Alberto Fernández’s Economic Dream

Photo Ivan Cachanosky
Ivan Cachanosky

Lic. in Business Administration. Master in Applied Economics of the UCA. PhD in Economics from the UCA.

DIARIO LA OPINIÓN – There is no doubt that 2020 will be a very hard year in economic terms for the world in general and for Argentina in particular. It is that macroeconomic imbalances, of a structural nature, aggravate the situation.

To make matters worse, the underestimation made to the economic impact of the pandemic has been exaggerated and the data begins to show concrete numbers to this reality. The latest data corresponding to the level of activity reveals a fall of 20.6% year-on-year for May. This occurred after the historic collapse of 26.4% obtained in the previous month.

2020 is already played out and it is most likely that there will be a drop of around 12% in the current year. However, the president maintains that when the pandemic passes, the economy will grow rapidly again. Sadly, it is nothing more than a dream or wishful thinking. The conditions are not in place for Argentina to easily return to the paths of sustained growth.
While the president seems to be unaware that 2021 will not be 2003. His circumstances are very different. But beyond the debate, there is a concrete fact that allows us to explain why the recovery will not be as desired, and that is that potential productive capacity is being destroyed.

In other words, companies are going out of business and affecting huge numbers of workers. According to AFIP data released up to May, in the last two months the number of employers has decreased by 12,619 and 5,927 for April and May respectively.

However, what at first glance seems to show that the destruction in the labor market is decreasing, it is not necessarily the case since the number of affected workers continues to increase. In April, the quarantine destroyed 12,619 employers and this in turn affected 91,237 workers. Regarding May, although the number of employers that had to close their doors was lower (5,927), it affected a greater number of workers: 193,644 to be exact according to AFIP data.

Moreover, taking the accumulated annual for the period January-May, Argentina has lost 23,725 employers, when the average of the last nine years was a drop of 2,949 for the same period.

The reality is more drastic for workers, with a cumulative 331,842 workers who lost their jobs in the first five months of the year, compared to an average reduction of 6,039 for the same period in the last nine years.
With this level of destruction of businesses and jobs, it is practically impossible for Argentina to return to pre-pandemic levels. Furthermore, let us remember that before the Coronavirus, Argentina was stagnant since 2011 without being able to see a growth trend.

Eventually there will be some (timid) rebound in 2021, but it will not be enough to return to pre-pandemic activity levels. Most likely, the stagnation observed between 2011-2019 will move a few steps lower, which means a higher degree of poverty.

President Alberto Fernández must understand that a “2003” recovery is nothing more than a dream. Back then, inflation was low while it is high today. Public spending was around 20% of GDP when it now exceeds 40%.
A fiscal surplus had been inherited as a result of a brutal devaluation, now we are on our way to a primary deficit of 7% of GDP. Nor are commodity prices at levels to guarantee a tailwind and confidence is completely deteriorated.

There is no possible dream in this context, but stark reality. The only way to make this dream possible is by facing the structural reforms that the country needs (reduction of the State, of public spending, reducing the tax burden, labor reform, among others).

Dreaming is possible, but realizing the dream requires the necessary institutional actions.