Batakis and Pesce do with the badger what Guzmán was not encouraged

One of the axioms that economists often (more and more) repeat is that “In economy there is no free lunch”a refined version of the famous saying “Cheap is expensive”. Both ratify what we all know: any benefit, always and everywhere, carries with it a cost that is not yet seen because it is paid for by others.

We Argentines are the champions of this self-deception. The economy is full of examples, especially in the provision of public services, both in energy (tariffs that do not cover production costs and damage the supply network in the most disadvantaged areas) and in public transport.

Batakis faces something similar on a macroeconomic level. You will not get a free lunch. You must choose.

What are these options?

Alternative 1 is the tax advisor. If the Minister of Economy believes that the risks he runs (and they are), the path that awaits him is the one he has taken this week: to increase the average rates of treasury bills (LEDs) which have gone from 72% to 79%. The latter equates to an average inflation rate of 5% per month.

Batakis started the week, in a press conference at 9 am in the Treasury, referring to this point.

“Argentina must follow a path of interest rates in a positive way”. He made it clear that the next competitions for public instruments, with the one on Wednesday, will be held with those parameters. He also announced that the state “will offer other types of instruments” for those who want to invest by hedging against any changes in the exchange rate.

A month ago, just as the debt rush began, Lede rates were at 60%. Former Economy Minister Martín Guzmán was not in favor of high yields because he said they would threaten debt sustainability. That diagnosis led him to underestimate the risk of the foreign exchange market. Had to go. Rates are now almost like inflation, 80% per year.

Is this upload enough?

Some believe so. Pesos will have other alternatives to the dollar. And the Treasury, with the consent of the Central Bank, which does not raise rates so as not to hinder the placements of Finance, will be able to absorb liquidity.

Others warn not. According to Sebastián Menescaldi, economist at Eco Go, unregulated companies will not have incentives to buy the tools offered by Batakis in tenders. First, the guarantee that the Central Bank has put in place to support bond prices is for the banks. Second, funds that already held these instruments and have seen prices fall apart will have a hard time returning to that type of risk. “You have so much uncertainty that the rate is not enough,” says Menescaldi.

And the second option of Batakis?

The fear that if it becomes too fiscal by raising rates, shrinking dollars and lowering public spending (after Guzmán’s first half of expansion), have more social pressure how are you already seeing after your ads. And also politics, of The Campora.

The economy is showing no results despite the government announcing with great fanfare that GDP has risen by 10% in 2021. As can be explained then that the year began with an expected inflation of 60% and many speak of 90% by the end of the year. end of year?? Or that as the business grows, informal work is a record and there are 5.1 million informal wage jobs?

Yesterday the Central did not change the rate of economic policy. New broker announced. All effective annual rates are negative (see separate).

The IMF says so (off). the Argentine economy is overheated. And that to reverse this “there are no free lunches”. Batakis and Pesce know this. Rates will have to go up. More.