How the loss of pensions and the increase in interest rates are paying the bill for the agreement with the IMF

This is a technical report on how Sergio Massa managed to fulfill the agreement with the IMF at the end of last year.

The work contains very cautious words but the conclusions are sensational and with a bleak vision on the possibilities of the government to obtain a reduction of the fiscal deficit in the election year.

Concepts like “creative accounting”“accounting trick” or “cosmetics” clarify the government’s fiscal actions in the second half of last year when the jump in inflation allowed the Treasury to cover up a major accounting adjustment, one that Cristina Kirchner had questioned at the ex Minister Martin Guzman.

The consultant’s report equilibrium (Diego Bossio/Martín Rapetti) argues that in 2022 the primary fiscal deficit was reduced by 0.7% of GDP and therefore the government managed to exceed the target with the IMF obtaining a deficit result of 2.4% of GDP.

He adds that there are two major reasons for the decline in spending which were “cutting of social benefits and poor implementation of energy subsidiesIn other words, the real adjustment of pensions and pensions and the relaunch of energy subsidies together with the segmented increase in electricity, gas and transport tariffs.

In case of retirements the work points out that “were -in real terms- 12% lower” compared to the previous year and “family allowances are down, deflated, by 42 percent.”

The funds transfer to subsidize rates decreased by 79% even if, he clarifies, that part of this reduction was generated in the “tariff segmentation and in the reduction of production costs”.

The fiscal adjustment was strong, especially in the second half of 2022, when inflation soared to 94.8% annually and eroded pension and other social benefits.

One question revolves around the government’s ability to meet this election year with the fiscal deficit target of 1.9% of GDP which would imply a greater adjustment of public expenditure and a higher level of collection. Will there be more creative accounting or the like?

The answer is pending but some pointers are worth analyzing.

The forecasts agree that as a result of the Drought fewer dollars will come from agricultural exports. The question revolves around the extent and decrease in the amount of income.

Estimates of losses due to drought range from 8 billion dollars as far as $15 billion and which Minister Sergio Massa has already resorted to two silver bullets (soybean dollar 1 and 2) which would have anticipated foreign exchange earnings from exports and has at stake the repurchase of global bonds which could be brought $1 billion of central bank reserves.

In recent rounds, the Central Bank has sold more dollars than it bought, while the market has maintained its upward trend of the blue dollar and the exchange rate gap.

The blue at a record $386 a 23% increase year-to-date and it signals the level of uncertainty around the government’s ability to manage the foreign exchange market, which has been in and out of policy during the week to address the possibility of excess pesos surrounding the market.

The Central Bank first increased the overnight rate of mutual funds to place the liquid surpluses, but after a few hours it had to moderate this increase due to the the banks claim because this implied a threat to the collection of funds through lucrative checking accounts.

Paradoxically, this episode brought to light the labyrinth of the peso market which, given the company surpluses and the lack of demand from the private sector, has the Centrale as Big Brother who sees it all and tries to contain the leaks and leaks to a highly constrained foreign exchange market.

The Central Bank issues pesos through a window that goes to a market that seeks to avoid them by placing them in fixed-term mutual funds or mutuals that will lend them at the end of the day to the Central Bank in 24-hour pass operations or Cash Letters that accumulate hence liabilities (above $1.6 trillion) that accrue monthly interest averaging 6% per month. The mountain of weights continues to grow and expands in the face of an economy that tends to slow down.