López Murphy at Libertad y Progreso breakfast: “we need 10 years of austerity and a great political agreement”

Protagonist of the traditional Libertad y Progreso Foundation breakfast cycle, carried out with the support of the Naumann Foundation and RELIAL at the Feirs Park Hotel, the economist Ricardo López Murphy pointed out that a future of strict fiscal discipline is needed to definitively emerge from the cyclical crisis, and for that a future government is needed with great consensus of the society and the political class. “To get out of this we need 10 years of strict fiscal discipline and a great political agreement,” said the former Minister of Economy and Defense, before a crowded auditorium.

“To organize the situation, we have a debt of between 45 and 50 points of the product spread at best 400 points. We are also going to have a primary surplus of between 2 and 2.5 points of the product for many years. Finally, we will have to place debt to repay the emergency, so we will have to have prestige in the market to renew debt, which we do not have today. Silver for deficit there is no more. The question here is; Is our political class prepared to govern in these conditions, be it the ruling coalition or the opposition? Are we prepared to face this? We are looking at 10 years of austerity. What needs to be done in terms of reforms cannot be done with a minority, the next government must be of a majority. Because the next government must face structural reforms yes or yes, and reforms without a majority cannot be done”, said Lopez Murphy.

In another part of his exposition, the economist praised the government’s decision to resort to the IMF in what he called “the largest aid program in the history of the region”, although he pointed out that the program to be applied has some drawbacks, that listed:

* “The program requires a marked subsidy reduction, where the combination of the previous lag of adjustments and exchange rate movement look very challenging”

* “The cessation of transfers to the provinces is technically correct, but the density of political support does not seem necessary at least for now”

* “The program seems to ignore the dependency that the adjustment has of the high rate of inflation. A path to the bottom seriously compromises financial viability. The necessary placement of debt next year looks difficult towards the beginning of the second semester of 2019. In fact, it should have reserved or rescued debt that expires in that period”

* “The objective of continuing to lower the Lebac that are already below the level of November 2015 does not seem to focus on the design of economic policy. The use of unpaid lace conspires against the monetization necessary to be able to finance the balance at home”

Lopez Murphy also highlighted some elements that play in favor of political leadership, such as “the level of debt may be reckless but it is not impossible, it will not break the economy with this level of debt”; that “international support is three times that granted to President De La Rúa at the time, which should help in the process”; and that “if the rate of investment and internal savings were increased to match the basic rate, this also reduces the fiscal effort in the future”.

The economist also pointed out that the government’s main mistake was “to finance itself at an unfeasible level, which supposed that we were going to finance the fiscal deficit for years and that was not viable”, and also “to take short-term debt”.

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