Inflation, the dollar, tariffs and the possibility of reorganization

The political system adheres to the fact that fiscal balance is not essential because inflation is a multi-causal phenomenon. The truth is the enormous disorder of the state is the main cause of the recurring inflationary crises. Since former minister Martín Guzmán resigned, the crisis has worsened with a sharp acceleration of inflation and the parallel dollar has gone from $ 238 at the end of June to $ 338. it is not the result of a change of minister, but the build-up of pressure derived from the policies that the former minister applied.

The then minister supported and promoted the widely shared idea, especially in the ruling coalition, that inflation is a multi-causal phenomenon. Therefore, it can be controlled without the need to balance public finances. Indeed, it has been argued that a fiscal austerity strategy could undermine the economic recovery after imprisonment. And, alternatively, it allowed for the application of measures such as wage and price control and exchange rate and tariff delay control (which helped to suppress price index growth, at the cost of generating profound distortions). .

To get some kind of measure or perspective, you can appeal to the BCRA and INDEC data and see the inflationary repression resulting from these tools. Between December 2019 and June 2022, according to these sources, it is observed that inflation, without considering the controlled energy prices, was 192%, the official exchange rate rose by 60% and the gas and gas tariffs electricity paid by households increased by 50%. in itself, This data shows that while prices are under severe upward pressure, the exchange rate and energy tariffs are being used to try to contain this pressure.. The concrete thing is that inflation was three times higher than the official dollar adjustment and four times higher than the energy rate update. The fact that the official dollar rises below inflation generates reserve losses because it discourages exports and encourages imports and purchases abroad. The fact that energy grows well below inflation forces it to issue more money to cover subsidies and requires official dollars because the energy is imported.

This scenario forced to make explicit the need to reduce the fiscal deficit. Apart from this, the measures announced so far are insufficient due to the precarious political sustainability and because their impact will be very limited. Tariff segmentation has been announced, but it is said that it will take several months to achieve savings. Updating the property valuation (another example) to increase tax collection will have medium-term impacts (if achievable). And, on the other hand, putting quotas on the execution of the budget of public bodies deferred expenses, but in the long run they are expenses that are the same. Decidedly, Nothing new under the sun.

Even assuming solid political support for a balanced budget package, the results will continue to be unsatisfactory. Solving the fiscal deficit problem (or attempting to do so) with rudimentary and improvised measures generates more discontent and unpopularity than solutions. The crisis must be seized as an opportunity for an overall organization of the state, instead of repeating traditional fiscal adjustments. And with this comes the ordinance of the pension system, tax simplification, a fiscal correspondence between the jurisdiction that carries out the expenditure and the one that collects and eliminates the overlapping of expenses between the nation, provinces and municipalities.

Federico Pablo Vacalebre is a professor at the CEMA University