As a commentator that look outside the consequences of the economic policy applied by the government that she herself has formatted and integrated, Vice-President Cristina Fernández made a series of statements on the economy on Friday, appealing to the data of reality (high inflation, low wages) and, obviously, to that that should be done. She has distanced herself from the blame and hasn’t shied away from resorting to the tube “We need to sit down and come to an agreement” to get Argentina out of this long and deep crisis.
clarion He turned to two economists to give some sort of response to each of the statements the Vice President made in her Friday speech in Río Negro.
Below are definitions by Cristina Kirchner and comments by Fernando Marengo, Chief Economist at Black Toro Global Investments and the consultancy Arriazu) e Gabriel Camano, of the consulting firm Ledesma and associates.
Cristina Kirchner: “Today we are under a model of financial speculation and this is serious because the most important thing in our society should be well-paid work”.
Fernando Marengo: Argentina must enter a process of sustained growth. To get well-paying wages and out of poverty, growth is needed, and it will grow if there is investment, savings and credible currency. To generate work, savings and a financial system that can lend are needed. It is not financial speculation. And growth depends on the rate of return you get by lending your savings to finance the investment.
Gabriel Camano: It’s very simple: capital flees from very regulatory governments. There may be room for improvement in the policy approaches of all countries.
fm: It is true. The unit of account is the dollar, because for 70 years savers have been cheated through inflation, devaluation, asymmetric weighting, expropriation or bribery. If there’s one thing the Argentine is clear about, it’s that all his excess savings must be kept away from the nation state, not for evasion, but to protect the right to property. Achieving a reliable currency will be a long process, where the first thing is to eliminate inflation.
GC: We have no currency because the peso does not perform the three fundamental functions: unit of account, medium of exchange and store of value. In return we have a two-monetary economy. Daily transactions are made with the peso, savings and store of value, in dollars. This generates a series of consequences and conditions the economic policy that can be applied. Bimonetary is the consequence of 70 years of bad policies from crisis to crisis and the agents learn and cover themselves. The economic policies implemented by the Kirchner governments are part of the problem, not the solution.
CFK:”It has long been said that wage increases are the cause of inflation. In 2015, we had the highest salary in dollars and inflation was 24%.”
fm: Today it is clearly seen in the world that rising wages above productivity causes inflation. When labor costs rise above productivity, wages take a larger share of profits and the rate of return on capital falls. And if this happens, investments fall or, who can, pass them on to prices, generating inflation. In Argentina in 2015 salaries were high in dollars at the official exchange rate and that’s why in 2011 Cristina had to stock up, because her reserves were running out. We have not grown or created jobs since 2012. The real increase in wages is that which arises from greater productivity, and which is obtained with greater investment.
GC: There is much confusion between the cause and the transmission mechanisms of inflation. There may be distributive supply and that explains part of the inflationary process, but it is not the cause. Wages were high in dollars in 2015 because we had the lowest real exchange rate since Convertibility. We had highly valued exchange because of the shares and because to maintain that fiction we had good terms of trade and the government was burning $50 billion in reserves. That level of dollar wages was unsustainable in a fictional trade environment.
CFK: “We have 100% inflation and registered workers with wages below the poverty line”
fm: 100% inflation is a consequence of macroeconomic imbalances. of wanting to generate wealth based on expanding fiscal spending that has no funding. It is financed with pesos that nobody wants. and the loss of reserves appears, the inventories, the gap, the exporter who does not liquidate, the importer who wants to buy all the dollars he can at the official price. And from there more restrictions on imports, more inflation of imported goods, economic recession. This idea of generating wealth out of thin air without investment or growth ends up in higher inflation. One has to ask whether these wages and increases by decree regardless of productivity are not, in part, responsible for the current inflation.
GTC: We had highly valued exchange because of the shares and because to maintain that fiction we had good terms of trade and the government was burning $50 billion in reserves. That level of dollar wages was unsustainable in a fictional trade environment.
CFK: We need to align prices, rates and wages so that growth isn’t taken away by four people, as is happening.
fm: The best thing is that the prices of services are determined by the market, with a logical intervention by the State. But you have to understand that services have a cost. Thinking about the magical idea of giving welfare to people by not paying is what leads us to power outages and we have to import gas.
GTC: His entire government has suffered false inflation statistics. You cannot have trampled on repressed tariffs and prices. Relative prices are totally distorted. We are like this now because what we saw between 2011 and 2015 was repeated: inventories, balance of payments rationing. Stagflation is to be expected if we repeat history. We repeat the same policies and get worse results.
CFK: It is not true that inflation is generated by the fiscal deficit. Furthermore, in times of crisis, the fiscal issue is a tool that serves to avoid recession because if we don’t have recession and inflation, we are in the oven.”
FM: Argentina has a history of fiscal deficits, you always need financing, either through the Central Bank or by issuing debt. And both end badly: more inflation or a debt crisis. What is tragic is the forced fiscal deficit, which means less growth, less investment, less savings and more misery and poverty. The only way to generate growth is to incentivize investments that generate growth
GTC: We can have a fiscal deficit and a demand for pesos that allows us to finance it with inflation-free emissions. Can you pass? Yes, but that’s not what’s happening today. The demand for pesos is very low, people don’t save in pesos, the demand for pesos is unstable. You cannot have sustained and very high deficits. The demand for pesos does not validate it and goes to prices. In some special contexts, a deficit can be financed by issuing. It happened during the pandemic, when the speed of circulation of money decreased and generated an increase in demand. That’s why it could be financed through issuance, as in other countries. But after the pandemic, monetary policy had to be tighter and reduce the deficit quickly, so that the monetary hangover did not affect prices. CFK has precisely opposed this correction.
CFK: “There is no greater catastrophe than the debt that occurred between 2015 and 2019 with the IMF. The deal needs to be reviewed.” .
FM: What the IMF calls for is anecdotal. We have a debt and we have to pay it. We can’t go into default. The debt taken to the IMF was to swap one private debt for another with the Fund. Changed creditor. Not more.
GTC: This government has already renegotiated the conditions with the IMF: they have already renegotiated and already spent the funds that the IMF gave them, which granted them everything they asked for. It’s a soft deal. Indeed, Argentina does what it wants.
CFK: “If we don’t agree on that, we can have 20 dead cows or 80,000 tons of lithium, but we’ll still be short of dollars.”
GM: You must agree how to generate wealth. It is obvious, if we have 40% poor people and 100% inflation. What we were doing failed. you have to agree how to generate wealth. The question is how to capitalize on the potential of Argentina’s most competitive sectors. how is it financed? back to the same. You have to invest, and for this you need financing, savings, attractive rates. The key is to lower inflation. And to reduce it, you can’t have a fiscal deficit and you need exchange rate stability.
GTC: We have agriculture and other sectors that can get us out of the crisis, but if there are no credible and sustainable macroeconomic conditions, we will continue to have a balance of payments deficit and we will continue to lack dollars. It is not easy, it is not possible, to agree with Kirchnerism, for all that we have seen so far. To develop sectors that generate foreign exchange, what you need is a consensus on the minimum macro conditions for the development of the economy. I think it is impossible to agree with this government, for example, on how to achieve fiscal balance.
Source: Clarin
