The model is dead, but the Government tries to hide it
Hugo Rafael Chávez Frías, president of the Bolivarian Republic of Venezuela, died in Caracas on March 5, 2013. However, there are widespread hypotheses, although not confirmed, that he actually died in December 2012 in Havana, where He had gone to be treated for cancer. The concealment would have occurred to manage (and benefit from) the transition and to resolve a difficult political succession, disputed between Diosdado Cabello and Nicolás Maduro. The choice ultimately fell on Maduro, whom former US Secretary of State Madeleine Albright said “has all the flaws and none of the virtues of the leader he replaced.”
Something analogous to what happened with Chávez at the beginning of 2013 is happening to the economic model of the fourth Kirchner government. It is very likely that he is dead, but the government insists on hiding it. The autopsy will say that the immediate cause of his death is a persistent fiscal deficit that, adding the national government, the provinces and the Central Bank (BCRA) was, on average, 9.3% of GDP between 2020 and 2022.
Cristina Kirchner, in her speech in Avellaneda in June, argued that the fiscal deficit is not the cause of inflation, comparing for this purpose that of Argentina with that of other G-20 countries, most of which have higher fiscal deficits than our country. (The comparison she made is misleading as it does not include the Central Bank deficit, which may exceed 4% of GDP in Argentina this year, but is beside the point.) Continuing with the analogy between health and the economy, it is like comparing a diabetic, hypertensive, overweight, smoker and sedentary patient, Argentina, with patients who are fit and undergoing all the corresponding check-ups, like a large part of the G-20 countries.
Argentina, serial defaulter, confiscator of deposits, perennial debaser of its currency, cannot afford the same luxuries as other countries.yes There is no one abroad or in the country who wants to buy Argentine government debt to finance such a high deficit. So the BCRA ends up printing bills that, also unlike what happens to most of the G-20 countries, nobody wants.
The BCRA printed banknotes to finance the treasury for 7.4% of GDP in 2020 and 4.7% in 2021. The agreement with the IMF was supposed to lead to a significant reduction in BCRA financing to the Government in 2022, by 1% of GDP. Until July 8, however, it had 2.6% of GDP between direct and indirect financing, the latter through the purchase of government bonds for more than 1 trillion pesos since June 8, when the market lost confidence in debt in pesos. A part of this issue is “sterilized” (removed from circulation) by the Central Bank through the issue of Leliq, which exceeded 7 billion pesos in July (almost 10% of GDP). Another part, however, puts pressure on the demand for national and imported goods and services and therefore inflation and international reserves, and also the gap between the official dollar and the parallel markets.
The official statement announcing Chavez’s death said that the death was caused by a “fulminant heart attack,” not by cancer. Something similar will happen in the case of the model of the fourth Kirchner government. The immediate cause of its debacle will not be the fiscal deficit, but, as has already happened with Convertibility and with so many other models, the fall in the international prices of our exports.
When the model seemed moribund at the end of 2020, a phenomenal rise in the prices of soybeans, corn, and to a lesser extent, wheat, added to the distribution of Special Drawing Rights by the IMF, allowed the government to stretch The agony. Between the farm and the IMF, they contributed more than US$14 billion extra to the Argentine economy. The same thing happened after the legislative elections of 2021. It seemed that the Government should devalue in the first months of 2022. But the Russian invasion of Ukraine and other factors pushed up the prices of our exports strongly. The price of wheat rose by 66% shortly after the Russian invasion. To this was added that the IMF, incredibly, expanded the loan to Argentina by US$4.5 billion when a new agreement was negotiated in March of this year.
The morphine, however, ran out. Since the peak in March/May this year, soybean, corn and wheat prices have fallen by 23%, 26% and 43%, respectively. The United States Federal Reserve is raising interest rates to slow down the economy and therefore also inflation. Other central banks in the world are in the same process, which will almost inexorably lead to a global recession. With less activity and a strong dollar against other currencies, the prices of our exports will most likely continue to decline. To this is added that the negotiations to lift the restrictions on Ukraine’s exports are advancing. If the Central Bank was unable to accumulate reserves with the prices of our exports at record highs, what awaits us with substantially lower prices? The drought, after we were few, threatens the wheat harvest
This global scenario, the high fiscal deficit and the markets’ loss of confidence in the local debt in pesos generated a dynamic that, as I argued in my previous column, does not fix itself. It requires political and economic actions to restore confidence and eliminate the imbalances that gave rise to the crisis.
The Government, however, chose not to solve the crisis, but to try to manage it and kick it to the next administration. In this key we must understand the arrival of Silvina Batakis at the Ministry of Economy. She confesses that she is an admirer of José Ber Gelbard, it is difficult for her to restore the confidence of the markets and the population. Although she seems to know the levers of the State with greater precision than Martin Guzmán, and she declared that she would sit on the box to tame the fiscal situation, she will hardly manage to get the primary deficit below 3% of GDP in 2022.
The measures taken between the Ministry of Economy and the BCRA in recent days also point in the same direction: real estate revaluation, increase in withholdings on purchases abroad, continuity of the restriction on imports and the offer by the BCRA of insurance sale of government bonds to banks. Everything points to the same thing: to be able to continue issuing, a little less but not much less, and ensure that this does not deplete international reserves or dry up market financing for the Government. That is, it aims to avoid devaluing and adjusting public spending. Movements in the public administration, such as the departure of Adrián Cosentino from the National Securities Commission (CNV), point in the same direction: those who come are harsher with the business world than those who leave. More whip, I say pen, to manage the crisis.
This dynamic is also generating significant and lasting damage to companies, businesses and the financial system. That is, to almost the entire economy that generates value in our country. Without inputs to produce or products to sell, thousands of entrepreneurs and merchants are dying. The damage is lasting, because who is going to invest in an economy that subjects its entrepreneurs to these ordeals so often and for so long?
The banking system is being decimated in the meantime. Banks are filling up with government and Leliq bonds, thus displacing financing to the private sector. Leliqs have doubled as a percentage of all bank assets since May 2018, when the current crisis began, while loans to the private sector have almost halved. The exposure of the banks to the Government and the Central Bank exploded this year, a trend that will deepen in the coming months (this is the objective of the BCRA for having offered the banks an insurance for the sale of government bonds).
The model is dead, but the Government is still trying to delay the announcement. Try to avoid the inevitable: a devaluation and a fiscal adjustment. But the population already anticipates the news and acts accordingly. There is a lack of prices and supply in many products of the economy, the dollar shoots up in the parallel markets. Everyone knows what is coming, despite the fact that Alberto Fernandez and Cristina Kirchner are stubborn in hiding it.