2023-12-31 03:54:00
Federico Sturzenegger, the reformer, who Javier Milei managed to remove all shadows of state interventionism in private activity, announced that this coming week they will send another package of measures to eliminate 160 laws that put some type of obstacle on the economy.
Thus, the economic deregulation plan, which aims to be a block to generate short, medium and long-term policies, continues its progress.
This deregulation plan runs in parallel with another plan, more urgent and that cannot go wrong in the government’s terms if they aim to be successful: that of stabilizing the economy.
On the guidelines of the stabilization plan, the correct measures and those that generate doubts and on the scenarios that open for the macro in 2024, the president of Invecq Consultores y Tendencias, Esteban Domecq, spoke before businessmen from Córdoba and summoned by the stock exchange company S&C Investments.
For the “initial mapping and diagnosis” Domecq pointed out that the “legitimacy of the government is not 55%, because they have been borrowed votes and that there is an issue of political capital to be built because there is a very weakened Congress and without its own governors. It is probably true that it is one of the most complex economic inheritances. But although it is a complex legacy at the macro level, it coexists with a good situation at the level of micro sectors that will drive such as mining, agriculture, oil, tourism, and the knowledge economy.”
Added to this, obviously, is the complex social front: “there is a lot of deterioration in the social fabric, with a starting point of 43% poverty to begin a process of adjustment and correction. The social fabric of the starter worsens. There is an enormous challenge of how a government manages an extremely complex macro economy on the verge of a crisis, with political weakness, but with a world that is pulling a rope and sectors that are going to push.”
For Domecq, the government enters a Workshop Phase to resolve this macroeconomic legacy with several defined axes:
-Fiscal axis: They aim to solve the main problem, which is the fiscal deficit that leaves an inertial deficit of 4 points of the Primary Product. The aim is to close the fiscal deficit in shock mode. 5.2 adjustment of the fiscal deficit might not be done by any president, except with acute political and social crises. The biggest adjustment was made by Macri (3.4% in two years and with the help of the IMF).
40% of the adjustment comes with more taxes (2.2 points) (Country, withholdings, Profits, BP advance); 60% (2.9 points) comes from less spending (transfers to provinces, public works, fewer subsidies, frozen social programs, public companies, pension adjustment). “In everything that cannot be advanced through the means of less spending and more taxes, there is dirty work that inflation will do through liquefaction.”
-Monetary axis: the excess pesos of the economy are in the fixed terms and the opposite side of that is the Leliqs. It is a surplus of pesos contained in the remunerated ones. The stocks continue, interest rates fell and a process of correction of relative prices began. It seeks to liquefy with more inflation.
-Financial axis: the strategy is one of absolute rigor in the commitments. In 2024, US$16 billion expire, half of it is the Fund (it can contribute US$5,000), international organizations are going to step up. “There would be US$4 billion left, which should not be a problem for this team. With respect to the debt in pesos, the lowering of the line is that Argentina cannot have another reprofile, it must be paid. “We will seek to restructure with the Fund and then aim to return to international markets.”
-Exchange axis: The exchange rate was established but differential exchange rate schemes and capital controls are maintained. SIRAs are eliminated, there are no non-automatic licenses but they maintain the deferred payment scheme. Unresolved things are beginning to appear, such as the normalization of payment to foreign suppliers. The payment scheme remained with a segmented program according to the type of good. BOPREAL did not have a good result. There is no optimism with this tool that deserves to be recalibrated.
“There is a lot of the program that is alive and changing. It is a problem that there is more restriction on the external sector. The program is being very inflationary at the start, more than one expected. The lack of a nominal anchor is a problem in starting. If they do not stop this nominality, the impact on the activity may be more important. It may be that we are on the threshold of a stabilization program for March or April. The risk is that if the nominal value does not slow down in February we will have to devalue once more,” says Domecq.
The real economy. For what is to come, Domecq proposes two clearly differentiated scenarios in terms of the impact and what can happen in the real economy and activity:
“There are three elements that cushion the recession: the gap because it attracted a flood of border tourists; accelerated inflation because it came with an acceleration of consumption due to coverage and then the Platita Plan that also cushioned the fall. What comes is a cooling process. With two scenarios:”
–Successful stabilization: in a successful process the economy can fall 2 points, which is not something disastrous. There are sectors that will continue to expand. Consumption falls -4, real income falls and the level of employment deteriorates, but it is not an abrupt fall. The sectors focused on the external sector are going to be expansive. If stabilization is successful, inflation in March year-on-year is 350%, but it may end 2024 in the area of 150% to 170%.
–Spiralization: the gap and inflation are not contained and we have a drop in activity of 5, with a drop in consumption of -10. The domestic market will strongly feel the process of relative price correction. “But Argentina is not going through a real activity crisis. Today unemployment is 5.7%. I am seeing that unemployment is going to the area of 8% to 10% depending on whether stabilization is successful. But in 2001 unemployment was 22%. The Rodrigazo had a nominal crisis, it complicated a lot, but there was activity. Argentina does not have 2001 ahead of it, it does not have a deep crisis of activity because there are sectors that cushion it. The market cools, but not for all sectors and that puts a limit on the recession. The problem is inflation. If stabilization fails we will have inflation of 500% to 600%. There is a high probability of that.
“The challenge is to stabilize the economy. And it is an economic, political and social challenge,” he stated.
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