Domingo Cavallo said the Government’s biggest goal is that inflation will not exceed 80%

Domingo Felipe Cavallo outlined a disturbing economic view and argued that the most hopeful of Alberto Fernández’s government was the inflation does not exceed 80%. Moreover, he saw that the scenario could happen worse if the government agrees to Kirchnerist’s claim to remove Martín Guzmán from office at the request of Vice President Cristina Fernández.

In a post on his personal website titled “Annual inflation not to exceed 80% is the government’s highest expectation,” Cavallo stressed that “despite the continuation of post-pandemic economic reactivation, until 2024 the consequences of economy “and that”The economy is not going to get better, but it could get worse. And many”.

The former Economy Minister pointed out that the government, despite any efforts, will not be able to comply with the agreement with the IMFneither in the field of inflation assumptions in which the program was made, or around the goal of accumulation of foreign reserves.

Moreover, it affirms that in its quarterly review the Fund will provide the “waivers” necessary for disbursements to be carried out allowing payments to be made on the 45 billion loans made by the institution during the government period. of Macri. “IMF will try to prevent Argentina from falling into ¨arrears¨ (arrears) in the institution”Explain.

In this context, Cavallo pointed out that in order to get this action from the IMF, the Government “needs to raise the devaluation rate in the official market as soon as possible (which needs to be between 4 and 5% per month)” , as well as “it needs to raise the Central Bank’s intervention rate (and the rate the Treasury is willing to pay to put debt domestically), to at least 4.7% per month, that is, 56% annual nominal or 73% annual effective”.

“It also needs to make a strong increase in electricity, gas and transportation rates, to make a reduction in economic subsidies of 0.8% of GDP with respect to what was spent in 2021. Alternatively, it will need to it will reduce the cost of capital or other items of the budget, until that reduction is completed as a percentage of basic expenditure, ”he continued.

And that is why, according to his simulation exercise, which he detailed in a series of graphs on which he describes his analysis, he argues that inflation will be “about 72% per year during 2022”but “It can reach 80% if the deviations are prolonged with respect to my forecast already being observed in April ”.

“It is difficult for me to imagine that this government has achieved a better alternative scenario, with Guzmán or any other Minister of the Economy being able to replace him with the current political context. If I think about it the results are even worse if the change of minister is made to accommodate the ideas of those surrounding the Vice President”, Condemned the former Minister of Economy Carlos Menem and Fernando De la Rúa.

The economist also referred to the issue of wages, calculated that there will be increases of 60%but they will still lose against inflation.

He wrote: “In terms of wages, although the government, at the request of unions and as a result of high inflation registered in the last three months, has to accept increases higher than those thought in macroeconomic program (…) whenever we try to reverse the pace of wage growth, inflation leads to an increase and worsening of real wages ”.

“So, even though the unions are asking for an increase of between 50% and 80% for the next 12 months, weWe assume that by 2022 wages will increase by 60%that is, at an average of 4% per month for the whole year, considering that wages in the informal economy are always lagging behind (as seen in table 2) and that, in the public sector, wages will not be can afford to rise by more than 4% per month to meet financial goals.

“On all these assumptions, my estimate is that the inflation rate during 2022 will be approximately 72% per year, that is, 4.5% average per month between April and December 2022,” he concludes. Horse.