Ezequiel Burgo
05/08/2020 - 11:47
- Clarín.com
- Economy
More pressure on the dollar and falling wages
If Argentina goes into default, the certainty that neither governments nor companies nor individuals will be able to access dollars from the capital markets for an indefinite time will materialize. The pressure will be on alternative exchange rates, mainly that of the informal market. Hence, economists agree that a default would increase the demand for dollars and would pressure the gap that today is at levels of 80%, double the average that was registered between 2011 and 2015. The wholesale dollar is at $ 67 and the counted with liqui at $ 118.
“A default would mean more pressure on the exchange rate and, therefore, on prices. In a context of recession where wages not only do not increase but even drop nominally, there will be a loss of purchasing power ” , explains Federico Furiase , director of the consulting firm Eco Go. Without default, Furiase estimates, inflation for this year would be 58%. "If there is default, it will be higher . " It does not say how much.
The economy would close more
If a macroeconomic consequence of a default is the greater pressure on the exchange rate, the immediate action that follows from the latter is the following: the rising cost of the dollar will improve the competitiveness of exports but will worsen that of imports . The adjustment of the external sector will be completed because then Argentina would demand less dollars or foreign savings (due to the fall in the wages of the people described above) and will have no alternative but to resort to local savings. But in addition, banks and funds by their own regulations will be prevented from financing productive projects in a defaulting economy due to regulatory issues in the main financial centers of the world. It would be something like returning to "Live with ours" as Aldo Ferrer , an economist and former Minister of Economy, immortalized almost half a century ago.
The country, with increasingly shorter horizons
Default will not change the daily life of Argentines. The country registered two events of this nature in the last 40 years. There are those who say that it would be the ninth since the independence of the United Provinces (see below).
But the truth is that economists found that the consequences of a default are not measured in days, weeks, or quarters. They can be years, decades or decades . Almost all GDP forecasts for this year show minimal variations between a scenario with or without default. For example Elisabet Bacigalup, chief economist at Abeceb, estimates that the economy this year will fall 8% and if there is default 9% . Where are the consequences? In that the lack of access to long-term credits prevents the development of projects and investments, which is what generates potential growth of the economy .
If inflation of close to 60% per year is added to this, the horizon for decision-making will be significantly shortened.
The financial program will be eased
A default will mean that the Government will not have to divert more money from the collection, public spending or issuance to pay the debt. And, therefore, it will appropriate more resources to meet the situation and demands of the country. The country this year faces debt obligations of 10% of GDP. If it does not restructure its liabilities, Argentina should have a surplus of 10 points of the product. It is impossible.
The IMF estimated in a report on the sustainability of Argentine debt that the country will face for the next five years maturities of interest in dollars with private bondholders for US $ 25,000 million and US $ 45,000 million of capital . This without counting the debt with the IMF. The Government tries to clear these maturities by way of restructuring. The other alternative would be default.
The credibility of the country will worsen
Harvard economist Carmen Reinhart , in her book This Time Is Different (together with Kenneth Roggoff) compiles all the events that Argentina has experienced in debt restructuring and default, since colonial times. It is clear why the country receives the nickname of serial defaulter. But in the midst of a crisis where many economists predict that there are vulnerable economies at risk of default, Argentina would suffer more because it arrives with less reputation than the rest given its history .
