Enrique Szewach: “Sergio Massa has little chance of giving good news because it will be a year with high inflation and more recession”

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As executive director of the IERAL, which depends on the Mediterranean Foundation, Enrique Szewach is, together with Carlos Melconian, responsible for the elaboration of what could be defined as the economic plan that the FM is offering to the different political forces that will compete in the elections presidential this year. In summary, Szewach proposes “economic regime change” to lift Argentina out of economic stagnation. The following is a summary of the talk he had with clarion.

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– Does the government have possibilities to improve the situation of the economy between now and the elections?

– It’s not easy. Sergio Massa wants to lower the inflation rate with this rare target of one percentage point every 75 days. And it seems to me that the anchors you have chosen to achieve that goal are useless. The official exchange rate is devaluing less, but the truth is that the official dollar counts less and less in the formation of prices, because there are no reserves and the truth is that the economy fixes its prices by looking more at the free exchange rate than at the official. The Central cannot sell all the dollars it asks for at the official price and in this scenario, delaying the exchange rate is more dangerous than virtuous.

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– But you don’t need strategy to get to STEP or the elections?

– We have a big problem – the drought will take away a lot of dollars. Massa will have to invent a 3, 4 or 5 soy dollar… and even then I don’t know if it will come to him. Nor will it serve as an anti-inflationary tool because, I repeat, prices are set at a dollar closer to the free than the official one.

– Society, the President said this week, has tolerated rising inflation and there has been no such thing as a social hotbed. Is it a problem that I can’t download it? Could you be content not to run away anymore?

– There is a problem related to politics. Going to elections with 100% inflation means losing them, even though we already know that today you have little chance of winning them. It is in this context that I see Massa’s promise to make the CPI for the next month start with 3 and not with 5 or 6 as unattainable. I see it as very difficult.

– Is it plausible to think that perhaps the government will be satisfied with going to the elections without a booming economy and that the one that follows will be fixed?

– I insist. If the government doesn’t want the economy to explode, it should show something more powerful. It is not enough to say that transitional price agreements are signed and in the meantime they exacerbate the problems it already has. You cannot bet on the real exchange rate deteriorating. Nor deplete reserves and at the same time increase debt in pesos. This makes it difficult to calmly navigate the way to the elections. The target that I see they could achieve is a repeat of 2022, with inflation similar to last year and with a little more recession. If that’s the goal, chances are they’ll achieve it. It seems to me that this could be the scenario, that of signing the draw. But still and everything could not guarantee that we do not have a macroeconomic crash in the middle.

– Where could that accident come from?

– Crises usually come from the dollar side. Throughout its history Argentina usually has the beginnings of the crisis in the foreign exchange market. In between we have debt refinancing in pesos. If private ones fall and, moreover, the demand for pesos falls, the Central Bank must issue to replace private creditors… In short, a scenario with many imbalances that are becoming more and more acute.

– As regards the question of the dollar, is it possible that companies are full of pesos but find it difficult to dollarize themselves and this is why the question of the exchange rate, among so many quotations, is manageable?

– That’s partly true. But inventories control some of the demand. At the end of the day, financial exchange rates could still skyrocket. If, moreover, the demand for money decreases, people switch their pesos into dollars. Those who cannot go to the official market will certainly make dollars.

– There is a commitment made with the IMF to reduce subsidies to public services. Do you think the government will go ahead with rate adjustments if inflation doesn’t come down?

– There is an agreement with the Monetary Fund and Massa has repeated several times that it must be respected. I think that will be the case until the second quarter. I believe that from the middle of the year the Government will forget the agreement and will leave the adjustment of tariffs to the next Government. Nor do I believe that the IMF cares much that this government deviates from its commitment. In short, there will be some reductions in the subsidy, some increases, but everything signed in the agreement will not be respected.

– Could Argentina experience an external shock this year? What should we be more careful about?

– The only shock to hit in 2022 was the price of raw materials due to the Russian invasion of Ukraine. Soybeans are worth almost $600 when they should be $300. We have a drought that will cost us many dollars, and something will be compensated by lower energy imports. Brazil needs to be closely monitored, because global fluctuations affect them and this leads, if something bad happens, to Brazil buying less from us.

– Does Massa have the possibility of giving good news this year?

– It is very limited and therefore has little chance of delivering good news. It depends on meat prices not spiraling out of control and the drought not as bad as it sounds. Your luck will also depend on getting dollars from multilateral organizations and your ability to go along with the creativity of soy dollars or the like. But it is true that with each passing day there is less and less margin.

– Like a century ago, we depend on the rain.

– Unfortunately this is the case, because we have closed the capital account. Nobody lends us. The only way to get dollars is through the commercial account or for agencies to lend us dollars or, perhaps, China.

-Does Massa have a plan ahead of him to get there, as his teammate in Ieral Carlos Melconian says?

– As well as. It’s hard to imagine anything else in this scenario. But it must also be said, in favor of Massa, that if they asked me in June last year if the Government would arrive in January 2023 as it is today, I said no. Massa invented some things and even the ruling party was frightened when he saw himself on the edge of the abyss. What happens is that the ruling party of 2023 believes it will lose the national elections, but the province of Buenos Aires can win.

– And what does it mean?

– It seems to me that they have become bolder than a few months ago. The attack on the Supreme Court was unthinkable in June. Today the ruling party again dares to play with fire because it considers itself far from power rather than close. They are overturning, if you like, Baglini’s theorem.

– Is your reading that the Government is not helping Massa today?

– It would give that impression. It was easier to help with the projects that the Economy was developing, such as money laundering, than to take action against the Court.

– Can the next government today create a scenario of what it will find in 2023, if the opposition wins, or should we wait for what will happen this year?

– From a global point of view it is obvious that a regime change is needed. It implies that you need to give back to the private sector in order to invest, create jobs and grow. It hasn’t happened for 20 years. And rebuild the price system. Today the prices of dollars, tariffs, prepaid cards are segmented… There is no pricing system that can serve as a guide. it has to be done in a context where everyone wants to have their relative best price. But that’s what you can’t, you can’t raise all prices.

– Has the question of whether progress occurs in shocks or gradually has been lost?

– It depends on the policy. One thing is the sequence of the bars, another is how they are announced and another is the instrumentation. I think there will be shocks and gradualness. We need to manage the times according to how the political landscape is. Significant support is needed in Congress and in the provinces. It’s no longer a discussion of shock or gradualism. It is to succeed in the sequence and in the negotiation.

– Will there be the possibility to request a financial lifeline for the transition?

– That life jacket is not available. There is no one to ask. We have already missed this opportunity. In Washington, the credibility of Argentina’s political leadership is nil. Here it is necessary to ensure that politics is convinced of the things that must be done and in other respects to isolate certain economic issues from politics.

– What is that?

– Tax, monetary and foreign exchange matters must be handled professionally. Long-term agreements need to be reached on all these issues. The problem is that since there are no dollars, to gain credibility, the next government must reach strong agreements that can convince economic operators and society that things are serious.

– The issue of exchange rates, the gap, stocks, how are they resolved?

– We’ll have to see what the legacy is. There are caged pesos who want dollars. If the program is powerful and the demand for money responds, it will be possible to advance more or less rapidly.

Source: Clarin

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