This article was originally published at El Argentino on October 21st, 2021.
The result of the primaries generated some optimism among Argentines and foreigners, who once again started to believe that they can save or invest in assets in the country. That’s why prices rose. Some people wonder why economists attach importance to these “signals” from the markets when most people have neither bonds nor stocks. In reality, a rise in local assets reflects that people are looking at the future with a little less uncertainty. This means that fewer savings and investments will leave Argentina. This means that the underfinancing of our internal demand will decrease and that, with a decreased perception of risk, we will tend to consume and invest a little more. For example, we may change our television or paint the house. All this means the economy will run better and more people will have jobs and increased income. In a way, we can say that it is the true and only way to put money in people’s pockets.
Today it is clear that the optimism shown by the markets was rather naive. It was impossible to think that, due to a negative electoral result for the government, the possibility of a change would open up. However, it would have been extremely favorable for the ruling party if this expectation was sustained until the elections; since people would have gotten a real sense of improvement prior to the elections, beyond higher spending on gadgets and state subsidies.
The government itself was in charge of erasing the illusions of those who thought it might begin to think about solving the country’s underlying problems. Part of the alliance created an internal political by asking to deepen the path towards interventionism, statism, and a bigger government. The change of cabinet did not bring renewal. It only reaffirmed the path that had already been taken; although Fernandéz did try to add some extra support from traditional Peronism.
“It was impossible to think that, due to a negative electoral result for the government, the possibility of a change of course would open up”
Some briefly dreamed of the possibility of an economic policy strategy based on the private sector as the engine of growth. Sadly, it should be clear that there is no chance of this happening. If the alliance in power went into crisis because part of it considered that there was not enough intervention, what would happen if it moved to a diametrically different economic conception?
Some see hope in the agreement with the IMF; considering that, once this issue has been solved, the outlook will clear for sustained growth. The same was said before when private debt was restructured successfully, reaching a very high acceptance which eliminated the possibility of lawsuits abroad. However, the value of the papers they received in exchange for those our creditors had are now trading at very low prices. This indicates that those who buy and sell them consider that Argentina does not have the capacity to grow or recover the credit it needs to be able to pay future maturities. That is to say, they discount that in 4 or 5 years we will default and restructure those titles with a new reduction. It is logical that investors think like this. Nobody denies that a refinanced debt is better than a default; But if the underlying problems of the economy are not resolved, decline and crises will remain on the horizon for Argentines.
Others see the agreement with the IMF as an opportunity because they hope an international body will requiere the government to apply reasonable policies. The first comment that could be made is that Argentina has a history of not respecting agreements. In fact, many see the IMF as a demon because these experiences ended badly; but they did so precisely because the agreed conditions were never met and not (as some would have you believe) because of “the application of the Fund’s policies.” Still, I have bad news. The IMF has no intention of making big demands on this government; since it knows that it will not accept them and also needs to avoid a default of Argentina, whose debt is a good proportion of its total loan portfolio. In March, payment of more than USD5,000 million from international organizations is due (including the IMF and the deferred payment of the Paris Club) and there is no way to pay. Thus, before that, Minister Guzmán will close an agreement of “Extended Facilities” for 10 years, with a decrease in the interest rate and with minimum fiscal and monetary conditions. After, he will have completed the mission for which he was called, to reorder the Argentine debt problem, and he will retire with tokens of appreciation from the government for the valuable services rendered.
From here, the question is if it is possible that the government will change the diagnosis and, therefore, the treatment for this patient who is in intensive care due to a credibility crisis. It is true that we are recovering from COVID; but no one is treating our long term problems. To do that, politicians should understand that public spending is paid by an unsustainable tax pressure on companies and workers. As this is not enough, the public sector absorbs 9 out of every 10 pesos of available domestic credit and demands transfers of resources from the Central Bank (BCRA). Pesos that people do not want are continuously being produced that people do not want; so they fall in price, like anything that is offered more than it is demanded. In other words, the local currency loses purchasing power, which is why the BCRA appropriates to transfer it to the government so that it spends more. Unfortunately, the other side is that we will be able to consume and invest less; because they will have impoverished us.
Nobody denies that a refinanced debt is better than a default; But if the underlying problems of the economy are not resolved, decline and crises will remain on the horizon for Argentines.
Our producers and workers are also suffocated by an excess of regulations, which include labor regulations, which do not allow them to efficiently carry out their tasks. There are more than 67,000 regulations in Argentina and they continue to grow. The problem is that they decrease the productivity of those who create the country’s wealth. Thus, if this is lower, so will the quality of life of society as a whole.
Perhaps the solution is for us Argentines to start voting for politicians who understand that we need to take out the backpack full of stones our productive sector is carrying. Then, the lighter we will see our workers and entrepreneurs are truly efficient and have the ability to provide us with goods and services so that we all have increased well-being and opportunities for progress.