Kirchnerism ended Guzmán’s adjustment and now comes the rain of pesos for reactivation

Martin guzman The year began with a strong fiscal adjustment, due to new taxes (such as the “solidarity contribution”) and exceptional income from withholding taxes. The primary deficit for the first four months of the year barely reaches 0.2% of GDP. But this financial cushion has already started to be spent and soon there will be nothing left. Anyway, the objective is to win the legislative elections and for that the Kirchnerism resorts to its old formula: to put money in the street, without measuring the costs too much.

To call it a “plan” would be too pretentious. But it is clear that this is the path chosen to travel these months before the legislative elections. It is a question of playing with “the monetary illusion”, that is to say to increase the current incomes and to generate the idea of ​​a real improvement of the pocket which is not one. Then, inflation eventually liquefies that nominal improvement months later. The important thing for Casa Rosada is to hold out until the end of the November elections.

That much, all decisions must be read in an election key. Since the suspension of the Copa América in Argentina, while 48 hours before the decision its achievement was maintained, and now the untimely decision to return with face-to-face lessons in the province of Buenos Aires. The polls had shown strong unease in both areas, but in this enumeration A third factor frequently mentioned in all the surveys is lacking: the disappointment in the management of the economy and the concern in the face of a crisis which does not give a truce.

The urgency for the Government in the coming months is to reverse the social bad mood due to the fall in income and to an economy which has returned to the slowdown. For this reason, the policies will now be extended, on the basis of an issuance of pesos by the central

The lifting of traffic restrictions and the reopening of various activities, from shopping centers to extended restaurant hours and the return of cinemas in the city, aim to revive activity after the slowdown in the second quarter. According to private surveys, the drop would be 2.5% between April and June, returning to the starting point at the end of the year..

The reopening of activities will already allow a jump in the third quarter. The other boost should come from the peso rain that will pour into the market to start, even for a few months, the engine of consumption. In this way, the Government has a chance to arrive at the time of the elections with a new rebound of activity which will give the impression for a moment of leaving behind the serious collapse of the economy.

Vaccination and weight

The acceleration of the vaccination rate will also be another strong element to better arrive at the elections. Here is a double game. On the one hand, the satisfaction of those who were able to apply the two doses of the vaccine. And secondly, the greater resumption of activity, based on already covered coverage of the population at risk.

The descent of the line of “hard” Kirchnérisme in Guzmán is more than obvious at this stage: This is not the year to make big tax adjustments. Therefore, everything that has been done in tax matters in the first part of the year must be “returned” in these months. This implies a sharp acceleration in spending and therefore also in the monetary issue. There are not many options at hand to finance the growth of the tax hole that is already in place.

The primary deficit ended at a surprising 0.2% of GDP. But the downfall of Axel Kicillof and Máximo Kirchner is that they are not moments of adjustment

Behind the expansionist fiscal policies that have already started are Governor Axel Kicillof, who seeks to repeat all the measures applied during his tenure as Minister of the Economy, as well as the Instituto Patria with Máximo Kirchner at its head. The four components of this policy aimed at reviving the economy by improving domestic consumption are as follows:

Great reinforcement of social plans, with benefits increasing at a rate well above inflation. During the last two months, a bonus of $ 15,000 has been granted to AUH beneficiaries, an adjustment of more than 8% has also been applied, an extension of the scope and amounts of the Alimentar card has been defined ( up to $ 12,000) and more resources to the advancement work plan. ANDhe Minister of Social Development, Daniel Arroyo, has already announced that “there will be new benefits” as the need to support people with fewer resources is perceived. Social protection policy also generates a double impact. On the one hand, those who receive this aid are “loyal” without any consideration, emphasizing clientelist politics. And on the other hand, all the pesos that are donated to this segment of the population are money that is immediately returned for consumption.

Increase in economic subsidies: The semi-freeze rate ensures that families spend less money to pay the rates and more when they go to the supermarket. Even the bill that is being discussed in Congress “cold zones” has the same meaning to reduce the cost of services. All at the cost of more subsidies and therefore a greater deficit.

Reopening of joint ventures and salary increases of over 40%: Tomorrow will be an important date to see how the management-union negotiations continue because the banks will ask to advance the review clause scheduled for September. La Bancaria boss Sergio Palazzo will demand a two-month advance and a raise outside of what was negotiated this month. The banking chambers will respond that so far this year, wages in the sector have exceeded inflation, as they accumulate an increase of 23%. The “original sin” is that at the start of the year the banking industry negotiated a staggered 29% wage directive, which is clearly short. In addition, several unions are in the midst of discussions to obtain increases of at least 40%, such as that of food and truckers. The government supports these initiatives. The chief of staff, Santiago Cafiero, reiterated yesterday that in 2021 “wages will beat inflation”. Of course, the demand for businesses is huge, with declining sales and rising costs negatively impacting profitability levels.

Specific emergency relief programs. REPRO II, which spent around $ 10 billion in May to pay part of the salaries of critical sectors, is one example. Another clear case is the new bill to reverse the retroactivity of the monotax and ease the payment of overdue fees.

Putting more money on the streets to jumpstart the economy will come at the cost of a huge expansion of money. The monetary base has hardly increased so far in 2021 and this gives the Central Bank some leeway to do so. This time, it will not be temporary advances, but this increase will be accompanied by a reduction in Leliq’s stock.

In other words, the BCRA has already started to reimburse banks through this mechanism. This money will be used to buy treasury bills, which will then use the money to meet increased social plans or pay subsidies.

The dollar

With a relatively stabilized dollar, all government chips will now be on achieving short-term results. Political scientists assure that a large percentage of voters decide 48 hours before the election. They are the ones who can tip the result one way or the other. The impact of these policies, however short-lived, will be vital.

Betting on a short-term recovery is, in reality, the maximum to which a government which has failed to regain the confidence of consumers and businessmen can aspire. Not to mention the investors. On the contrary, At every step, it is clear that there is no economic program and that a possible negotiation with the IMF will take place, hopefully, after the elections.

An agreement with the Paris Club or a negotiation with the Monetary Fund have clearly ceased to be a priority for the government, which must now focus on the domestic level to better arrive at the elections. A default with the creditor countries or with the IMF itself cannot be ruled out

Meanwhile, the weeks continue to pass and there is no news regarding what will happen to the debt already overdue with the Paris Club (now within the 60-day grace period) and what the exit will be. for the maturities that are presented with the IMF. We will have to follow closely the steps that Sergio Massa will take this week, both in Washington and in New York. What message of rapprochement with the United States will carry the head of the judiciary of deputies, after Argentina’s decision to withdraw from a complaint against Venezuela and to promote an investigation into Israel for its dispute with the terrorist group Hamas?

The possibility of entering into a new default with creditor countries and international organizations is not even to be ruled out, hoisting the flag of “economic sovereignty”. It sounds crazy, but nothing is in Argentina today. A significant percentage of the population buys the speech and continues to believe that the fault of the economic collapse lies with the Fund and the international investors who supported Mauricio Macri at the time.

What is certain is that the awkward diplomacy of the president and his foreign minister, Felipe Solá, will hardly pave the way for faster relief with the IMF or the Paris Club. Completely the opposite. Each time they speak, they leave the country more isolated every day, alone supported by partners with dubious reputations.

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