About 1 month ago - economy-and-finance

"Argentinians… How much do we really want to live without inflation?"

By ramiro sciandro

"Argentinians… How much do we really want to live without inflation?"

The march that took place last Wednesday, demanding university funding from the government, calls for reflection. It is evident that the debate regarding funding for higher education institutions raises doubts for a significant sector of society, which questions the fiscal adjustment process we are experiencing. After all, the government's campaign promise was that the adjustment would be paid for by “the elite,” and it is difficult to fit the decline in the real value of transfers to universities into this slogan. Isn't higher education a fundamental pillar of any growth process? How costly will Milei's adjustment be in the coming years? Is the government not distributing the burden of the adjustment inefficiently and regressively?

Talking seriously about efficiency in resource allocation is not easy (it is the main object of study in economic science), especially when it comes to a topic like higher education. Few will doubt the importance of democratizing education and promoting equal opportunities for professional development. However, what must be clear is that there is nothing more inefficient and regressive than a government that allocates resources it does not have. This basic principle of accounting, which is applied so naturally to individuals, families, and businesses, seems to lose validity when it comes to a state. However, reality ends up imposing itself, and budgetary restrictions always prove to be unavoidable.

The current government is the first in the last 70 years to embody this, and it is enough to look at the fiscal figures from the last 8 months to illustrate it; the primary spending of the national state has accumulated a 32% adjustment in real terms compared to the same period last year. In which accounts do we see this adjustment reflected? Energy and transportation subsidies were cut by 40%, discretionary transfers to provinces were cut by 92%, operational deficits of public companies fell by 36%, and cuts in capital spending (related to public works) were adjusted by 83%. And although the year-on-year comparison for the first 8 months shows a real drop in pensions and retirements, this is due to the erosion that these expense items suffered with the old pension mobility formula. In fact, today the purchasing power of pensions is already above its level from November of last year, and thanks to the new CPI indexing formula, it is expected to continue improving for the rest of the year. And where have current transfers to universities gone? It is clear that they are not exempt from the adjustment, but they did maintain their share in total spending, so it is hardly arguable that this item has been relegated in the priority list. The conclusion is that the current adjustment is not about a brutal and regressive erosion, nor is it about a persecution of higher education; it is simply that the government cannot consistently live above its means.

The consequences of ignoring this principle have been repeatedly suffered throughout history. The fiscal deficit is nothing more and nothing less than the mother of the macroeconomic problems afflicting Argentines. It can only be financed through debt, either with the central bank or with some other creditor. The result of irresponsibly borrowing from the former was unwanted monetary issuance, leading Argentina to now be among the 6 countries in the world with the highest inflation and accumulated devaluation in the last 70 years. When the creditor was someone else, it ended successively in debt crises, thus securing for us the world record of defaults, totaling 9 and 3 in this century. Historically, the public sector has squandered funds in times of optimism and favorable international conditions, which has left it unable to support itself and forced into abrupt and inefficient adjustments once the boom has ended. As a result, Argentina today has a history of instability that is almost unique in the world, which logically deters any investment in the development of our productive potential. 

It must be clear that the bill always comes due; the essential difference lies in whether it is settled in an orderly and explicit manner, through a plan that aims to address the most inefficient accounts, or whether it occurs in a forced and covert manner, restructuring debt or allowing the burden to fall on the least prepared sectors to withstand the inflation tax. Alberto Fernández's mandate serves as a clear example of this latter alternative; between 2019 and 2023, treasury revenues fell by 4% in real terms. However, primary spending, far from adjusting to the reduced availability of resources, increased by 9%, with unjustifiable increases in practically all spending items, with the notable exception of the pension system. To finance, for instance, a real increase of 70% in energy tariff subsidies, pensions had to lose 34% of their purchasing power in 4 years. Current transfers to universities increased by 10% above inflation in the same period; nevertheless, it would be difficult to argue that fiscal policy during those years was efficient or progressive, or that amidst the exodus of professionals and companies, progress was made in the development of our human capital. Even more challenging would be to argue that allocating non-existent resources expanded our growth opportunities in the long term.

All sectors aspire to restore the purchasing power of their income, but the sum of those aspirations once again leads us to a situation of imbalance. The example of university transfers is enough to round out this idea; the government proposes in its budget project for 2025 an average year-on-year increase of 25.3% in current transfers. The increase set for the university budget is above this (28.5%), but the National Interuniversity Committee is seeking to negotiate a 133% increase. If we applied this aspiration to all beneficiaries of national state transfers, total spending on transfers would rise from about 5% of GDP in 2024 to almost 9% in 2025, a sum equivalent to all the tax resources the government accumulated during the first 7 months of 2024. The only way to finance this would be, once again, by resorting to the inflation tax, the most regressive and distorting of all.

So, starting from the premise that, like any of us, the government must also adjust to its availability of resources, we are compelled to ask ourselves what is the most effective way it can utilize them. And once again, the case of public universities serves as an example of the leap we must make as a society, from the constant demand for more resources to proactivity in managing better the resources we do have.

After all, less than a quarter of those enrolled in public universities manage to graduate within the stipulated time of each program, with an average completion time of around 9 years. Dropout rates vary depending on the source, but none place them below 40%, a figure that rises to nearly 70% in the case of UBA when considering the total amount entering CBC. What’s more, partly as a result of the debt left by the quality of primary and secondary education, and the inflexibility and long duration of most programs, dropout rates are significantly higher for students in the lowest income deciles; while during the first year of study, students from the bottom 10% of resources represent 8% of total enrollments, by the fifth year this segment represents only 1% of the total number of students. Leveling cycles like the CBC seek precisely to balance the learning of students from different socioeconomic backgrounds, but the practical result is very different; the CBC is merely another filter that does not alter the fate of less prepared students, where many fall by the wayside. In other words, a more than significant proportion of the resources allocated to maintaining the current model of public education simply does not produce the desired effects.

So, if we are going to reflect on the best way to employ scarce resources in pursuit of our common goals, such as equal opportunities for professional development, we need to take a step back and analyze the bigger picture. Evidently, higher education institutions have structural problems that are not solved merely by increasing taxpayer injections of money. There is no amount of money that can be thrown at these institutions to resolve the poverty of basic education, possibly the most important explanation behind the low graduation rates. As a result of the inefficiency and lack of transparency with which state resources have been managed in recent decades, in Argentina, 46% of students attending 3rd grade do not reach the minimum level of reading comprehension, while nearly 70% of students attending 6th grade do not reach the minimum level of acceptable competencies for that stage of schooling.

Moreover, if the goal is truly to improve opportunities for enrollees, regardless of their prior education, the focus of the discussion could shift from demanding greater funds to finance a model that has clearly not yielded the expected results, to designing other types of strategies, strategies that have little budget impact and have long been part of these discussions; modifying the academic offer to provide shorter and more flexible programs, with a greater variety of tertiary courses, could give students with fewer resources and those more compelled to juggle work and study actually greater opportunities to graduate.

We Argentines must ask ourselves how much we want to live without inflation, and how willing we are to face the cost of eliminating it. After all, despite all the evils associated with it, inflation allows us to coexist with our inefficiencies. If we truly want to rid ourselves of it, we must learn to manage the resources we do have; do more and demand less. 

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ramiro sciandro

ramiro sciandro

Economist with a master's degree from the Torcuato Di Tella University. Former university lecturer and academic research assistant, currently a macroeconomic analyst for consulting purposes. He worked for 2 years at the Arriazu Macroanalistas firm, with a special focus on the local economy, and currently works in the macro research team at BlackToro Global Investments.

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