Four facts that complicate the unsustainable economy

Extruded and on the edge of the rim. How the economy fares in these primaries: This is the ruling party’s biggest weak point, for which it lost nearly five million votes between the 2019 and 2021 elections.

Sergio Massa, who was the architect of the matter not exploding, was the presidential candidate of the Union Por La Patria. His famous phrase “one more Quilombo is not enough for us” ended up organizing politics (Alberto Fernández ran, Cristina Kirchner stepped in and he ended up as the anointed candidate) but it was not enough to organize the economy. He underlines what has not happened – no helicopter, but no lead today.

Chart: Indicators from the Four Nodes

Is the dollar expensive or cheap?

The basic problem is that the dollars don’t exist, they’re gone. Arguing that drought is the cause is half the explanation. It is true that the field liquidated half of what was expected, and the absence of those $21 billion that did not enter was fatal. But the other half of the explanation is that the central bank sold the dollars it had at auction and squandered them.

In 2019 he got the central bank with net reserves of 14,500 million dollars, today they are negative 10,400 million. In 2021, agricultural prices are expected to double to $32,808 million and in 2022 to $40,438 million. Last year, exports were a historic record, but the federal government sees them happening: it can’t stop any dollars coming in.

The Guardian knot is that the official dollar has been deliberately delayed to control inflation, calculating that today it should be around $340 (the same as the agricultural dollar) and on Friday it was 287. Doubt the delay is 15%. Of the market that is likely to depreciate. The central trickle accelerated the rate of deflation last week, but the gap widened as blue also rose.

This is dangerous for the economy: most prices begin to adjust in line with the blue, and if the official adjusts, the damage is doubled. It also favors crony capitalism (the “lucky ones” who recognize the ink) and so many restrictions put a damper on economic activity that it cools down.

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Friday’s blue-capped $605 does not represent a panic price. In August 2020, when it reached $195, it would be $842. It even reached $495 last April and would be $675 today. The problem is no reserves: Although access to the authority is highly restricted – 700,000 savers can buy up to US$200 a month – and the industry complains that 80% of import orders are rejected, the central government intervenes by selling the same. With securities in the financial dollars category.

Will the IMF issue a remittance?

Before the primaries and before the IMF’s summer vacation, Massa moderated the agency’s tweet reporting a preliminary agreement reached with Argentina. Later, the Minister will explain that USD 7.5 billion will be disbursed and will arrive by August 20. In other words: they didn’t come before, the extra dollars didn’t come as the minister said.

Economy Minister Sergio Massa with Kristalina Georgieva of the International Monetary Fund.  (Ministry of Economic Affairs)
Economy Minister Sergio Massa with Kristalina Georgieva of the International Monetary Fund. (Ministry of Economic Affairs)

The IMF is ecumenical and has agreed to rope in a ministerial candidate announcing a pre-contract, but the money will be sent once the election results are known. The market suspects that it is conditional on updating the exchange rate, that is, it will give them, but the central will have to sell them at a higher price.

Economists agree that demonetization without a plan won’t solve any structural problems, but at least it will prevent incoming dollars from leaving so quickly.

The body seems to have resigned itself to the fact that the various contributions that are attached to Argentina will not be removed or any fundamental structural reforms will be carried out, but it does not seem to give free rein: the fiscal deficit will continue to be the target in the future. 1.9% of GDP, they continue to raise 9,000 million dollars by the end of the year (difficult to comply with). Issuance is resisted to finance the deficit and will continue to happen.

It is important for Argentina to keep its foot in the plate because the plan with the fund allowed the implementation of other emergency aid that helped Massa a few days ago: China, the Andean Development Corporation and even aid from Qatar. . For the IMF, it is important that Argentina does not default, and it does not want to be responsible for giving the last push. In other words: since you care about your dollars, it is assumed that you only look at the exchange rate. Nothing more.

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In the first half of the year, the sideways inflation allowed public expenditure (salaries, pensions and social payments) to liquidate and the primary deficit did not run from the more or less promised path. But what could be read as “good news” in financial terms is much worse for the rest of the year, especially if today’s result gives Massa a chance to continue competing. The rarity of the social environment with its dramatic episodes of insecurity does not leave much room for the government to continue to intervene.

Risk of Inflation Accelerating

Masa took office with inflation at 55% per annum, today it stands at 115% and is projected to end the year at 142%.

whats going on? The money problem did not stop. According to consulting firm EcoGo, the government provided the equivalent of 85.7 billion US dollars in pesos to help BCRA coffers. As of now, the brand is owned by Christina Kirchner’s second government with a net worth of US$104.9 billion.

Consulting firm Econviews adds another explanation: Given the twin supply shocks — drought and a reinforced tightening of imports — prices are adjusting in terms of dollars and shortages of goods that require dollars. This pass-through inflation of parallel exchange rates will add pressure to weight gain.

The current situation is not the same as it was in 1989, but no one dares to swear that it will get worse, and as the months go by and the imbalances worsen, the comparisons are no longer far-fetched. It has no constitution: Masa has been an organizer of political battles and a guarantor of governance within the ruling party, but all that can be questioned. What will the minister do if he loses the election? Will October continue to fight or give up? Does his attitude depend on the extent of the failure? What if he does well and is competitive in October? Do you pay expenses now or procrastinate?

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Consumption, a machine in a semi-machine

The decline in agriculture has been huge and, along with transport, has also affected the decline in economic activity: as of May (latest data available) it recorded a 5.5% year-on-year decline, although if agriculture is taken out of account, activity grew by 0.2% year-on-year. Bad, but not that bad.

There are other sectors with a negative performance, but with less cases such as finance, fishing, and electricity, gas and water, here we have to study another phenomenon, which was clearly marked by consumption analyst Guillermo Oliveto: consumption today is worrying, short-sighted, deliberately trying to compensate for the pessimistic present. . “People tell us if you don’t treat yourself, you’re sad,” she says. Previously, that “taste” was a good trip, change the car, go to own house, reform the house. Today none of this symbolic middle-class consumption is possible and even though the pleasures are devalued, they persist. That’s why tickets to movies, football stadiums, concerts, theaters, bars and restaurants fly. They cost 10 dollars, 50, 100. This is Argentina’s pocket today.

It’s the other side of the coin to look at: what happens to salaries. Analysts estimate that formal employment will lose 3% purchasing power, the public will improve by 2% and informal employment will be reduced by 15%. It’s true that wages are indexing faster and faster (with the resulting social conflict that this debate sometimes causes), and it’s also true that the arc is getting farther and farther apart at this rate of inflation.

In this administration of Fernandez, the phenomenon of the poor worker broke out. Unlike the 2001 crisis, where unemployment remained pessimistic (a peak of 19.7%), the labor market adapted to the price: there was work, but poor wages. According to consulting firm Empria, 30% of people in work today are poor. It is deeply hopeless: the inability to work eight hours a day to support a family dilutes future horizons and increases collective despair about Argentina’s real prospects for progress.

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