Reducing the fiscal deficit to zero in the first year was, always, the goal that Javier Milei set out to achieve if he became president. In the words of Federico Sturzenegger, former head of the Central Bank together with Mauricio Macri, now under accusation and advisor to Milei’s letter, the balance of public accounts should serve as “a seal of trust” for a government that, inevitably, starts full of doubts.
In case it wasn’t clear, let’s talk about a decision that is also destined to be a message intended for the markets, though hastily thrown and hastily armed.
Luis Caputo, another former Macri BCRA and current Minister of Economy, immediately bought the idea and He defends her at all costs. Or rather, it defends the so-called Omnibus Law that Sturzenegger articulated with contributions from different and not always disinterested sources and in which fiscal adjustment is a slogan that appears everywhere; sometimes crudely, as if it were not possible to think of something a little more flexible or deal with more elaborate ideas.
Definitely involved in an online debate tweeting from one side to the other, Caputo played or plays to the limit and uses weapons that are not strictly within his competence but, with a lot of good will, coming from the presidential arsenal. That’s the real Caputo.
He said these days: “The fiscal financial deficit (including debt interest) for 2023 closed at 6.1% of GDP, higher than expected. This government is determined to put an end to this plague that has brought us to the current situation. The commitment to reach zero deficit will not change, whether the law is approved or not, and if any economic articles are rejected there will be provincial appropriations that will be cut immediately.”
Member’s response Miguel Ángel Pichetto, head of the We Make Federal Coalition bloc: ““The Minister of Economy, who did not have the courage to come to Congress, must stop putting pressure on governors and try to find agreements instead of threatening them.”. And contribution to the cause of the vice governor of Río Negro, Pedro Pesatti: “We will have to defend ourselves. In this threat game you respond however you can. And we can literally leave the national government without power.”
If it is not fury or a certain impotence, the move that Milei himself attempted against the governors is at least discouraging: “I will leave you penniless, I will melt you all.”,” he declared before his ministers on Thursday, according to an attendee.
An escalation of threats
None of this is ancient history: everything happened until yesterday and it does not disappear because the Casa Rosada had warned that it was necessary to stop the escalation because the escalation risked collapsing its objectives.
The fact is that, firstly, secondly and thirdly, the shock also happened to hit a government that has not been in power for much more than a month and has not yet taken office; which happens in a country shaken by a deep crisis that asks for a bit of peace and contains the exercise and, finally, because words don’t always go with the wind.
But the ball had to be stopped. And a good way to stop the ball it was remove the tax chapter from center stage, That is, to put under one umbrella the controversial increase in withholding taxes foreseen for both the industrial sector and for the exports of some soy by-products, as well as wheat and corn.
A political relief for the governors of the agricultural provinces, who have to clash with the producers over the decisions of the central power without receiving any withholding taxwhich moreover are left clean of dust and straw in Buenos Aires.
Caputo repeated so many times on Friday that the goal of zero deficit is still valid that it is pertinent to ask why so much insistence.
At a certain point, the answer is at the beginning of this chronicle: because the zero deficit is a direct relative of fiscal adjustment and both aim to guarantee management in line with what the markets are asking for. The following says that the fiscal balance aims for a broader agreement with the IMF and the achievement of the objectives already agreed.
The problem is how to cover the hole left by withholdings. That is, a collection estimated at between 1,500 and 1,600 million dollars which would complete a total package estimated at around 10,000 million dollars, all of which would remain in the coffers of the National Treasury.
Some rope stretched in Washington by the IMF, to pay a near deadline to the IMF itself?
It is clear in this story that support for a law passed by Congress is not the same as for a decree, such as the DNU with which Milei President’s operation began. It is known that a DNU can be lowered with another DNU and, precisely for this reason, the Government remains committed to passing a law that confirms the official nature of the project, even if in fits and starts.
And it is so clear that clearing the mined lands left by Sergio Massa can be anything but a game, which becomes evident as soon as we get into the tax accounts.
The financial deficit equivalent to 6.1% of GDP to which Caputo refers does not take into account the imbalance between income and current expenditure in 2023, also equal to approximately 3% of GDP. All in all, the fiscal legacy left by Kirchnerism is a hole that amounts to 11.3 trillion pesos and which, expressed in dollars at the official exchange rate, means 13.7 billion dollars.
It is obvious that it was not the money or simply a “monetary plan” that caused the fiscal deficit to grow by 260% like that from 2022 to 2023. It also sounds something in common with the old slogan “act before it is too late”. as a good explanation for such a spending party in the last year of Alberto and Cristina’s K cycle administered by candidate Massa.
A sensational example of adjustment was the mistreatment of pensioners in the context of the so-called pension mobility, a formula that combines in half the collection of the ANSeS and the increase in salaries reported by the INDEC.
Private reports warn that as a result of this methodology, minimum pensions have accumulated a $1.9 billion loss in purchasing power over the past six years, even those offset with bonuses. Without bonuses, the withdrawal rises to $2.8 billion.
According to the reform proposed by the libertarians, starting from April mobility will be replaced by a system of indexation of goods linked to the monthly INDEC price index. Until then, quarterly mobility will govern as we know it now; that is, based on past inflation.
And since the new system eats up at least January inflation, one of the disputes with the government concerns inflation compensation that the opposition fronts are asking for. In this case, the Minister of Economy would lose out.
Inflation is truly courageous, appearing to be in the area of 20% per month: some consultancy firms estimate around 25% for January, i.e. similar to the 25.25% in December and the 56% accumulated in just a couple of months. .
In addition to this there is everything and everything is called increases, between January and February. Thanks to already considerably high tariffs, we have electricity and gas; fuel, prepaid cards, buses, trains, subways and the signatures continue.
There is this and a horizon that seems complicated, since the competitiveness gain left by the mid-December devaluation has already been reduced by half and many eyes are already on April and making calculations for April.
Let’s say that here too the Milei-Caputo controversy with the governors doesn’t help much. Instead, the opposite happens: it sows mistrust in the management and strength of the Government. The point seems to be Milei’s inflexibility and an obvious driving problem for Milei.
Source: Clarin
