The time has come for the consequences

Intimately linked to this omnipresence of the state in the lives of Argentines, it claims to be able to manage everything and control everything, which gives rise to a multitude of hyper and micro regulations. The metastatic growth of the state and the proliferation of regulations are correlated with the senseless increase in the tax burden – tax, parafiscal and artificially high cost of money, when setting the interest rate – and costs of these. regulations, such as work.

These tax-based cost overruns take our production out of competition by causing a systematic decline in productivity. Loss of productivity results in the closure of the economy, a corresponding decline in purchasing power, a decline in investment, and a gradual increase in poverty, decade after decade.

But our goal here is not to deal with the important issues, which we have often warned over the years, but their most painful and urgent consequences. These immediate problems may precipitate us today into a crisis of historic magnitude.

The delay in dealing with structural reforms in the background has led us to lose our fiscal and financial sustainability. Instead of designing a comprehensive economic policy that fully resolves the structural problems, which had reached an undeniable gravity at the time of delivery Cristina Kirchner power, the macroeconomic government replaced it with a policy of stretching the time without doing anything – which they called gradualism – and aimed exclusively at controlling the dollar – that is to say, to mask and delay the manifestation of the exchange of these evils.

This last policy was based on a mbadive debt and a series of monetary devices allowing to ride on a financial cycle, consisting of interest rates higher than the devaluation forecasts. The phantasy of the exchange rate thus remained based on a growing – and potentially explosive – exchange rate delay resulting from interest rates higher than the rate of devaluation and the decline in IMF loan reserves.

The three consequences of hiding the underlying problems – exchange rate, budget debt and quasi-fiscal debt – now call for an urgent solution.

In the context of increasing financial tensions and despite the leap forward, the exchange rate continues to seek a value that balances supply and demand. In crises, value is governed by fear and it does not make sense to speculate on the type of theoretical equilibrium. On the other hand, people know that the market value of the dollar would be higher if there were not two irrational bidders – the BCRA and the Treasury – ready to sell at low prices.

In dealing with the fiscal debt, the short and medium-term outlook was alarming, which led to the decision to announce a selective default last week, from which slippage became a way to one-sided and has disarmament precipitated deposits in dollars since Thursday.

In the initial calendar, between August and the end of the year, $ 9,715 million of Letes in dollars, or $ 1,435 million of adjustable Lelink per dollar, and no less than 399,000 million in pesos. For next year, the requirements are $ 52,500 million; Of this total, about $ 9 billion would benefit from a fairly secure renovation. With our current country risk spread, refinancing seems unachievable.

The quasi-fiscal debt is essentially composed of Leliqs that exceeded $ 1.3 billion, thus exceeding the monetary base in circulation and increasing vegetatively – if there is no withdrawal of deposits in the banks – at a rate above 80% Capitalizable every seven days. Here the severity is amplified by the counterproductive decision to put the banks at the center of the problem.

Faced with these problems and this degree of deterioration, the government no longer has valid or regular options; Now, they are all bad. You have to choose between emptying the BCRA's reserves in order to hold the dollar or let it take off to defend them. This last path is the best for the country but leaves the government without any possibility of even acceptable electoral performance in October.

The rules announced this Sunday show that the government has opted for the first solution, while seeking to make the most of the reserves, to accelerate the entry of commercial currencies and to set up a division and a segmentation of shares for the currency purchase. Our goal is not to examine the details of the measurements, but to estimate their impact. A first consequence is the rebirth of the gap that will widen between the official dollar and the parallel dollar. In turn, they will provoke a series of countermeasures designed to circumvent or perforate them by economic agents, to which new official arrangements will respond. In our opinion, the main undesirable impact of yesterday's announcements is the likely contamination and erosion of pesos deposits. In the coming weeks, announcements of emergency measures will become routine.

The government has decided to spend reserves to soften the dollar. In this way, you will only exhaust them and the dollar will end up anyway by fire. The actual net reserves available represent only $ 10 billion. The situation is aggravated by doubts about the IMF's unsettled disbursements for the corrosive recrimination of the FdT, accusing it of funding the capital flight and thus violating Article IV of its statute. The loss of reserves will be the key variable to follow.

(*) Doctor in economics, professor at CEMA, consultant in banking and business and educational adviser of Fundación Libertad y Progreso.