Signs of an election year and a vulnerable economy can soothe or exacerbate expectations. In PASO 2019, without going very far, a currency race was generated, an acceleration of inflation and a decline in Argentine sovereign bonds and equities. In 2015 the situation was reversed. Expectations to “reduce” the fiscal deficit, adjust public service tariffs and raise foreign exchange bonds have generated a rally in Argentine paper (bonds and shares). Today the debate revolves around the economic legacy in view of the economic plan of the next administration.
Cooperation will be essential so that the economic transition up to 2024 is not traumatic. However, incentives are not always aligned. Improper management of the fiscal situation in a year like this or poor management of BCRA reserves can trigger devaluation expectations and generate a jump in the exchange rate gap. The last election had swap events. In 2011 the exchange was installed, in December 2015 the devaluation and unification of the exchange and in 2019 the leap of the post-PASO exchange rate which generated a surge in inflation and a decline in economic activity.
To compare the inheritance received from the last administrations it is necessary to analyze the main macroeconomic and financial variables. The ideal scenario is one in which they cooperate so that the crisis does not precipitate. In short, keep your promise meet the fiscal targets agreed with the IMF and not add noise to peso debt, which can trigger a new run. However, as adjustments have to be made and nobody wants to pay the cost, the incentives are outdated.
GDP
As a first variable, to analyze inheritances, we have GDP growth. In 2015, the economy grew. According to the INDEC, GDP increased by 2.7% (2014 was a year of devaluation and recession). Conversely, 2019 was a recessionary year. The economy contract 2.7% and has accumulated a decline in GDP for 2 consecutive years (2018 and 2019). By 2023, private consultants estimate that the economy will stagnate and grow by just 0.5%.
Inflation
As a second point, Before the 2015 elections, inflation was back to its cruising speed, 25%/27% a year, after the leap due to the devaluation of January 2014 (which triggered inflation above 40% per year). In April 2018, there was a change in the inflation regime. The dollar went from $20.4 in April 2018 to $40.8 at the end of September. Inflation went from 25.5% in the previous 12 months to 55.7% accumulated in the following 12 months. In the post-PASO 2019 devaluation, the official dollar dropped from $45 to $60 and inflation accelerated. 2019 closed with an annual inflation of 53.8%.. The pandemic and the harsh quarantine have generated a temporary break with inflationary inertia. Inflation rose from 53.8% year-on-year in 2019 to 36.1% year-on-year in December 2020. Once the economy opened up, with the 2020 monetary issue and the widening exchange rate gap, it picked up speed again. According to the BCRA’s REM, inflation will reach 97.5% annually in 2023. Highest inflation rate in a presidential election year since 1989.
Dollar
It is well known that the deferment of the official dollar as an anti-inflation measure is a recurring element in election years.. In non-election years, the exchange rate lag is likely to be partially corrected, as devaluation carries a social cost. As of November 2015, the official dollar was $9.6. That equates to about $168 in today’s values (11% less than the current official dollar). With the post-PASO devaluation (2019), the official dollar changed from $45 to $60. By pesos of Today, the December 2019 effective dollar is $243 a dollar. That is, a dollar 28% higher than the current $190 dollar (approximately). The official dollar, as of early 2023, is among the prices of the last 2 presidential elections.
tax accounts
For his part, the fiscal red (primary) in 2015 was 3.8% of GDP. In 2016, fiscal accounts worsened and reached 4.8% of GDPI. In 2019, according to the IMF and the devaluation through, government spending items were liquefied and export withholding taxes were generalized. The year therefore closed with an almost primary fiscal balance (-0.4% of GDP). One of the items that explained much of the primary fiscal deficit was “economic subsidies” (public services). In 2015 they were 3.5% of GDP, in 2019 1.6% of GDP and in 2022 2.6% of GDP (due to skyrocketing international energy prices). In 2023, the fiscal target is 1.9% of GDP. By itself, that means a further adjustment in spending social, pension and pensions and economic subsidies.
currency gap
The exchange rate gap averaged 47% in 2015, before the December 2015 exchange rate unification it was 59%. After the PASO in August 2019, an exchange rate gap of less than 12% was generated in September and October before the presidential elections. The exchange rate gap is currently 100%. A level harmful to the real economy, which generates distortions in foreign trade and makes it difficult for the BCRA to accumulate reserves.
Reservations
Now, the great Achilles heel, which shows the degree of vulnerability of the economy in 2023, and he reserve level net of BCRA. As of December 2015, net reserves were in the red (US$ -1.5 billion). Currently, and beyond the dollar revenue from export collection, net reserves stand at a level of approximately US$5.7 billion.
Leliq and pass
Another of the hot spots are the remunerated liabilities of the BCRA (Leliq and Pass). It should be noted that more than 7% of GDP was issued to cover the fiscal deficit in 2020. As of December 2015, the stock was $320,000 million, equal to 5.6% of GDP. Thereafter, the stock soared to nearly 11% of GDP, before the 2018 run. Thereafter, it liquefied due to accelerating inflation and closed at 5.1% in December 2019 ($1. 1 trillion). WhatWhat is the situation today? The stock is approaching $11 billion (12% of GDP) at an annual interest rate of 75%. That is, an effective interest rate of 107%. Simply put, the stock doubles in less than 12 months. The tariff delay, at the end of 2015, in the case of electricity, was significant. According to a report by the Congressional Budget Office (OPC), in 2015 the average rental price paid by users covered only 32% of the cost. In 2019, it reached 69% after adjustments up to the eve of the presidential election. Today, as reported by OPC, the price covers 47% of the cost of wholesale generation.
Income
If we look at income, think about salaries and take the RIPTE (Average Taxable Remuneration of Stable Workers), expressed in pesos in December 2022, at the end of 2015 they stood at 252,800 dollars. As of December 2019, the RIPTE was $198,439 (21% less than December 2015). And currently, the median salary is $194,175, which is 23% less than in December 2015. In the case of minimum retirement, the scenario is similar. The minimum Retirement Credit is $50,125. As of December 2015, it was $68,798 and as of December 2019, it was $56,132. In recent weeks, the issue of debt in pesos has been at the center of debate. Another key point for the next management. The stock of short-term debt in pesos (2023 and 2024) is $19.9 trillion (or about $52.35 billion per blue dollar). Of these, 7 trillion are in the hands of the private sector and almost 13 trillion come from public creditors (BCRA, FGS de ANSES, among others). The deadline profile stacks up in the election preview. $8.8 trillion accrues between April and July. If the debt roll-over starts to be constrained, it could generate an apparent trigger in the exchange rate gap.
In short, cooperation is vital to appease expectations and consensus to correct the foundations of the macroeconomy and not prolong or add further distortions to existing ones.
NS
Source: Clarin
