Debt: History shows that after restructuring, a tax adjustment is necessary

In the aftermath of an alleged restructuring of the debt, a study of the consultant Orlando Ferreres (OJF), out of the five most recent cases (Argentina 2001, Ukraine, Uruguay, Ireland and Portugal) clearly show that in each of them there is a budgetary adjustment, characterized on average by a 2% GDP income increase of 4% of GDP plus an adjustment of the real exchange rate. Another relevant variable is that the size of the capital withdrawal explains the trading time. In other words, the more the proposal is deleted, the longer the resolution time.

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Although among the cases studied, there are some of the blocks of the European Union, which prevents them from resorting to devaluation as a mechanism of adjustment, beyond the temptation to improve the competitiveness of the real exchange rate via deflation, in all those analyzed the crisis exit model (because it is clear that these countries were forced to restructure due to the advent of a final debt situation) show that they were followed by improvements in budget adjustments with an average improvement of 6% of GDP (combination of charges and taxes). In the case of Argentina, Uruguay and, to a lesser extent, Ukraine, the fiscal adjustment was accompanied by a devaluation. Needless to say, in countries where devaluation was not an alternative, adjustment was more severe.

The study of OJF recognizes that the starting points were not similar because in the case of Argentina and Uruguay it was a matter of restructuring with a debt level greater than 100% of GDP while in Portugal it was 84% ​​and in Ireland and Ukraine less than 60% of GDP. With regard to negotiated withdrawals, Argentina obtained a 65% increase in the PBI coupon (which implied a withdrawal of almost 55%), Ukraine by 20% while the PBI coupon was 65%. Ireland and Uruguay and Portugal were made without withdrawal of capital. The deadlines set in each case were less than one year for Uruguayan and Irish cases, between one and three years for Ukrainians and Portuguese, while Argentina exceeded 15 years. Another relevant fact observed in the five cases is that after the crisis and restructuring, the trajectory of economic growth is resumed, with different ups and downs depending on the adjustment cycle.

So, beyond the model to follow, the company must be clear (if the candidates do not say so), and especially the politicians and technicians who accompany the next government, that the dreaded word "adjustment" will continue to be used . the corner. You can sell colorful mirrors, launch unfulfilled campaign promises, but no one will escape the duty of "doing what needs to be done". The rest is political and campaign.

As for the Greek case which, in August 2018, left its third financial rescue plan, it already looks like a member of the G7, placing for the first time in its history debt at a negative rate. The most curious is that the auction yesterday had a significant demand, registering a hedge ratio of 2.73, compared to 1.59 from the previous comparable transaction (August 7). As if that was not enough last Tuesday, the Greek government had managed to place 1.5 billion euros of bonds at 10 years with interest of 1.50%, a new historical low. Of course, in addition to regaining investor confidence in Helena's economy, the announcement of the European Central Bank (ECB), which will buy back public debt from the eurozone. It should be noted that the Government of Greece confident that GDP will increase by 2.8% in 2020, eight tenths more than forecast for 2019, while the unemployment rate will rise from 17.4% this year to 15.6% in 2020. In addition, Athens expects Public debt firm in 2019 to 173.3% of GDP, the highest in the EU, to moderate next year to 167.8%.

Seeing these numbers, the case of Argentina would seem easier to solve. Too bad the story. By 2020, forecasts indicate that in the best scenario, an orderly transition, the Argentine economy would fall by more than 1%.