The economic risks of a political defeat.

This was originally published as an editorial for La Nación on September 15th, 2021

The primaries may anticipate the outcome of the actual November 14 midterm election. The ruling party has 2 months to try to reverse the defeat, but President Alberto Fernández said that he would not fundamentally change his government’s policies. According to him, they are an expression of a national model that seeks good for those who are most in need. This is different from the model proposed by the opposition, which, he beliefs, only benefited a few to the detriment of the people. Basically, he anticipated that he will deepen populist policies, at least for these two months. There was no announcement of structural reforms or concrete measures to reduce public spending and attack inflation.

In their speeches, both the President and the Vice President disqualified the idea of carrying out a labor reform or anything that involves “an adjustment.” The battery of announcements that are being prepared includes salaries and retirement catching up to inflation, plus an increase in spending. This takes us back to the 2019 campaign, when Alberto Fernández promised increases of 20%. When at that time he was asked where would he get the money from, he replied: “I am going to stop paying the interest on Leliq’s.” Obviously, he had no idea what this answer implied or why Leliq’s exist. At that time, the stock of these titles reached 1.18 trillion pesos. If you add another 0.85 trillion pesos in passes, another device of monetary control used by the Central Bank, it would reach 2.03 trillion. Today, just over two years after, there are 4.28 trillion Leliq plus 4.14 trillion passes. A total of 8.42 trillion. Their value quadrupled while the general price level only doubled. In pesos, at a constant value, there was an increase of 100%. Of course, for the market to underwrite that debt, the maturities of both interest and principal had to be paid religiously. The demagogic bravado of the current president was left behind. As with so many other falsehoods, reality prevailed and we all paid for it.