The legacy that comes: problems that go from management to management

Debt, inflation, rate adjustment, IMF objectives, structural reforms and exchange rate pressure are some of the issues on the agenda of the issue of to know who has occupied Casa Rosada since December; how will the starting point be in terms of economic variables

While
l & # 39; Argentina is in mode
election campaign, its economy is already configured
heredity who must live with who lives at Casa Rosada from December 10th.
Debt in dollars, increase in tariffs and transport,
l & # 39; inflation, lack of foreign currency, current account deficit and
exchange pressure These are some of the challenges that will be on the horizon next year and will put pressure on an economy that has experienced two consecutive years of declining gross domestic product for the first time since the crisis of the 1990s. 2001 and which accumulates a decade of stagnation.

The political uncertainty that prevails until the polls define who will govern the country is in itself a condition of the current economic and financial context and generates, at the same time, effects that will form part of the overall picture. 2020. With its usual pace of polls, investors and big capitals watching Argentina smile when the intention to vote for the party in power grows and, on the contrary, worsens when The possibilities of the Fernández-Fernández formula increase, as was the case at the end of April.

"It will be very difficult for the market to create Alberto Fernández because it poses a credibility problem," said Eric Ritondale, chief economist at Econviews, the consulting firm founded by Miguel Kiguel. The memory of the stock of exchange and the intervention of the Indec, for example, is in this sense the "heavy legacy" that draws the candidacy of Frente de Todos.

According to Federico Furiase, Chief Economist at Eco Go, the political uncertainty and its effect on financial variables in the months leading up to the campaign will be key to schematizing the 2020 economy. thus committed to maintaining a dollar without fear. among a range of measures including intervention on the futures market, high interest rates, a possible sale of the reserves of the Central Bank – which the International Monetary Fund (IMF) allowed in April – and the sale of US securities "60 million per day Treasury – a foreign exchange offer in the market that will end before the end of the year.

"The initial condition next year will depend on how 2019 ends and which, in turn, depends on the political context.One thing is that the BCRA had to sell reserves with a dollar escaped because the condition of it's a lot harder, but if political uncertainty is removed and the BCRA does not have to split dollars, the starting point will be better, "says the economist.

At the end of this note, the BCRA's position appears to be stronger than at the end of 2015. As Eco Go shows in November of this year, the ratio between the organization's dollar liabilities and its net reserves was 9.1 times (taking the official exchange rate), while this ratio is currently 1.3. The scenario, however, does not escape the risks of a possible exchange rate jump and is another legacy that this presidency will leave in economic matters. Today, the Leliq of the BCRA totals $ 1.3 billion (about $ 29 billion), a figure equivalent to about 5% of GDP. As last year with the extinction of Lebac, it is a mountain of contained pesos that exceeds the current currency and represents a latent threat to the stability of the exchange rate. The key, again, is related to the political scenario.

"The Central Bank finds the rate very high in terms of rates – this week the level has still exceeded 60% – maintaining zero growth in the monetary base and the stability of the dollar.If political uncertainty is lifted , recovery of the demand for money that absorbs some expansion of the pesos due to the gradual disarmament of the Leliq ", adds Furiase.

The question of prices has been one of the great failures of this direction. If the forecast of 40% inflation is achieved for this year, the index will accumulate at around 250% in four years. After the peak of 2018 (47.6%, the highest value in 27 years), the level of price increases remains high, even though it started to slow down thanks to the stability of the exchange rate and the "quiet plan" that the government described Look at the ballot box. This combination of measures, including the postponement of post-election tariffs for transportation and utilities, will be the negative legacy of inflation in 2020. The budget advance presented by Finance is forecasting inflation of 26.1 percent for next year, though the IMF has estimated it to be 32 percent.

"On the one hand, the real money amount has decreased after rising in previous BCRA efforts under this government, and local demand is also not playing with inflation today. But there are always public service charges, especially those of energy, which are dollarized, this will have an impact on the inflationary inertia, "says Martín Kalos, economist at Epyca Consultores, about a dynamic that also affects other sensitive sectors such as fuels or pocket drugs of a population that, according to private estimates, would have reached a poverty line of 35%.

Expenditure-related inflation

The program signed with the IMF, which imposes a new adjustment to achieve the goal of a 1% primary surplus, reduces in this context the possibilities of covering increases with subsidies. In this scenario adds the adjustment, according to past inflation, of sensitive items such as wages and pensions, which account for more than 60% of the expenses of the company. national public administration. At the heart of the overall "structural reforms" in which the IMF insists, this issue – as well as the tax system and the framework – will be one of the main topics on the agenda. which will be debated at the next presidency.

Another yellow light in the 2020 horizon concerns debt maturities. The government used foreign currency credit to finance the "gradualism" of its early years. And the crisis triggered last year has highlighted the vulnerabilities of the project. The consequences are already seen in the budget accounts. In the first half of the year, interest payments on debt rose 118 percent year-on-year to $ 317,423 million, largely accounting for the financial deficit despite the expenditure adjustment overseen by Nicolás Dujovne.

Central government gross debt, which accounted for 52.6 percent of GDP in 2015, reached 88 percent in the first quarter of the year, according to figures from the Ministry of Finance. by the IMF. "In the medium term, debt sustainability remains extremely vulnerable to shocks," he warned in his latest report
staff report, published last month, allowing a new expenditure of 5385 million dollars. The negative impact of a slower growth rate (the Fund has reduced its estimate for 2020 from 2.2% to 1.1%, while the government plans 3.5%) adds the risk of Upward movement of this type. exchange rate, which carries the burden of dollar debt to higher figures.

For Fausto Spotorno, of OJF Asociados, the composition of this debt opens a window. "Part that is in the hands of the IMF and the state itself.The debt to the private sector is 50 %.This is not infinite, but it will require a primary surplus, because that is 39; is the money you have to pay the debt. "He discusses.

The Treasury's funding program provides a requirement of $ 27,000 million, including interest, maturities of local securities and multilateral credits. In this scenario, the government aspires to refinance most of its commitments, baduming that the addition of the rest of the IMF credit (around US $ 5900, or about 10% of the loan) would lead to the rise. Domestic market for $ 5200 million. In addition, the 2020 plan provides for the renewal of US $ 9500 million in notes (US $ 4.5 billion denominated in US dollars and US $ 5,000 in local currency).

In this dynamic, the electoral uncertainty and the macroeconomic fragility of Argentina reappear, resulting in the consequences of the crisis of 2018 still in force and its persistent difficulty to generate real currencies. This is reflected in country risk, which shows the cost of local indebtedness and that week was still above 800 points, which is higher than other countries in the region such as Brazil, Chile , Paraguay or Bolivia. For its part, the Treasury had to pay rates higher than 7% per annum in its latest calls for tenders Letes to place securities at maturity after the elections, while in addition the majority of disbursements of the agreement signed with the IMF have already been consumed. The legacy for the next term includes, at this point, the start of repayment of this loan, originally scheduled for 2022, or a possible renegotiation that would involve a regime change and new requirements of the agency.

"Today, you are financing in an emergency situation and the cost is very high, normalizing means that you have to start lowering the rate that is charged to you." It is essential to start showing that we can generate dollars with our production, "says economist Daniel Heymann. . The focus is on exports, which accumulated in the first half of 2019 a growth of 2.9%, boosted by the agricultural sector. The official hope lies in the development of Vaca Muerta, where the government has also allocated millions of dollars in grants. "The
shale oil it can set aside $ 10,000 million in exports over three to five years, which helps to correct the external deficit and give room for expansion of the economy, "says Ritondale.

According to economist Ariel Coremberg, the development of the external sector is essential to overcome the ups and downs of an economy that has not experienced growth since 2011 and whose GDP per capita is just higher to 2010, according to World Bank statistics. "The lack of currency is the dilemma that makes us so disappointed that every time there is a reactivation, it is not sustainable." Argentina needs dollars to pay for imports that are increasing as the country grows, to pay its public debt and solve the dollar hoarding, "points out the economist. And he adds: "Two legacies to be solved are the insertion in international trade and the elimination of the structural budget deficit, which also involves the provinces".

Beyond the deposit, which recovered after the 2018 drought and the energy sector (renewable and unconventional hydrocarbons), the scenario leaves much to be desired, as the government faces need to reduce the tax burden and at the same time, reach the surplus. The IMF expects a decline of 17.5% in its investments this year and an increase of 0.4% next year. with this projection, the level of this variable would be in the range of 14% of GDP until 2024.