Federico Moll is the director of Ecolatina, one of the most prestigious consultancy firms on the local market. Talking to Clarín, the economist points out that nobody wants to finance the departure of a government. “The bomb didn’t go off, but the standard of living is the worst in a decade.”
– What can happen to the economy until the elections?
– The government has many incentives to keep income from deteriorating further. The first objective is not to validate an exchange rate jump in the formal market, which has been on the table for more than a year. At the same time, it doesn’t have many tools to increase activity and consumption. Within this framework, it will try to support itself from now until the elections. Exchange rate tensions will continue to grow and will need to apply new patches. This means fewer companies able to access the formal market and tensions in parallel markets in a context of stagnation.
– Is there a story of a Peronist government electoral campaign in such a complicated scenario?
– The 2011 elections were reached with stocks and little leeway, in 2015 it was unsustainable and, in these elections, it went to the extreme. Kirchnerism has always been adept at throwing problems forward and making imbalances touch one another. Now it’s a bomb about to explode.
– Is it a virtue that the bomb doesn’t explode?
– The accumulation of imbalances has led us to a per capita GDP significantly lower than that of 2011. It is difficult to find a country that has had such a sharp decline in 10 years. It is a growth problem related to productivity problems. There is no social bomb because there is a state containment network.
– After 8.4% inflation in April, some projections are approaching double digits in May, why is it still accelerating?
– For 2023, we expect 130% inflation with monthly levels similar to what we have seen. It is unlikely that it will decrease when the Government cannot bring down the exchange rate due to imbalances and at the same time there are parities around 120/130%. If the two main costs of companies grow at around 8% per month, inflation will not slow down. Even more so if the official exchange rate becomes less relevant and companies take into account the parallel. To slow down, you need a stabilization plan.
– Can the situation get worse after the elections?
– There has been a process of worsening of the socio-economic level of households since 2011 and it is unlikely that it will change in 2025. The imbalances will have to be paid for in 2024 with very marked variations, which are recessive in the short term. We cannot continue to be the most closed economy in the world, with an unfinanceable fiscal deficit, central bank debt, current tariff levels and official exchange rates. It is best to get it right in the beginning so as not to lose political capital. But if you want to fix everything at the same time, release the stock on day one, fix the rates, inflation will be higher. There will be short sheets everywhere and government will be born weak.
– What can the Government do to recover the “economic vote”?
– Has no tools to improve income in real terms, some bonuses won’t change the equation. The most affected sector is that of the middle class, which in recent years has not had the social safety nets of the state. At the same time, equal payments are not the main source of income and the lower middle class thrives on odd jobs. A retiree and appropriation bonus is doable, but it’s hard to reverse it because any move in consumption will generate imports and accelerate inflation, anything that shifts one side can complicate the other.
– The government has agreed with the banks to increase the credit card debt limit…
– The level of household indebtedness is at an all-time low, not only because there is no mortgage credit, the commitment to purchase a car is very limited, consumption has only been supported by credit card, but because banks have an incentive to finance the Treasury and not households, which is reasonable with poverty rates of 40%, card consumption has lagged behind. Today the black card for a high economic sector is not used to buy a refrigerator. That they raise the ceiling by 30% is not very relevant. And if they lower the rate, it doesn’t imply a consumption boom.
– The BCRA bought foreign currency in the last two weeks, but keeps losing reserves, why?
– The foreign exchange market is very stressed, net reserves are negative, unlikely to change in the coming months, hence the desperation to find alternative sources of funding to sustain itself until the elections. Several doors have been closed to them, nobody wants to finance the exit of a government and it is reasonable. Nor does it imply that they hold people’s deposits, going forward they just need to adjust imports, inflation will tend to linger or there could be a larger shortage.
– In a few days the soybean dollar runs out, are the reserves sufficient to reach the PASO?
– The government may no longer lose dollars in the previous one at the cost of making the official dollar irrelevant. If you kick importers at the parallel exchange rate, you will no longer lose dollars, what you will have is a very major inflationary process. In between, reserves can slowly be lost and elections can be reached in a context of maximum tension.
– Did the last bullfight open up a scenario of greater fragility?
– The level of fragility is continuously increasing, as are the indicators of poverty. Macri said “judge me by poverty” and it makes sense. It is an indicator that reflects income, prices and the labor market, it doesn’t stop growing when you see the moving average. This speaks of a very high level of fragility.
– Massa expects upfront disbursements of up to 6,000 million dollars in June…
– If they give it to it, the government could lose reserves faster, which would give it room to improve revenue. I don’t see any incentives from the IMF to give them the money to go to elections. Those funds will be lost supporting dollar appreciation and a very large gap, there’s no incentive for a lender to do that. Unless Argentina gets into unorthodox debt, no one is going to bet money that they know is about to disappear. He can give you the advance to pay between now and the change of government. If the government doesn’t spend it, it’s useless. And if you do, you won’t be able to pay the Fund later. I don’t see that they give you anything, they will continue with the established schedule, don’t count on fresh money from the Fund.
Source: Clarin
