Beaten after the faux pas by the rates, Martín Guzmán will have to fight now to avoid an overflow of spending

Martín Guzmán has long ceased to be the “super minister” looming after the renegotiation of the debt last year. Although the president made an effort to consolidate it during his recent trip to Europe, The economy minister has been hit hard by the missteps due to the tariff increases, nor has he intervened in a key decision like the temporary ban on the export of meat, while he was unclear in negotiations with the IMF, It hasn’t even started.

With reduced leeway, he now has a battle ahead of him, which is control of the budget deficit. It is not an easy task at the moment. Not only are they imposing restrictions amid the wave of Covid-19 infections, but it’s also a classic that increases spending in the months leading up to parliamentary elections. The two factors have started to combine and are already putting pressure on public accounts.

An overflow of public accounts would sooner or later have an impact on the exchange rate and therefore on future inflation. Investors are watching this dynamic with concern, especially with regard to the consequences that could follow the elections. Will it be possible to keep the official dollar’s slow rate of rise at less than half of monthly inflation? Everything indicates that some degree of “honesty” should occur, producing a jump in the official dollar.

A few days before the announcements of Alberto Fernández, Guzmán had assured that the return to phase 1 was “unachievable” because of the economic costs it would entail for companies and individuals. Once again, his word was quickly rejected.

Although there are no official figures yet, in May the increase in spending would have had a significant increase, which can be deduced from the very sharp drop in deposits in the national public sector. State coffers are already at meager levels and it is highly likely that before the end of the month there will be further transfers of temporary advances from the central to the treasury. In other words, more money issuance to finance lower spending.

A Consultatio report calculated that the primary deficit they initially estimated at 3.5% of GDP could eventually reach 4.8%. But the math is complicated because there could be an even greater expense if the restrictions are extended over time. It wouldn’t be strange for the government to announce new bonuses for AUH beneficiaries, like the $ 15,000 last month, or an extra boost for the Alimentar card as the election approaches. But it’s also reasonable to expect more companies to enter Repro II so that the state pays part of the wages (up to a cap of $ 22,000 for critical sectors).

Although the government records the capitalization of the IMF, through the SDR, as revenue to the Treasury, these are actually resources that cannot be used to finance current spending. They will serve to build a better budget red, but they will not prevent the need for more emissions to deal with the increase in red in public accounts.

The increase in expenses is partially masked by an exceptional increase in income. On the one hand, inflation is much higher than forecast in the 2021 budget (more than 45% against an official projection of 29%), the wealth tax has been created (which has already left more than 230,000 million of dollars) and there will be more collection for holdbacks due to the high price of raw materials. However, even these one-off factors would not contribute substantially to reducing the level of the deficit.

This 4.8% of the budget red will require the search for greater financing of the Treasury through debt placements in the local market. And all that is missing will come from the monetary issue of the Central Bank. The problem is that even when most of the pesos are absorbed later, the interest generated by the Leliq issued by the BCRA grows exponentially, which also ends up putting pressure on public spending.

There is not much that Guzmán will be able to do, who, a few days before the announcements of Alberto Fernández, had assured that the return to phase 1 was “unachievable” because of the economic costs it would entail for companies. and people. Once again, his word was quickly rejected.

Each week that passes with new restrictions will also have to be analyzed in a budget key, as it will involve new disbursements from the Government to help the most vulnerable sectors.

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