The Government faces a decisive year with the limits imposed by an economy with high inflation, a lack of dollars and a slowdown in activity. In this context and conditioned by the agreement with the IMF, “Economic policy will be very different from what Peronism is used to in election years”indicates a report from consulting firm Analytica.
It alludes to the classic tools to stimulate consumption and improvements for people’s pockets that officialisms usually apply to download a result. “There is no room for another Piano Platita because the abyss is very close and the Government is aware of the situation”, summarizes Claudio Caprarulo, of Analytica.
Words more, words less, most pundits argue that the economic team’s best bet is to lower inflation and avoid a leap in financial dollars. “The risk is arriving at the polls with inflation at 7%,” adds Caprarulo.
The specter of instability hovers over all analyses: on the one hand, due to the commitment to the IMF by reduce the primary deficit from 2.4% to 1.9% of GDP this year. But not only. There is a crossroads between the reactivation of the economy (which implies higher imports with scarcity of foreign currency) and the containment of prices. “The priority is to lower inflation because the risk of a failure to control exchange rates is high and inflationary”, analyzes Federico Furiase, of Anker.
There is a direct line between inflation, the purchasing power of wages, consumption and social humour. In the current situation, experts say, “election spending will be seriously limited,” emphasizes economist Sebastián Menescaldi, associate director of Eco Go. “There is little room to expand spending,” adds Furiase emphatically.
In the crosshairs are the “typical” variables of election years. Such as, for example, raising the exchange rate to lower prices and improve wages, or issuing money to put money on the street (bonuses, social assistance or subsidies) or measures to stimulate consumption (payment plans). “There is no fiscal use possible without the costs of inflation and the exchange rate gap,” Furiase explains.
Like other economists, Menescaldi does not rule out such actions. “Surely measures will be implemented to sweeten the pockets of the workers, but their duration will probably be shorter than on other occasions and their effect is only ‘propaganda’ and not real,” he clarifies.
“The country is once again faced with budgetary constraints. This is a lack of finance to face the deficit plus debt maturities”, interprets Fernando Marengo, of Arriazu Macroanalistas. Faced with this, the economist proposes two alternatives. One is to accept the scarcity of resources and “implement an austere fiscal policy”. The other “is to ignore the lack of finance and seek to expand spending, which could moderate the recession at the cost of higher inflation, a greater loss of BCRA reserves and a widening exchange rate gap.”
It is a very narrow gorge, very similar to the one faced by the government of Mauricio Macri in 2019. “The crisis forces the economic team to sustain a path of contraction to avoid a new inflationary shock,” says the report by Analytica, the consultancy firm led by economist Ricardo Delgado. “No matter the setting, the market is very attentive to any last-minute swerves”, says Caprarulo.
The fear is that a new price flash will occur in the previous elections. Inflation last year rose to 94.5% and private advisors expect a minimum of 85% by 2023. Natacha Izquierdo, of Abeceb, says that with inflation this high, with fewer dollars (effect of the drought) and more inventories than imports, the only thing that sustains consumption is the lack of savings alternatives. “Because pesos burn,” she says.
Cabotage tourism (gastronomy, hotels), real estate, construction (renovation or spare parts) and semi-durable goods, among others, have more possibilities in this particular context. On the other hand, what is more complicated is consumer financing due to its higher cost. “In an economy with high inflation and record interest rates, credit in banks falls and the debt balance of households also falls”, indicates a study by First Capital.
On the one hand, there is less installment offer and the terms are shorter. The result is in sight and the figures are convincing. The average debt per household in real terms (inflation discounted) rose from $110,000 in July 2018 to nearly $71,000 in June 2022. Guillermo Barbero of First Capital says the final amount of a product to be financed, between principal and interests, it is always higher. “At current rates, buying a refrigerator in 12 installments doubles the cost. How scary”, he defines.
For Menescaldi, loans against pawnbrokers (for the purchase of cars and motorcycles) and mortgages have fallen more. “There are two factors. Rising cost of credit and rising prices of goods above wages. When confidence falls and prospects fail, the tendency is to consume less,” said the economist.
Therefore, specialists believe that the only way to stimulate sales is to control inflation. “The best option (of the governing party) is to be a good storm pilot,” says Caprarulo, aiming to avoid a sudden jump in financial dollar prices at all costs.
“The increase in the official exchange rate may have slowed down a bit, but not much because there are no reserves. There are also no possibilities to expand spending, because there is no funding,” Furiase analyzes.
Consumption, therefore, has little chance of progress. It is a variable that depends on two things: the purchasing power of wages and credit. These are the two keys to the electoral year that has just begun.
Odds and Price Control: Wet fireworks
The crisis wears out old formulas for stimulating consumption. The strategy of carrying out price controls to fight inflation is also losing steam. On Friday, the government launched a new version of fair prices, expanded to nearly 50,000 products, containing a basket of 2,000 frozen products for 5 months and a ceiling increase of 3.2% per month for all others.
All at attractive prices. Inflation for 2022 was close to 95% and for this year the consultants expect an 85% floor, provided that the crisis does not worsen. Economy Minister Sergio Massa’s “Plan Llargar” faces numerous challenges, in a year in which a lower inflow of dollars is expected (due to drought) and an adjustment of the fiscal deficit committed to the agreement with the IMF.
The government has few tools to expand spending and stimulate consumption to improve the social mood. The installment plans with subsidized rates are no longer effective, as was the case with Ahora 30 (which offered very mediocre results). Due to the increase in interest rates, in 2022 credit to the private sector contracted by 14%. In the year-over-year comparison, consumer bank loans were the hardest hit: they fell by 16% in real terms, according to sources in the financial sector.
An example case is the Mi Moto Plan, which allows the purchase of motorcycles in subsidized installments through Banco Nación. Since it took effect in late 2020 to date, they have accounted for just 1% of total sales.
Now 30 was a plan that made it possible to finance the purchase of TVs, air conditioning, mobile phones, washing machines and refrigerators in 30 fixed installments and went into effect on 22 October. The program failed, mostly because the huge number of transaction rejections due to the low rate that credit cards generally have.
“In an economy with high inflation and record interest rates, credit in banks collapses and also the debt balance of households”, indicates a study by First Capital. On the one hand there is less offer of installments and on the other hand the terms are shorter. The result is in sight and the figures are convincing.
The average debt per household in real terms (inflation discounted) rose from $110,000 in July 2018 to nearly $71,000 in June 2022. Guillermo Barbero of First Capital says the final amount of a product to be financed, between principal and interests, it is always higher. “At current rates, buying a refrigerator in 12 installments doubles the cost. How frightening”, adds Barbero.
This Friday, with an act presided over by Massa, the Government relaunched Fair prices. The new edition covers 49,832 items (with maximum increases of 3.2% per month), as established by mutual agreement with 482 companies of over 15 different items, including consumer goods, laboratories, textiles, clothing, sports shoes, cosmetics and even inputs industrial . “It’s a voluntary guideline for ordering prices”they proclaim at Tombolini.
So far, and despite government efforts, price controls have never worked. During the current administration there were already 5 secretaries of commerce who tried it in different ways: Paula Español, Roberto Feletti, Guillermo Hang, Martín Pollera and Tombolini.
Regardless of the name and the emphasis on enforcement, inflation hasn’t stopped rising. After having scored 7.4% in July following the resignation of Martín Guzmán, the cost of living fell until November (4.9%). In December it rose to 5.1% and, for private consultants, it would have rebounded a little more in January, forecasts range between 5 and 6%.
“Inflation is the worst poison an economy has because it is a loss of value of money, a loss of value of wages, a loss of value of assets, but also because it means that there are no rules.” Massa underlined, at the relaunch ceremony, in this new expanded version of Prici Giusti, with which it seeks to establish reference prices for almost all categories of consumers.
Source: Clarin
