A harsh Kirchnerism has been imposed on Martín Guzmán: the deficit and the issuance of pesos will accelerate to boost consumption

Who put the bell on the cat? This old adage sums up the economics of the rate dispute perfectly. At full speed, progress is being made towards a system similar to that put in place by Kirchnerism until 2015. This year, the subsidy will be close to 60% of the electricity bill and will be around 2% of GDP, well above what Congress itself voted in the 2021 budget. However, no one dares to take the decision on the exit from the freeze.

The 9% increase set in May was the first adjustment in more than two years and barely offset two months of inflation. Unbearable from where you look at it. Everyone, or almost everyone, knows this. But it is better to hide the problems under the carpet and fix them later.

In addition, it has been announced that the Alimentar card will increase to $ 12,000 per family (it was $ 6,000 last year and at the end of 2020 it was increased to $ 9,000) and will drop from 1.5 million to 2. , 5 million families and adds to the universal child allowance. This represents an additional $ 20 billion per month to help the sectors most in need. In addition, there would be new premiums for those who received the Universal Child Benefit (at the end of April, they were receiving $ 15,000).

Plastic

This plastic consists of a prepaid card. The State deposits the funds in the accounts of the Banco Nación of the beneficiaries. Beyond the technology that avoids the middleman, the product is similar to the supply books, infamous in Cuba and Venezuela. For years, the destitution of the population forced these governments to ensure a minimum level of subsistence, deepening the patronage policy.

The tariff and subsidy policy that the government will ultimately implement has little to do with what Kirchner’s lawmakers themselves approved in the 2021 budget. Therefore, the budget deficit will be much higher than planned.

Alberto Fernández tries to repeat the strategy that worked for Néstor Kirchner at the time, when he was his chief of staff. It was basically “putting money in people’s pockets”. Of course, 15 years later the situation is completely different. The logic is that the money intended for families with low purchasing power will increase consumption, since every peso they receive is spent, thus triggering a “virtuous circle”.

During this period 2003-2007, there was a large budget surplus (also trade) which allowed active policies to stimulate domestic consumption, including subsidies to “reduce the rate freeze”. There was where to find resources, because the state was running a large cash surplus, the product of the 2002 devaluation that liquefied spending in pesos. In addition, no resources had to be used to pay off the debt, which was in default.

Now every additional peso added to spending means more money issues. It is true that the Treasury can also borrow to obtain pesos, but this is limited because it only has access to the small, underdeveloped local financial market. The rest can only come from more peso issues.

After the last meeting of the economic cabinet, Martin guzman He expressed verbatim after the row with his still Under Secretary for Energy, Federico basualdo: “We continue to pursue an expansionary fiscal policy to promote and support economic recovery.” A message that sought to satisfy the most critical sectors of his administration and to align after his clumsy attack on the Under Secretary for Energy.

From Santiago Cafiero to Senator Oscar Parrilli, they give as an example the fiscal expansion policies that developed countries are pursuing to deal with the COVID-19 crisis. But Argentina has no room to do the same without paying for it with devaluations and sharp increases in inflation.

Also the senator Oscar Parrilli, justified the declaration he promoted in the Senate so that the $ 4,500 million that the IMF will turn to Argentina be used to meet the expenses of the pandemic. “The United States and Europe are dramatically increasing spending amid COVID-19 crisis. Why aren’t we going to do it ourselves?. Then came the auction: “It is not true that the monetary question generates inflation, it is an invention of macrismo.”

If they do, so do we

Unusually, Parrilli and many other government officials insist that an economy in crisis for more than a decade, like Argentina, can pursue policies similar to those of developed countries without paying the consequences.

2020 has been an overwhelming demonstration of the limits Argentina faces. All countries recorded large budget deficits and monetary emissions to respond to the crisis. But in almost none of them did the exchange rate soar more than 100%, nor inflation by 36%, which would rise above 45% this year.

Martín Guzmán was weakened in his fight with Undersecretary Federico Basualdo and dragged him towards the president. But its continuity seems assured. Not so much because of the rare achievements of management, but because the hard Kirchnerism does not have to offer a replacement which does not generate a greater tremor of the financial variables

But even so, even the dollar suffers from the North American mega-problem. The currency is collapsing globally, as evidenced by record price hikes for soybeans (topped $ 580 this week), most commodities and even cryptocurrencies.

The government’s decision is to force the resumption of activity and consumption as much as possible. Not based on investments or increased confidence, but fundamentally bet on a higher budget deficit and an increase in peso issuance. In other words, enforce this expansive policy.

The electoral calendar is approaching, although the postponement of PASO and the legislative elections will give a little more time. Time for? Perhaps to make further progress in the vaccination plan, but also to bet on a more noticeable drop in inflation and regain the purchasing power of wages. According to the survey carried out by the Centrale among economists, it was not until August that the index would start to drop below 3%.

It won’t be easy given the big show that’s coming up. Or in any case, the bet is that this large injection of pesos that the Centrale will make will not immediately affect the dollar or the prices. The ultimate goal would be to hold out until the election and then see what to do with that big pressure cooker. Ultimately, a quick deal with the IMF could help align expectations with the promise of more austerity going forward.

Weakness

Martín Guzmán’s weakness is a problem that the government will have to face. That’s why Alberto Fernández takes him on his tour of Europe to show his support. The minister has just returned from there, so we do not understand much what he expects, beyond being close to the president.

But the latest crisis shook them both. Guzmán and the President were left in the midst of a crisis of authority, which reflected above all that La Cámpora and hard Kirchnerism were those that remained with the main drivers of economic policy.

The kirchnerist hard wing does not dare to take the next step, as happened with the trip of the Minister of Justice, Marcela Losardo, partner and personal friend of the president.. It would be difficult to replace Guzmán. Not so much for its lackluster management in the management of the economic portfolio. The complication lies in the choice of a person of confidence at the Instituto Patria, without causing a shock on the country risk and the exchange rate, while the elections are so close.

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