As for the closing of his speech opening the legislative year, Javier Milei has launched the proposal to be signed in May with governors and legislators “The ten principles of the Argentine New Order”.
The President has thus put on the table the discussion of a set of fundamental principles for an Argentina that is going through one of the deepest crises in its history.
Failure to seize assets, non-negotiable tax balance, limit public spending to 25% of GDP; a tax reform to reduce the tax burden, another labor reform to encourage formal work; discuss co-participation; pension reform to enable private pension; a political reform; A commitment with the provinces to promote the exploitation of natural resources and opening up to international trade constitute the fulcrum of the initiative launched by Milei.
But in the short term, and in economic matters, this is the definition “the fight against the fiscal deficit is the mother of all battles” consolidates himself as the fulcrum of Milei-Caputo’s management.
And it is complemented by two presidential concepts that reference the recognition on which most of January’s fiscal surplus was based liquefaction (due to the inflationary leap, the purchasing power of pensions, salaries and deposits in pesos has been liquefied) and some “chainsaw” on the “caste”.
A key question these days is how the fiscal adjustment will continue, since according to IARAF calculations “domestic tax collections for the first two months would have fallen by 7% in real terms on an annual basis.”
Taking this into account, doubts will remain about the sustainability of the fiscal adjustment the power to grind public spending on liquefaction is losing strength.
With his 10 points, president Milei tries to build a political bridge to face what he considered the most difficult adjustment period.
Between March and May the Government will have to demonstrate that it can lower the rate single-digit monthly inflation, at the same time, it offers exporters an attractive real exchange rate so they can settle down corn and soybeans.
Furthermore, taking into account that a ton of soybeans is trading slightly above $400, while a year ago it was above $500.
The path is narrow: the stability of the dollar would help calm the cost of living index, but would not encourage exports.
Furthermore, an important brake on the recovery of the economy in the short term, which has been brewing for some time, is now clearly emerging and is given by the growing exposure of banks’ portfolios to the public sector.
Two accounts, one from Dante Sica’s Abeceb and another from Daniel Marx’s Quantum, focus on the problem.
Abeceb states that “the situation presents a restriction that will act as a dead weight in recovery: practically the entire supply of bank deposits is placed in public debt and No credit neither to finance working capital nor to fuel demand for durable goods and investments.
This result was achieved after years, as Quantum highlights, claiming that “between the end of 2019 and 2023 Total lending to the private sector “decreased by 37% in real terms (those in pesos 27% and those in dollars 66%) while the exposure to the public sector increased by 113%.”
With banks’ portfolios full of government bonds (Leliq, repos, central put bills, Treasury bills, etc.) it is difficult to think of a “V”-shaped jump in the level of activity (hitting a floor and rises quickly).
From the regional comparison it emerges that while in Argentina loans to the private sector represent 6% of GDP, in Uruguay they reach 26% and in Chile and Brazil 83% and 72% respectively.
Of course, credit is trust and President Milei’s strategy to generate it is very controversial: he focuses on achieving balance in public finances but, at the same time, plays to fuel an earthquake in political issues.
Gita GopinathIMF Deputy Managing Director, who visited Argentina and met with President Milei and Minister Luis Caputo, highlighted the government’s initial progress in restoring macroeconomic stability, but suggested “proceed pragmatically ensure social and political support, which is essential to ensure the durability and effectiveness of reforms.
Probably the president and the minister could respond with the increase in dollar bonds (from 25 dollars they jumped to 45 in a few weeks), or with the fall of the blue dollar which, hand in hand with a strong shortage of pesos, is 1,050 dollars when in January it had reached 1,255 dollars.
AND this is trust beyond the doubts that persist about the sustainability of the January fiscal surplus (it had not occurred since 2012) which was the product of a 39.1% drop in spending “accompanied by a collection that remained constant in real terms”, according to Abeceb .
Source: Clarin
