A difficult compromise – AIM Digital

Throughout the debate "Gradualism versus shock", the latter being deliberately caricatured with an invented proposal to fire a million civil servants overnight, was the example of what happened with Ricardo López Murphy

It was said that if a sharp reduction in public spending was applied, what happened with López Murphy, who wanted to reduce public spending by 3,000 million to this time (about 3,000 million dollars)) lasted only a few weeks. I have always maintained that it was just reading the opposite of the good, because in 2001, because of not doing what López Murphy had suggested, the corralito came, the resignation De la Rúa with five presidents in one week, default, asymmetric filing of deposits and bank loans, a 15% drop in GDP and a leap into poverty that reached 54% of the population. Thus, the cost of not doing what Ricardo López Murphy suggested at the time was greater than dealing with the cost of this and avoiding an economic, institutional and social crisis.

Even though today there is no risk of crisis style 2001/2002, there is similarity in fact with what happened with Lopez Murphy. Indeed, as I have already said, the public expenditure adjustment proposed by the aforementioned economist was 3,000 million pesos, which in dollars was 3,000 million pesos. As this adjustment was proposed in 2001, it needs to be adjusted for inflation in the United States. and gives, to the current dollar, $ 4.740 million

What is the adjustment that needs to be done now? The government has promised the IMF to lower the primary fiscal deficit from 2.7 percent of GDP this year to 1.3 percent in 2019. In other words, next year we will have to adjust the deficit by 1, 4 percent of the product If we take the GDP estimated by the government at 13.720 million pesos, the adjustment would be 192.080 million. With a current dollar of 30 pesos, the adjustment would be $ 6,400 million, or 35% more than the adjustment proposed by RLM in 2001. Everyone said that it was impossible to do something like 2001 because everything exploded, but now in the middle of an election year, we are in 2019. It seems unlikely that this decline in spending will be addressed.

Apparently, the government would consider reducing the deficit by reducing public works by 0.6 percentage points of GDP that can be carried forward. Another 0.4% would be achieved by increasing utility rates, and thus reducing economic subsidies. Finally, transfers to the provinces would decrease by 0.3 percentage point of GDP. The possibility that the rest of the deficit will be reduced by selling part of the Sustainability Guarantee Fund (FGS), which is the money we had saved in Afjp and the confiscated state.

It is not that I do not believe that this withdrawal can not be made; It seems strange to me that this reduction in spending should be implemented in the middle of an election year. If, up to now, they did not want to touch public spending because it was politically unfeasible, why would they do it in full election year?

In 2017, they inflated economic activity with a lot of public work, a $ 17 change type and a plentiful domestic credit for the purchase of durable homes and consumer goods. This increased domestic consumption and allowed the government to have an excellent electoral result by winning in the largest districts, electorally speaking, in the mid-term elections. Next year should go through a recession or a low activity.

Meanwhile, the government seems confused, without a firm path that allows people to have a horizon. The call Macri saying that they believe him, that he will achieve the budget goal, was an unfortunate statement. A president, more than asking to be believed, must take steps that make his promises credible.

The Chief of Staff 's statements were also confusing saying that they would apply a tax on overseas credit card spending and airline tickets, while Dujovne was responsible for deny such measures. This lack of coordination in the discourse generates more uncertainty in the economic agents.

Elisa Carrió brings little help to her statements. Going out to say that people turn off the television because the media are doing operations to complicate the government, is to deal with a speech that many people have rejected in the K era. Higher up, he proposed to switch as a way to reactivate the economy, as he did not spend one and give it to another in the boards will magically multiply global demand. This made the government look ridiculous, because the rain of investment went to the rain of tips to reactivate the economy.

In short, the government faces the challenge of having to make a budget adjustment greater than one election year Ricardo Lopez Murphy proposed in 2001. Everything seems to indicate that this goal will be very difficult to fulfill, and it is very likely that the IMF will grant a derogation to Argentina, for not having respected the agreed objectives.

the US government will prefer to finance Macri's mistakes to risk the return of the authoritarian populism of Kirchnerism. He already has enough problems with Venezuela to increase populist governments in Latin America now that they have decreased significantly.

By Roberto Cachanosky, graduate in economics from the Universidad Católica Argentina. Professor of Macroeconomic Theory in the Master in Economics and Business Administration from the Center of Business Studies and Training of the City of Rosario and in Applied Economics at the Master in Economics and Administration of the University Institute.