2023-11-27 08:00:00
By Gustavo Pérego (director of ABECEB).
Last Sunday we witnessed an unprecedented event in Argentine political history, a political beginner with no more than three years of experience swept the election with almost unprecedented numbers. However, the most disruptive thing regarding his massive support was not his strident manner, his unkempt hairstyle or even his liberal ideology. Nothing of that. What is completely disruptive is that his campaign focus was to limit public spending, symbolized by a chainsaw.. For a country accustomed to chronic fiscal deficits and a gift policy exacerbated by Kirchnerism, the fact that Argentine society has decided on such a radical change anticipates the beginning of a new era and, above all, the exhaustion of the economic model. prevailing.
The president-elect and his small team of collaborators find themselves facing a deeply complex scenario for the Argentine economy. The government of Alberto Fernández will hand over presidential command and the key to an economy on the brink of the abyss: with an accumulated annual inflation so far of 140%, with a rising inertia, already in double monthly digits, where the tip shows us prospects of a 2024 with more than 250% annually if it maintains this trajectory. Structural poverty above 40%, with a drop of more than 30% in GDP per capita if we compare it to 6 years ago. A tangle of stocks and regarding 50 types of dollar quotes, where the main exchange gap is almost 300%. A commercial debt of more than U$D 43 billion, never seen before, a financial fiscal deficit close to 5 points of GDP, debt maturities at the beginning of 2024 of more than U$D 10,000 million and negative net reserves in the Bank Central for U$D 10,000 million. But, in addition, there is the problem of the famous leliqs, where the stock of remunerated liabilities is U$D 67 billion at the official exchange rate or U$D26 billion at the CCL today.
The new government will seek to reduce the primary fiscal deficit between 3 or 4 points of GDP next year, aspiring to reach a surplus of 2% of GDP in 2025. Something unprecedented in the recent economic history of our country. It is a very challenging task, because lowering spending usually generates more resistance and complicates governance than raising taxes, considering that 80% of the Nation’s primary spending is retirements, pensions and indexed subsidies.. On the other hand, there is an expectation that Argentina will have to continue living with the dollar clampdown, the intensity of which will undoubtedly depend on the level of exchange rate adjustment, that is, the higher the exchange rate, the fewer restrictions there will be. However, it will be very difficult to find a way out of this restriction before the heavy harvest and mainly before the leliqs are resolved.
At this point we must make a parenthesis to emphasize that one of Milei’s campaign axes was dollarization. Although this already occurs in transactions with significant amountsthe possibility of permanently and freely relying on a strong currency like the dollar for all movements generated a lot of expectation.
Today we might argue that the possibility of dollarization will not occur immediately, especially given the announcements of the new cabinet. The government will seek to anchor its economic policy in a drastic reduction of the fiscal deficit, and move towards the unification of a high exchange rate that should find its new balance during the harvest and a signal that dollarization is a medium-term aspiration.
The stock of leliqs or paid liabilities is decidedly the most urgent problem to solve if the economy is to be normalized in 2024. To dismantle this problem, at least four main options are observed. The first would be a gradual reduction of the stock through partial maturity renewals, which would only be achieved with a shock of confidence in the demand for money arising from a very credible stabilization program. The second option might be a progressive withdrawal of the BCRA debt and voluntary replacement with Treasury securities that seek to limit the Central Bank’s losses, but those who stop said securities might have a significant impact on the financial system. The third option would be to impose a compulsory negative rate and seek to partially compensate the banks in the disarmament process. And finally, and the most feared by all, is a compulsive exchange for a new long-term public security.
There is a sector that stands out from the average and clearly appears as a winner: Oil & Gas will grow without brakes next year.
Gustavo Pérego, director of ABECEB.
All these movements must operate in a synchronized manner, like a music orchestra where the harmony, timing and speed must be correct so that we can begin to glimpse a way out of the imbalances by 2025. with the expectation that by that time inflation will begin to gradually subside and economic activity will begin to rebound following a tough first year in terms of inflation and economic activity..
In this photo, there is a sector that stands out from the average and clearly appears as a winner: it is the so-called Oil & Gas that will grow without brakes during the next year. What does it require for an even more dynamic takeoff? A unification of the exchange rate will increase export income and the desire to achieve export parity in fuels in the short term would enhance the investment capacity of the main companies. In addition, sectoral regulatory adjustments would provide a firmer outlook for companies to commit more funds. The key is to achieve balance and convergence to international values and a clear policy of normalization of rates and costs.
The cards are already played, society gave a resounding vote of confidence and the markets have been on a streak of bullish recovery since Monday. Now, we have to wait until December 10 to confirm that the new president-elect has arrived to keep his word of fighting once morest the main scourge of our blessed country, which is inflation.
PROFILE
Gustavo Perego
Master in International Relations and MBA at Torcuato Di Tella University.
Finance specialist at Fundação Getulio Vargas.
Director of the consulting firm ABECEB.
He specializes in the management of complex projects with a focus on the oil & gas, energy and mining verticals.
He was advisor for Binational Affairs (Argentina-Brazil-Mercosur) in the Chamber of Deputies of the Nation and undersecretary of Integration of Productive Policy in the Ministry of Production and Labor of the Nation.
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#economy #President #Javier #Milei
