"After the arrival of the IMF, the model gained some consistency"


It closes a difficult year for the economy. The devaluation that began at the end of April marked the pace of a period marked by dollar swings, emergency aid from the International Monetary Fund (IMF) and persistent inflation which, according to private consultants, could close this cycle by 50% a year . According to the director of the MSc in Economics and Political Sciences of Eseade, Adrián Ravier, the management of President Mauricio Macri underestimated the importance of fiscal, monetary and exchange imbalances. In conversation with MONEY, he points out that the next government will have to start resolving structural problems in the Argentine economy.

-How does the Argentine economy come at the end of the year?

"It's in a deep recession with no clear signs of recovery or recovery in the months ahead. After the devaluation of 2016, the economy rebounded in 2017. After the sharp devaluation of 2018, some analysts expected a similar recovery or recovery in 2019. But this will not happen because of the late decision of the Central Bank of Argentina to tackle the problem inflation. Keeping the monetary base constant from October to June 2019 will be effective in reducing inflation, but economic activity will suffer even more than was already evident from the effect of the currency crisis.

-What can be the statistical drag for 2019?

I would like to clarify the importance of trawling. Recall that in 2018 we spoke of a positive obstacle after closing 2017 with a growth of 2.9%, and there was until a first quarter of growth, but then there was a strong currency crisis that left the Argentine economy at an unfavorable time and far from predictions. Something similar happens here. The Argentine macro is very weak, and the international context promises some short-term shock, which is why it is difficult to imagine Argentina spending these months without shocks that affect the economy and the new forecasts. There is still volatility in the exchange rate and, moreover, the Central Bank deals with a large difference between the floor and the roof of the band. It is worrying that if the exchange rate in today's trading session rises 30%, it is too late to intervene. The demand for pesos may collapse, and dollars in reserves would be insufficient to contain a stampede.

– Will inflation be reduced? Or will it remain at high levels?

If there are no surprises, the trajectory shows an inflation that may fall by half compared to the closing level of 2018, which, however, has several clarifications. First, that the Central Bank promised to keep the monetary base constant until June 2019. The measure would be effective, but today the monetary authority does not enjoy the most credibility. Second, the Leliqs ball is contained, which represents future inflation on the day it is monetized. The only way to avoid this is for the government to get a strong fiscal surplus to disarm it patiently. This scenario is too optimistic for an election year.

– Does the dollar depend more on the external oscillations of domestic policies?

– The world is volatile, less liquid, and besides, the Federal Reserve is hardening the dollar. The interest rate hikes will continue on the way and this reduces the investments that the region and Argentina need. As I said above, it is expected that there will be external shocks that jeopardize the price of the dollar during 2019. It may even be said that since Argentina has a greater weakness than the neighboring countries, these shocks will hit our country more in relative terms . Having said that, it is also true that monetary policy has become more orthodox in its fight against inflation, which can be effective in reducing its level. This seems to me fundamental to reduce the levels of volatility observed in 2018.

Why the government did not find the return to the economic course?

"Because he underestimated the importance of fiscal, monetary and exchange rate imbalances. Gradualism and interest rate objectives are good for an economy with low levels of inflation, but Argentina needs higher doses of the market to solve macroeconomic problems. A businessman is horrified to observe inflation, taxes and interest rates in our country, as well as the volatility of the dollar price or levels of corruption and bureaucracy. Unfortunately, there was little progress and nothing in solving structural problems. The next government will have to deal with these structural problems with greater conviction.

What will happen to public spending? Was the deficit reduced? Will there be any temptation for the election year?

After the arrival of the IMF, the model gained some consistency. Economic policy now seems to prioritize certain goals and there seems to be more orthodoxy. 2018 will close with a much more limited fiscal red than the one with which the year began. The devaluation and the adjustment measures taken contribute to this. If 2019 does not bring surprising external shocks, it may be that the fiscal red is even narrower and we get close enough to the primary fiscal balance. This is no small matter, but the government should not be happy. Argentina needs to move towards a consolidated fiscal surplus, which includes provincial budgets as well as debt interest. Achieving this in an election year is the main challenge.


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