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The worst possible inheritance: problems on all fronts


The economic scenario includes high inflation, an indomitable deficit and a drop in activity. The lack of reserves aggravates the situation.

The recent measures announced by the economic authorities: use of foreign currency bonds from public organizations -to obtain financing and limit the advance of financial dollars-- make clear the

economic risks to be monitored


On the one hand, the risk of "stress" of the public debt in pesos, derived from a feasible greater monetary issue.

On the other hand, the risk of a slight jump in the official exchange rate, given the very low net international reserves and a growing exchange rate gap.

After the last public debt swap,

there are still maturities between March and September of the order of 10 trillion pesos

, of which there are approximately 3 trillion that mature from now (the tender on 03/22/2023 was carried out) until June inclusive .

And those second-quarter maturities are held by private investors and not captives, which is why

considerable currency issue risk is significant


It is enough to remember last year, that due to purchases by the Central Bank (BCRA) and the financial system of public titles in pesos, the primary monetary expansion exceeded 2 trillion pesos, three times the monetary goal agreed with the International Monetary Fund ( IMF).

There is also the

monetary debt

, represented by the monetary base, the Leliqs and the passes.

These monetary liabilities have long ceased to be instruments of monetary regulation, since

there are no more international reserves

to back them in the balance sheet of our BCRA.

At present, the 17 trillion pesos of monetary debt finance public debt, in the portfolio of the Central Bank.

All this short-term public debt (bonds in pesos and the BCRA's monetary debt) is

too much for Argentina's primary fiscal result


Let us bear in mind that the primary fiscal deficit declared last year was 2.4% of GDP, although the real one was 3.5% of GDP, if we add property income, the Treasury debt with the BCRA for the soybean dollar and the increase in the national government's floating debt.

And if we compute the increased spending recently decided on family allowances and the pension moratorium, we reach

a structural primary deficit of the order of 4% of GDP


With such a fiscal deficit, it becomes difficult to obtain voluntary financing.

Then, the monetary issue can be considerable, as it was during the year 2022.

Even greater is the currency risk.

With two years of strong exchange rate delay, plus an ascending exchange rate gap;

it is impossible to accumulate reserves.

The dynamics in dollars is worrisome;

In December 2022, net international reserves exceeded 9,000 million dollars, while now they are around 1,500 million dollars, with sales of almost 2,500 million.

As a result of the drought, agricultural exports will fall by more than 50%, adjusting imports with a drop of more than 20%.

Just as last year the net international reserves rose 5,000 million dollars, this year the reserves could fall some 10,000 million dollars, generating

high tension in the cash in dollars of the BCRA

, mainly in the second half of 2023.

The heavy inheritance

The government does not want to restructure the public debt in pesos and intends to avoid a discreet devaluation of the currency, although it is not so clear there that "wanting" is "can";


the “hold on” scenario is the most likely


The economic scenario sought by the government is not pleasant anyway.

A high fiscal deficit makes it difficult to obtain genuine financing, so monetary issue can be quite high, with net international reserves tending to zero.

Then, the economic costs for this year are in sight:

more exchange gap, more inflation and more recession


A heavy legacy remains for the new government.

Argentina is going through more than 15 years of “stagflation”.

This year the Gross Domestic Product (GDP) per inhabitant will be the same as in 2006. And, in terms of inflation, the situation is very bad: between 2007 and 2013 it averaged 20% per year, then we climbed to 40% between 2014 and 2020, 50% in 2021 and more than 100% year-on-year, currently.

With a "poverty" ratio of the order of 40% of the population, with the aggravating circumstance that half of the poor people of working age are employed.


the present Plan Aguantar

, what legacy does it leave to the next government, in matters of economic policy?, assuming the depletion of the current economic model.

When we review the Agreement signed between Argentina and the IMF in March 2022 and its evolution, with goals considered accomplished, we clearly see that almost two years will have been lost, accumulating "garbage" under the rug.

Inconsistent agreement, economic goals that are accommodated and what if it was so, that with the Agreement and “only formal” compliance with the objectives, the economy did not grow between December 2022 and the same month of 2021 and inflation almost doubled.


devaluation appears inevitable

, it is an honest statement, today we have more than 10 exchange rates.

And if the soybean dollar hadn't popped twice last year, net international reserves, at least, wouldn't have risen.

With the current backward official exchange rate, plus an exchange rate gap close to 100%, the natural tendency is far from the need to accumulate reserves.

We would have to

seek a new Agreement with the IMF

, this time consistent and looking for the externality of improving financing conditions, since from the year 2025 we begin to have

debt maturities in dollars for no less than 10,000 million dollars per year


If the aim is to lower inflation by removing fiscal dominance from monetary policy and not default,

the fiscal adjustment will have to be of considerable magnitude and sustained over time

, given that the deficit is high and the formal tax pressure is high.

One last comment, the shortage of international reserves in the BCRA makes it difficult to unify the exchange market, so the decision to transform the MOC (official exchange market) into MULC (single and free exchange market) may be immediate, although

its implementation needs to be gradual


This heavy inheritance that the next government will receive, and which is necessary in terms of economic stability, will have to be accompanied by a growth plan that supports such an adjustment.

Carlos Pérez is the Coordinating Director of the Capital Foundation

look too

Smacking of the Sustainability Guarantee Fund: another blow from Kirchnerism to retirees

They warn that it is difficult for the Government to meet the deficit goal with the IMF

Source: clarin

All business articles on 2023-03-25

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