3/28/2022 - Economy and Finance

Agreement with the IMF: necessary, but not enough

By Ramiro Sciandro

Agreement with the IMF: necessary, but not enough

It's not news, but there's a deal with the background. And less bad. Otherwise, we would have to face over US$2,800 million dues with the body. Silver that if they doubted, we don't. From defaulting to the IMF, the world's borrowers would have placed the Argentine sovereign bono in the category of "waste money", which means ending up in the same purse as countries like Sudan, Somalia, or Liberia, and being completely isolated financially from the developed world. It would have been without a doubt a free blow to this rest of confidence that can stand us in the direction of the country, and without confidence in economy we did not get anywhere. Without confidence it is not invested, if not investing it does not grow capital or employment and without it does not happen. Nor does it grow, and of course it is not consumed. Confidence is the engine that mobilizes private sector activity, it is what attracts dollars and avoids going, and that is what systematically the political class that governs us is concerned with shooting down, burla after fraud. And if I've been living in Argentina for some time, that's not news either.

The agreement with the fund was a necessary condition for you to start reversing the mistrust that paralyzes us. But it's not enough. A consistent macroeconomic proposal is missing, above all. In addition to asking for the fund, he asks for our economy. The conditions of the agreement are no more than a cold water swing, and a reminder of everything we already know is to improve.

Systematic inflation in Argentina accounts for the fiscal deficit, which is no more than the imbalance between expenditure on the National Treasury and the revenue collected. We've heard a million times. The government spends more than it should, and to finance the Central Bank. The Central holds the maquinite, prints weights, lends itself to the Treasury, and the Treasury takes these weights to the economy, paying wages, plans, etc. The public does not want to have as many weights above as the ones that darken the market, and consequently strip them from above, the ones spent on goods, in dollars, in what comes, and voila, we have inflation, devaluation, breach, and all these evils that have been warming us for a long time. Therefore, a goal of decreasing the fiscal deficit and that which is part of the consensual plan with the fund seems reasonable. The agreement provides for a reduction in the primary deficit (which does not include the interest payment of the Treasury debt) to 2.5 points of GDP. The question is, is this viable?

Last year, the primary deficit announced was 3 points of GDP. But one must consider some things; this year, extraordinary recipes such as the one derived from the collection of Solidarity, will not be present. In turn, it is not necessary to lose sight that this 3% is an average for all 2021, year that had a first half of fiscal discipline, and a second half characterized by the “Plan Platita”; expansion of expenditure with the aim of putting silver in the pocket to voters just before the elections. With what is a dragous effect to consider this year; the situation we leave at the beginning of 2022 is not that average 3%, but it is much more like the excess that characterized the second half of 2021.

In the study Arriazu Macroanalistas we adjusted the deficit announced by these factors, and the result is worrying; the reality is that the correction should be made since a deficit of little more than 4 points of GDP, not of 3.

How do we lower more than 1 point and a half of the primary deficit product? Mathematically, a possibility is not to vary much expenditure, but to achieve that revenue increases in terms of GDP. More taxes, more retentions, and more distortions? We are already one of the countries with the highest fiscal pressure in the world, because year after year we forget that the way to enrich the poor is not to destroy what has a saving capacity, but to give incentives to investment, to hire, to work and to grow.

So it's not around. Can we aspire to increase the impossible base then? In order to increase the taxpayer's collection, we would have to see an increase in economic activity. Inquire about the growth possibilities we have for this year is the theme for another note, so at the time when we are given the projection that the government itself does, which considers that GDP will grow between 3 and 4% on average in 2021. Again, I look at the numbers that are average. Argentina, last year, strongly accelerated its growth in the last quarter, with which the December GDP data is already more than 4% above the average GDP to 2021. What does this mean? That, although the economy is completely stagnated from end to end this year, the INDEC would be experiencing more than 4% growth over the past year. The projection of Guzmán, therefore, says that the government even recognizes that this year we will not only grow, but that the economy will whip.

In this context, what is left to do with the fiscal goal? We already know, reducing expenditure in real terms. Although we do not want it, it is what we end up doing automatically whenever the macro demands us to adjust the accounts. When the Treasury is funded with emission and generates inflation, it relies on the value of public wages, pensions, pensions, plans and unindexed subsidies, thus reducing state expenditure in real terms. In other words, the adjustment is made, but in a dissimulated way and through the market. The alternative (preferable) is that the government is responsible for adjustment by reducing inefficient costs, such as energy subsidies or the operational deficit of public enterprises, which in 2021 represented 3 and 0.8 points of the product, respectively. But of course, the increase in tariffs is the government's fault, and inflation, well inflation is the fault of speculative entrepreneurs... No?

Anyway, there's the eye of the question. For a stable macro, we need to adjust the accounts. To adjust the accounts, it is necessary to lower the expenses, but we will do it well, eficientizing, not expecting inflation to do dirty work, impoverishing on the way. And who tells you no, if we meet with a more responsible state, instead of taking more banking taxpayers from the system, we will generate the incentives to expand it.

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Ramiro Sciandro

Economist graduated from Universidad Torcuato Di Tella, on his way to finish his Master's degree in Economics at the same institution. Former university professor and academic research assistant, currently macroeconomic analyst for consulting purposes. I worked for 2 years at Arriazu Macroanalistas, with a special focus on the local economy, and currently I work in the macro research team at BlackToro Global Investments.

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