Miguel Broda: "Today, we are bad, but we are fine, in the margin, we stopped falling"

The first month of 2019 is over and many independent economists, and even more of the opposition, have begun to disseminate their reviews of the government's management, describing it as a "failure" and a "disappointment" ", even though the summer began trends in the financial and currency markets, and to a lesser extent in the real sector, with a better slope than that which was insinuated at the end of the previous year .

Among those who join this evaluation of the three years of the government of Cambiemos and who do not expect substantial changes during the current election year, Miguel Ángel Broda, who with his study and the Economic Charter will complete 32 years of monthly editing Consecutive, is one of the economists most consulted by large local companies, as well as abroad and international organizations, although rarely by the national executive branch in turn.

However, he stands out from many of his colleagues by his positive expectations for the future, especially with regard to the difference in succession that he will leave to his successor, whether of the president himself or of his Another part, in order to obtain satisfactory results. 2019 and 2023 remarkably better than those who stay.

– How do you see the panorama of the situation, especially on the front of money and exchange? Some economists, such as Domingo Cavallo, argue that the current leadership of the Central Bank is not ready to face a new exchange rate.
– I have a positive view of what is happening, in a context where the country has recorded a sharp decline in demand for Argentine badets and that with the mere inflow of capital we had very large vulnerabilities. In The Economist magazine this week, you can see almost every country that has numbers in the world and, if you add the current account and budget deficits, we are the country with the highest double deficit in the world. So, my position is that the second agreement with the Monetary Fund has saved us from greater evils, it is an emergency program that allows to arrive without crisis in the elections and which, given its objectives, is being realized..

A year ago, we were in a situation that defined "we were doing well but we were not doing well"; we were in the seventh quarter of the cyclical recovery of GDP; we had an inflation rate of 25% per annum, but we had 5.5% to 6% of the GDP of the external current account deficit and similar public finances; and the remunerated liabilities well above the monetary base of the Central Bank.

Today, we are wrong, but we are fine. We are wrong in that the margin has stopped falling; GDP in the fourth quarter of 2018 was 6.9% lower than in the first quarter of that year, with the economy experiencing three quarters of recession and declining at an annualized rate of 9%. It's a recession, over the past 7 years, 3 times stronger than the mild recessions of 2012, 14 and 16.

– This week, the Secretary of State for Employment released the employment data recorded until November and the forecast for the first quarter of 2019, which allowed us to see than a total of 12 million workers, a decrease of only 1.4% compared to the previous year, well below the decline in GDP. How did employment occur in previous recessions?
– No, here has adjusted more the real salary. But back to the fact, inflation is much higher than it was in the first quarter of last year; social indicators have undoubtedly deteriorated, but at the same time the budget deficit and the external current account have been reduced considerably; and in the margins, dynamically, the central bank's balance continues to shrink and has become much more stable and less risky.

My opinion is that In the context of an emergency program, our situation is significantly better than in the crisis that started last year. On the sidelines, I would say that for the Economic Charter, GDP stopped dropping in December; private consumption has definitely stopped falling and increased slightly in December, there is the CAME data; Imports of consumer goods increased from the previous month, after sharply declining. Therefore, our impression at Carteco is that it is so true that the GDP of December compared to that of November, at a low level, obviously recorded a positive or zero change.

– Do you think that the month of December marked a turning point in the fall of the global activity?
– Yes, probably in consumption without a doubt, in the overall GDP, there will always be a little more. We still believe that the first quarter of this year versus the fourth of last year will give a variation of about 0%; the government thinks it will be positive, it's not what it gives us, but it can certainly be slightly positive. I have a vision that the corset means that the zero monetary expansion program has succeeded, at least in a transient way, in taming the dollar. If anything worries me, it 's because of the appreciation of the peso, which is today 16% more revalued than in September, which I' d never mind. do not like.

– Can this be explained by what economists call "overshoot", anticipated exchange rate rise or excessive reaction effect after exchange rate fluctuation, then stabilization over time?
– No, Argentina should have a real exchange rate higher than today. This is explained by the Monetary Fund program and the government goal, which believes that there is no other crisis, the elections will be won. This implies that stability, the slight nominal decline in the price of the dollar is good news, even for some who are expectations. My opinion is that it is a transition program.

This program can ensure that we can stop falling and that we can have a very very mild reactivation from the first quarter or the second quarter, but the truth is that we believe that the recovery will be of the type "stop motion", we call it better "slow recovery" (slow, small and by sections). This probably makes the economy neutral during elections; Maybe if the activity is picking up a little faster, which I doubt, because the year will give a drop of 1.2% or 1.3%. Similarly, during the year, the fourth quarter compared to the same period of the previous year gives us a positive result, around 2.5%. This is not something that radically changes people's expectations, but that can become neutral.

– Is there a more moderate recovery of what the Treasury had badumed in the budget, and more recently for the preparation of the financial plan?
– the government plans 0% per year; about 4% in the room. I dare not say that it is impossible to achieve it. Our model is essentially reading other times, other cycles that have known Argentina and other emerging countries: When a crisis is triggered by the collapse of the influx of capital, even if credit in real terms continues to decline, several works by Guillermo Calvo and Ernesto Talvi evoke the miracle of the Phoenix, namely a cyclical recovery possible. economy always with less credit in real terms, which is exactly what happens.

– In the presentation of the latest monetary policy report, Central Bank Vice President Gustavo Cañonero spoke about the causal link between credit and economic activity. What is your appreciation?
– First, when you view the credit data, you determine whether you reduce the supply and demand. It must be identified if there is a predominance. In this case, the offer has so far prevailed.

– You talked about an emergency plan, how long do you think it will be maintained?
– It will last until the elections. Probably after June, the monetary policy will be less contractual and the fiscal policy a little more contractive during the year. This puts a headwind of the economic recovery, so the reactivation will be moderate because although this is possible, the rate of inflation is decreasing; that the real wage ceases to fall or even increases slightly, as well as the wage bill; and perhaps the private consumption that has collapsed has bottomed out between December and January, which is our forecast.

-This week specifically, the Secretary of State for Employment also realized that, until October, the real wage had fallen by 10.6% year-on-year and that in November, the loss was reduced to 9.4%, that is to say, it was beginning to show a slight recomposition …
– The number of salaries we use, which is the private registered in November of Indec, has risen below the month's inflation. As you can see on the graph, we expect the salary to begin to reduce the sharp fall accumulated until October, especially in December for the end-of-year bonus; the reopening of the paritarias; because there was a significant increase, because there was a significant increase in the wages of all employees of the provincial public service; and social grants; who made the payroll, the average disposable income of the lower middle clbad or low-income sectors, did not fall.

That's one of the things we take into account to say that the economy is in the making, we can not say with absolute certainty, but I think that, despite the fall in credit, and coming back to your question, I would say that in the Identification of what is happening today, supply restrictions predominate, since the monetary program is essentially a handrail, what is deposited for a fixed term in banks is transferred without risk to the Leliq, which has reduced the lending capacity of the financial entities. But there has also been a reduction in demand and quantity demanded.

In the future, the idea that credit is an input for GDP, or the opposite idea that demand for credit increases the level of activity, is not a crucial idea for recovery, because even in Economies where credit is maintained the fall of other factors can result in the reactivation of the economy.

From now on, we will probably see a little more credit capacity on the supply side and, logically, a little more demand. But even if credit does not increase in real terms, we can see that previous experiences, and even in Argentina, recessions triggered by a collapse in capital inflows show us that these can be reactivated cyclically. question is inhibiting.

What I would say today is that there are two things: logically, when the GDP increases, the quantity demanded increases, at the same interest rate and the monetary program loosens a bit, there will be a greater squeeze capacity, among others, because Leliq's rate, which is a safe rate, also lowers credit rates, which will continue to rise.

Therefore, I see that we will have a little more credit supply and more demand, although I still see that the amount of loans in real terms may continue to fall, which, in my opinion, does not does not hinder a very cyclical recovery. Moderate, that's what we feel at Carteco.

– What would be the drivers for the start of slow reactivation?
– The real wage, the wage bill, and to the extent that nominal and real interest rates also drop by very high values. But this is a recovery that will be almost imperceptible for the formation of people's expectations. We think the economy is at a low point and our weekly indicators show. Although January is very difficult with the seasonal nature of holidays. Even in this case, the GDP of the average year falls by 1.2%.

– How much do you estimate the negative carryover from 2018 to 2.4%?
– It gives us a little more. We estimate ending the year with less than 1.5%, with a previous negative drag of 3.1%.

– Ending with a drop of 1.5%, does this mean growth in 2019?
– There is clearly a recovery in the course of the year. Today, I dare not say that the zero that the government says impossible to achieve; This is not what we had planned, but good in this reactivation phase that seems to be entering the economy come a lot because there are points in favor and points against. Macroeconomic policy will be contractive, like monetary policy.

– How do you think the electoral scenario can play out in advance in many provinces and municipalities? Ya Ya told the government that he was not doing it, but the rest, yes.
– The election years are years of uncertainty, more in a context where, if you look at the last world elections, they have been solved in the last 90 days: neither Jair Bolsonaro; neither Emmanual Macrón; Neither did Brexit win 90 days before. Probably the uncertainty, and in an electoral scenario, there is a dollarisation of the portfolios.

On the sidelines, he was more satisfied with the caution of the Central Bank and in recent days he has accelerated the reduction of Leliq rates. But I think that for the first time, the government is paying an insurance premium because it fears a new polarization of the portfolios, which leads to a slow decline in the interest rate. Unlike my colleagues, I do not think we will have a currency crisis again, but there will definitely be an increase in demand for dollars. Our forecast of the single market and free exchange rate month by month is as follows: the remaining dollars in the first quarter are those that will be missed in the third quarter.

But We believe that the future position allowing you to sell close to USD 3,000 million has been closed. and with the remaining dollars as they renew a large portion of the investments in pesos, so that the dollars that will not be used for payments in foreign currencies can reach $ 9,000 or $ 10 million, and can eventually be offered to the request. market to avoid a sharp jump in the exchange rate. I'm not saying that the probability of running is zero, but the truth is that some of my colleagues have a very high probability that something will happen, that the excess supply of dollars we have now, probably up to the end of the year. in April or May change, but I think it is manageable.

In a context also where the government thinks that there is no crisis, and for that the crisis is essentially an exchange, they will win the elections. So today we have an economic program likely to keep a weak dollar and to break the inflationary inertia, but in the end, the success of this program lies in the return of the observed inflation rate. 2007. And the success of this program is to recover some of that has been lost in the last 3 quarters.

A very important thing that arouses our optimism is that, if the IMF is meeting, the government must be convinced that compliance will not be easy, especially the fiscal goal. With money, the next president will have macroeconomic imbalances much lower than what this government has received. You will have substantially less budget deficit; external current account deficit significantly reduced; and with the momentum we expect from the Central Bank's unregulated commitments, the monetary base will be remarkably lower than we had at the beginning of last year and not explosive..

– Are you worried about the dynamics of placement of Leliq?
– Many people think that the dynamic trajectory of Leliq is another risk of explosion, we do not see it.

– What do you see ahead?
– The truth is that we see a great opportunity for the next president, because he will inherit less important imbalances, and the world will probably only grow, and we have great financing needs. There will be the best domestic conditions and a possible urgency to make us a normal country, not an exception in the world.

– In several pbadages of his report, he stressed that it would not be easy to achieve the budget goal. What worries you, does not seem that the worst has been done?
– My prediction is that Argentina announces the change in the target of a primary surplus of $ 40,000 million in the second quarter, because this figure is very difficult to achieve. The objective of the third quarter will be determined. I recognize the efforts of this administration, but we have a structural problem of extraordinary magnitude. On the fiscal side, we have the same problem as Brazil, and Brazil has confronted this diagnosis: a structural problem requires structural solutions.

– Is it the pension problem?
– Well, one of the problems is the pension system. In the case of Brazil, it is privatizing to reduce the size of the debt to 10% to 20% of GDP. In Argentina, we are making considerable efforts, but to the extent that the conditions of economic policy are met. The next government will have to solve the structural problem more decisively. I see difficulties this year for several reasons:

1 In my opinion, the government has underestimated the effects of the recession on the collection; in the last quarter of last year, it was already below expectations. And I think that will continue for a few months.
2 In addition, on the income side, rents on investments will no longer correspond to the high interest rates of the very large bonds with fixed maturity of the Treasury at Banco Nación. So overall revenue will be lower than that predicted by the government. And he already has a budget lower than I thought 3 or 4 months ago.
3 On the other hand, the aid that had been in 2018, with a decline in real terms in pension and social spending, produced by the indexing formula with a lag of 6 months, will be reversed this year. And inflexible spending will probably increase slightly, but increase this year;
4 What I would have liked is that it would have taken a little more water in the past year to make a large payment, for example to Cammesa (Wholesale Market Management Company). electricity, SA) spending this year. In December 2017, it had cost him between 30 and 35 billion pesos. On the contrary, it was used to pay more capital expenditure, bonuses and social grants were granted; and the subsidy for electricity has also increased. So I see an Argentina that demands fiscal aggression, that is to say, not to give up, because achieving not zero but 1% of the primary deficit will not be easy. And go, probably to need the adjusters provided for in the agreement with the IMF, I think it's necessary to renegotiate before asking for a waiver for achieving the second quarter goal.

That's why I have a harder time meeting the current year's deficit than the 2.7% surplus next year, because of the spent mechanism. But I also see, in my opinion, the fear of executive power not to conform, and to the president today as an enthusiastic under-treatment of elements with a footnote (maybe to be with the exception of capital expenditures (public works), but that's an engineer)

– When the Minister of Finance, Nicolás Dujovne, presented the achievement of the 2018 budget targets, I mentioned the counter-cyclical phenomenon of retiree mobility, as it would accelerate the acceleration of inflation in In the second half of the year, while the collection will show the effect of disinflation, he replied that what mattered was the average inflation and that was expected to be the same. Do you share this vision?
– Without a doubt, it is a point that does not matter. However, make the quarterly forecast of the adjustments; From what we believe to be the real salary adjustment, the salary used for indexing is no. This gives us that inflexible spending increases by 2 or 3 points above inflation.

– What rate of inflation do you expect for this year?
– That's the point, everything will depend on the rate of inflation. At Carteco, we estimate a rate of about 30% for the months of December to December. If inflation were higher, what I'm saying would not be. And with that the average inflation will be the same, but the adjustment in the last part of the year would exceed the price increase of the period. I'm not saying that there is a symmetry, which was won in 2018 is lost in 2019. But there is no doubt that the actual expenditures that have decreased have not occurred this year.

– With your forecasts for 2019, can we say that the balance of the government failed?
– In global figures yes. We had less GDP growth and more inflation than under the last government of Cristina Fernández de Kirchner, a long-term declining country that has declined, as per capita income in 2019 will be 9% lower than in 2011. When I try to see what will happen or predict similar examples, something similar is never found, it's a country that has accelerated its decline.

However, the government has taken many positive steps in terms of inflation, GDP and real wages; it's worse, it's a failure and it seems to me that it's also an engine for the president to want re-election to be able to come to power. history, not by the numbers of his first government, but by those of the second term. Whether he does it or not, God will know whether he wins or not. And if, afterwards, he has the courage to take Argentina out of decadence, make it a normal country, like Colombia, Peru, Uruguay, Chile, like most Latin American countries .

That's why I always say that, with a moderate recovery, the economy will be neutral during elections, because if you hold the October 17 elections and you compare them to October 19, and the disappointment that reigns in the President Mauricio Macri is the result.

You can identify different causes. It may be that the numerical failure of this period is stimulating the economic policy of your second government, hopefully.

I insist that if the IMF is respected and we are confident of fulfilling it, the next president inherits far less imbalances in the external accounts, whether in tax, tariff or foreign exchange.

Personally, I've seen twice the chance to come out of decline: Carlos Menen with his prime minister of the Economy, Domingo Cavallo and Mauricio Macri's expectation in 2015 we both launched a draw by lot. I hope before dying that Argentina is coming out of this structural decadence and that society is becoming aware that what is happening to us is absolutely abnormal: have annual interest rates of 55% and inflation of 48%. Ours comes from another planet, we do not generate the idea of ​​weakening ourselves. We are probably so corporate that nobody wants to lose anything and this inaction forces us to be an abnormal country.