EL CRONISTA – In his well known 1923 quote, Lord Keynes’s 1923 claims: “in the long run we are all dead“. The argument is very strong: the benefits of decisions should be seen without too much delay. If the current situation is too bad, you have to “do something”, even if it is counterproductive and it would be better to wait for good policy to bear fruit. This is how those who do not want or cannot expect good effects in the long term argue, making decisions that can generate even more problems or – paradoxically – become an obstacle to reaching the desired objective.
Examples abound: giving a capricious boy a toy so he doesn’t cry now, spending money on a party instead of saving for old age, consuming without saving, or importing energy instead of investing in the exploitation of own resources. It is true, there is comfort now, but tomorrow the problem continues or will be even worse.
In finance, the method that allows evaluating an intertemporal policy (an elegant word to say that it relates different moments) consists of “discounting” the value of future flows through an interest rate or opportunity cost (the best posible outcome for that money). One hundred pesos today are not the same as in a few years, whether there is inflation or not. We all prefer to have the money today unless we receive some interest rate or improvement to postpone its use.
If the funds are available, the higher the real interest rate, the more attractive deferring current consumption becomes. Conversely, and as is the Argentine fiscal situation, if the money is owed or an investment is delayed, the more onerous it will be. Is very evident! And yet, it is what we constantly do as a country.
In Argentina, we value the short term excessively. We consume instead of accumulating capital. The famous Peronist refrain “fighting capital” connotes that the present is worth more than the future, that capital is bad. Of course, this affects all investment processes and, ultimately, productivity, which would increase vertiginously the more capital ( tools, technology) is available.
The central bank’s ideas regarding the interest rate are very complex, having multiple effects. If it is increased, saving is stimulated and consumption or buying dollars are discouraged. It favors the saver and complicates the debtor. However, in our case, we must add that the BCRA itself is a debtor and pays an interest rate, so the higher it is, the more difficult it will be for it to comply. This generates a very delicate balance in decision-making that -until now- has been undertaken with great prudence.
If the interest rate is the concept that allows us to unite the short term with the long term, the difficulties faced by all the governments of the world, not only Argentina, are evident. The central banks of several countries, including the European Union, have raised the rate to increase savings and fight inflation, which will lead to less investment and -perhaps- a recession. If they don’t, inflation will eat away at the value of their currencies. The dilemma is terrible: recession or inflation. That is one of the many reasons why Central Banks must be independent of political power: the more important the short term is – read close elections – the more the decision is modified.
I shall add that, to get around the short term, transitory measures are usually taken that can become permanent. For example, the income tax was supposed to last for a short but is still applied after decades or the ban on exporting meat, that was originally planned for 30 days but is already on its 14th month.
In Argentina the long term is always close. Times accelerate as society learns and adapts quickly to changes in monetary policy. Although the short term is privileged, we know that the long term will reach us… soon! For this reason, and because experience says so, the interest rate cannot be used as an only instrument and a sound fiscal policy, from which we are very far, is needed.
If the government reduces the spending that oppresses private activity at its three levels, puts its accounts in order and thinks about the future, investing in education and infrastructure, we will be able to overcome the financial drowning of the coming months. If, on the other hand, only monetary and short-term measures are taken, our growth possibilities will be less and less. The long term always arrives. Let’s work to make it successful.