continued rise in overall prices in the economy. A reversal of these inflationary dynamics would strongly distort expectations.

But both inflation and reserve accumulation require recession. The anchor of the current model is the collapse of the function to control prices and imports. This dynamic is unsustainable.

All components of demand are linked to the decline of the domestic market, only exports grow (+9.4%, in the first four months of the year), but this increase is explained by primary products (+37%) and manufactured goods. 7.2%), industrial production fell by 11.3 percent. It is clear that Argentina cannot propose an export-driven growth model as a solution, not only because of its low participation in total demand (13%), but also because of primary dependence and low employment generation and added value. The growth dynamics of exports is limited by the loss of exchange competitiveness, and the new realignment of the exchange rate in the current environment implies a transfer to prices even in a recessionary environment.

All of these problems are beginning to be felt in financial markets, which are already beginning to feel that the adjustment dynamics are unsustainable, that accumulation of reserves is a deficit, exchange rate lag is a problem, and short-term debt maturities are a key warning. Lights. During these six months the financial market gave rise to an upward trend in bond and stock prices, resulting in a reduction in country risk and a narrowing of the exchange rate gap, all based on the expectations game. Except for very small amounts of speculative capital, no dollars enter the economy at any time. In this way, volatility is very important, and a simple change in expectations can cause the sudden adjustment that normally occurs in financial dynamics. Exchange lag, slower inflow of dollars due to export liquidation and BCRA’s aggressive policy of lowering interest rates are starting to widen the exchange gap again, which data for May will indicate a plateau. For monthly inflation. This beginning of a reversal in inflationary dynamics will end the single expectation that holds everything together. A similar thing happens with government-created expectations of raising stocks. More important is the detail of next year’s debt maturities, with $15,000 million of related debt between the nation and the provinces. Transaction restrictions should be removed to refinance maturities as the current account does not allow maturities to be matched with the credit market. The idea of ​​the existence of a possible financing line with the IMF and some other organizations for 15,000 to 20,000 million dollars was established. This will not happen. After the irresponsible loan taken during the government of Mauricio Macri, Argentina continues to postpone the deadline with the company, and is above all the limits established for the partners. It is not technically possible for the IMF to issue a new line of credit under current conditions. Raising stocks without the backing of real dollars is too risky, even if a recession absorbs a portion of the exchange to deflate prices.

To get out of this complex structure, the country will need strong integration at the political level, leading to a consensus on the need to restructure the macroeconomy.

At EcoPol Analytica, we are working on a model program that guarantees the macroeconomic balances needed to promote the transformation of the production structure. The proposed macroeconomic plan implies an exchange rate policy with a competitive and stable real exchange rate, differentiation through withholding to the primary export sector, and a focus on accumulation of reserves; Fiscal policy, with the aim of balancing public accounts based on a progressive tax structure and using this macroeconomic policy tool for counter-cyclical purposes; Monetary policy, respecting sovereignty based on a national currency, with a fixed and positive interest rate, and a dual mandate logic between controlling inflation and stimulating growth; And industrial policy is based on incentives for strategic sectors. The same work considers a transition plan as a way out of crisis, with some key points such as acceleration Creeping wedgeElimination of exchange rate composition For exports, management of foreign exchange deficits, imports for productive purposes, income policies, reactivation of public works, consolidation to a positive real interest rate in the medium term, price and wage agreements and external easing to create the conditions necessary for robust growth.

A political consensus around these points is required to take forward a sustainable development plan and put an end once and for all to the pendulum logic that has ruled our country for years.

The author is an economist, former BCRA director and owner of EcoPol Analytica