An economy with a guarded forecast

EDITORIAL FOR LA NACIÓN: When at the beginning of the year the world was gradually overcoming the impact of the pandemic, Russia’s invasion of Ukraine in February added negative consequences to an already complicated international scenario. Russian invaded alleging historical rights over a part of its territory and violating Ukrainian sovereignty. The international community reacted in defense of the invaded, with the exception of China and countries with Soviet reminiscences governed by sympathizers of a Vladimir Putin. The position of the Argentine government was embarrassingly ambivalent. President Alberto Fernández had visited Putin offering Argentina as a gateway to the region days before the conflict broke out.

The measures of retaliation against Russia by Europe and the United States and their military aid to Ukraine limited Russian gas exports to Europe. Thus, an energy crisis was generated that had repercussions throughout the world. Food markets were also hit as grain exports from Ukraine were hampered. Argentina, which could have benefited from this situation, did not. As a consequence of wrong policies and decisions, our country had already gone from being an exporter to an importer of energy. International oil and gas prices rose notably. The markedly negative impact in energy was not offset by the effect of better agricultural prices, which were also affected by a severe drought that reduced exportable volumes, deepening the already very complex economic situation. Although it was done late, it became necessary to accelerate the construction of the gas pipeline that will allow the increase and export of Vaca Muerta gas.

A similar delay affected the satisfaction of infrastructure needs in the most diverse service areas that require investment. This cannot be done by a bankrupt government or by a private sector that’s under financed due to lack of confidence. There can be no significant capital commitment with a country risk index that has remained above 2,200 basis points since July 2022.

Not only did multinational companies continue to join that chose to leave Argentina, but the exodus of businessmen also intensified

This year three ministers held the Economy portfolio: Martín Guzmán, Silvina Batakis and Sergio Massa. The former began his administration with President Fernández and devoted most of his time to negotiating the restructuring of the debt with the International Monetary Fund. As a faithful disciple of Joseph Stiglitz, he applied an unorthodox policy with exchange and price controls. Towards the end of his administration, inflation had climbed from 4% to 6% per month and he was also failing to meet the fiscal goal of a primary deficit of 2.5% of GDP agreed upon with the IMF. Guzmán resigned when Máximo Kirchner, the vice president’s son, publicly issued his death certificate. He was replaced by Batakis, who, with insufficient experience for the position, only survived for three weeks. The markets evaluated the new change of minister negatively. The informal dollar price went from 230 to 330 pesos, and the country risk, from 1,900 to 2,900 basis points. The crisis triggered within the government was appeased with the replacement of Batakis by Massa.

A détente was achieved not because the economic policy was modified, but because of Massa’s political relevance within the Government. His goal is to reach October, and if possible December 2023, without the economic variables getting even more out of hand. He will try to meet fiscal goals by delaying state salaries and pensions, but maintaining a very high tax burden. This year, not only did multinational companies continue to join that chose to leave Argentina, but the exodus of Argentine businessmen to Uruguay and other countries seeking a more benign tax treatment for their assets also intensified.

The reduction in energy and transportation subsidies has not been achieved because rates could only be adjusted for a qualified segment of users while inflation ate up the few nominal adjustments for the rest. The fear of not being able to reduce inflation has conditioned the recovery of rates and other controlled and delayed prices. The decline in the November retail price index reflected that situation and can be interpreted as a precarious achievement rather than a trend. A wholesale price index higher than 6% for the same month corroborates this appreciation.

Massa did not manage or propose to get out of the exchange stocks. He only invented the soybean dollar and other variants to prolong the subsistence of the Central Bank’s agonizing reserves

The subsistence of the fiscal deficit had its counterpart in an increased indebtedness and monetary issue and its partial absorption through bills from the Central Bank, issued in pesos (Leliq), with a high interest rate. Maturities of 15 trillion of the fiscal and quasi-fiscal debt in pesos are projected for the next 12 months. It is a high risk trigger.

Massa did not manage the exchange stocks or propose to get out. He only invented the soybean dollar and other variants to prolong the subsistence of the Central Bank’s agonizing reserves. His most recent project is a new pardon accompanied by the threat of the information agreement on holdings of Argentines in the United States. On the other hand, he acted on the demand for foreign currency, restricting imports and seriously affecting production. For this reason, and because the rebound effect was exhausted after the sharp fall caused by the pandemic and the quarantine, the growth of gross product ended. As of the third quarter, negative signs appeared in the evolution of economic activity, a discouraging scenario compared to the measurement of 43.1% of the population at the poverty level. This is a complicated picture, aggravated by strong distortions in relative prices whose correction augurs inflationary impacts. Similar clouds appear with the public debt both in dollars and in pesos. There is also a dangerous tendency to increase the speed of circulation of money, with the same inflationary effect as issuing.

Minister Massa’s management has had a certain condescension from the United States government and therefore from the IMF. Against that help, the picture of falling confidence is fueled by the mistakes of its own government at an institutional level. The recent attempt to contempt the Supreme Court of Justice showed the risk of a currency run with the dollar at a record value. At the end of the third year of his administration, the application of a program of structural measures that dissipates the possibility of an acceleration of inflation, fueled by a recession, continues. This would be the worst combination for a government in an election year. The year 2022 leaves with sorrow and without glory, leaving a legacy of reserved prognosis that everything indicates will continue to worsen before a government of a different political persuasion can try to introduce the urgent structural reforms without which we will not be able to get out of the well.