By Sebastiano Menescaldi
Associate Director of Eco Go
In all election years, the governments of the day look for different tools to consolidate and increase their electoral base, both through an increase in public spending, a reduction in taxes or an increase in family transfers. All policies that economists call “expansive” and whose effectiveness depends mainly on maintaining a stable macroeconomy.
The particularity that will have this year is that election spending will be severely limited, in continuity with the agreement signed with the IMF. According to the agreed targets, the primary deficit is projected to decline this year from the 2.4% of GDP observed in 2022 to 1.9%. All of this is conditional on falling income in terms of GDP and exacerbates the need to adjust fiscal spending to reduce the deficit.
According to initial estimates, the only electoral expenditure that would be incurred would be that of public works. Linked to loans obtained abroad, spending on construction would be similar to that of 2022, around 1.6% of GDP. This would allow to support the main tool that contributes to a depressed activity. Works related to energy, roads and water are those that bring the largest outlays.
It will be different what happens with subsidies and transfers. Updating the tariffs of public services (electricity, water, electricity and public transport) by eliminating subsidies will lead to a reduction in disposable income for households equal to 0.6% of GDP or the equivalent of a loss to the household of $80,000 a year.
On the other hand, social benefits would also suffer. After reaching 3.8% of GDP in assistance in 2022, these values will return to 2.9% in 2023. to support and increase income levels until the first half of 2022.
Today this aid, which accounts for nearly 6% of household income, declined in real terms by 12.5% year-on-year in the last quarter of last year and is not expected to recover throughout 2023.
Finally, pensions would also remain at minimum values in real terms and accumulate a deterioration of 11% compared to the values at the end of 2019. There is no improvement on this front either.
The problem here lies mainly in the Government’s poor financing capacity, with foreign credit closed, the need for net payments for services with the IMF and limited to the will of the local market (frightened by the possible risk of political transition). to finance excess costs.
It is clear that, with annualized inflation at 100% and the prospect of a dollar shortage, issuing more pesos to finance larger transfers is not an option. It will only lead to a further deterioration in expectations and a new jump in prices that will liquefy any improvement.
Therefore, the economic policy options to improve citizens’ pockets appear seriously limited. Some progress could only be made if “rabbits” appeared. which temporarily make it possible to find more resources (or postpone disbursements or tax payments), but which are not consistent with the long term and lead to a deterioration of public assets in general.
We are also not saying that these policies will not be introduced. Measures to soften the pockets of workers will certainly be implemented, but their duration will probably be shorter than on other occasions and their effect is only “propaganda” and not real.
On the other hand, even the macro does not help an authentic recomposition of household income. Without expectations and with high inflation, economic activity has been stagnant for more than a year and the lack of foreign exchange suggests a deterioration in 2023. Thus, real household income, which today stands at levels below 12 % compared to the values of 2015 and similar to those of 2019, they also do not have expectations of continuing to improve.
In this context, perhaps the best electoral policy, given the fragility of the economy, will simply be to try to prevent the ship from capsizing and to get it to port as fully as possible, taking into account the problems to be expected along the way.
Source: Clarin
