“The plan to arrive has not arrived. Massa’s management has run out of GPS”, says the consultant Abeceb assessing the evolution of the economic crisis.
A report drawn up by the team of former minister Dante Sica underlines that “the dramatic inflationary acceleration of recent months and the escalation of free dollars they left the government in the worst of worlds“.
“Massa’s management has been left without GPS. Uncertainty has only increased since the beginning of the year and the fact that fuels it more is that today the economy is in the hands of a politically weakened government that lacks a coherent strategy to mitigate the effects of drought,” they point out.
Private forecasts estimate that the election year will end with a drop in GDP of around 4%. The drought explains at least two percentage points of that withdrawal.
At the same time, the drought exacerbates the shortage of foreign exchange, which means that the Central Bank is already operating with $1,000 million in negative reserves, as reported by clarion last Friday.
“The authorities do not have minimal countercyclical tools – such as a stock of reserves or access to the international credit market – to cushion the consequences of the drop in exports and withholding tax,” Abeceb explains.
cover reactions
“The economic team is running out of tools to fight the instability. Costs similar to those of an adjustment are paid without obtaining the key benefit that this adjustment would have provided: having more tools to stabilize the economy from a deficit.
And they warn that one defining feature of this regime is that “exacerbates private sector cover-up reactions: increasing dollarisation of portfolios, pre-emptive price marking, contract shortening and more frequent requests for salary adjustments”.
In this framework, Abeceb warns that “the likelihood of a disorderly devaluation, with the implosion of securities, increased“.
For the consultant, “when devaluation occurs without a plan, the result is usually a breach of the currency correction which translates into a significant trade surplus – a balm for reserves – but also with significant costs in terms of inflation, recession and decline in real income”.
In the absence of a program, avoiding an exchange rate jump is what today serves as the exclusionary computer of the economic policy of the Frente de Todos. “Today it is dangerous for the market to impose a devaluation without a program; there may be an inflationary acceleration that is difficult to control“.
Along these lines, Abeceb reviews the tools that the government is using and underlines why they don’t work. “Successive interest rate hikes by the Central Bank have made no dent in inflation. With strong inflationary inertia, causality is reversed and it is the interest rate that is forced to adjust for inflation to avoid a currency run“.
Something similar happens with the crawling peg, the daily adjustment applied to the official exchange rate. “In a high-inflation regime, the crawling peg signal serves no purpose in anchoring expectations because it fuels inflationary inertia.”
At the same time, they emphasize this “price controls lose effectiveness”. In a regime of high inflation, the controls stop working: complying with a price control for, say, three months with a monthly inflation of 1% implies much lower costs than with an inflation of 7.7% and a acceleration. Fair pricing will be difficult to fit into the package.”
AQ
Source: Clarin
