Dante Sica: “Difficult to see a change with Cristina calling for a popular rebellion”

– The Central Bank closed the week by buying dollars, with the tension on the exchange rate giving way and the bonds rising, why so much difference compared to a month ago when the blue had reached 350 dollars?

– Two things generated calm. A favorable international context for bonds in this last month and the orientation of the measures of the Ministry of Economy in recent weeks.

– The worst is over?

– It is very difficult to think of a change in expectations for the economy and sustained over time with the vice president, Cristina Fernández, calling for a popular rebellion. Economic policy is based on a still unstable political context.

– How do you see Sergio Massa?

– It has managed to buy time in terms of funding and to give some signals in terms of fiscal adjustment.

– Are the announced measures a fiscal adjustment? Because expansionary measures have also been announced, such as aid to pensioners that go in the opposite direction to the tax savings promised by the minister.

– The announcements are in the direction of a reduction in spending if we take into account that the budget deficit would have closed this year at 3.5% of GDP. Spending in the first part of the year grew by 12% in real terms. What is clear is that up to now spending falls on the private sector and not on the public sector, as can be seen with the advance of personal income tax or the readjustment of rates. And it must also be taken into account that the adjustment is not felt but only with its announcements it has generated situations of conflict with CGT, airlines, social movements and the tariff issue is still missing.

– What about the rest of the plan?

– I don’t see a coherent economic program. They are interlocking measures. Neither on the dollar front nor on the inflation front were there any concrete signs. We are with a central bank with near-negative net cash reserves.

– But is it enough to respect the IMF?

– No, even with these measures we are far from the target with the IMF.

– Is a jump in the dollar avoidable?

– The government tries to avoid a sharp correction in the dollar price by all means. On the one hand, we have an overvalued free exchange rate and an undervalued official exchange rate. All this generates signs of expectation of devaluation and, therefore, of delay in the liquidation of exports. On the other hand, there is the progress of imports. What does this government strategy imply? That what I describe and do to avoid the dollar correction results in more currency restrictions which negatively impact the level of activity. We see companies that lower the level of production, lack of spare parts, etc.

– But do you arrive without devaluing at the end of the year?

– It will maximize the few degrees of freedom it has. You can still open the foreign exchange market. But try to avoid the inexorable; sooner or later the dollar price will adjust. The ideal is that the government does it in an orderly manner and not the market imposing the correction. A change in the dollar without accompanying measures will generate a jump in inflation and an even more severe contraction in activity.

– A division would help?

– It would help the business world, the planning horizon of companies. Businesses have lost the north because the economy in Argentina is already discussed week after week and month after month. But the split is not the final solution even for the economy as a whole.

– Gabriel Rubinstein, Deputy Minister, is working on the program for 2023 and the Budget project will be presented in a few weeks, what do you have to watch out for in the next 15 days?

– To see if the government presents a budget based on the deficit of 1.9% of GDP signed with the IMF for 2023. The results of Massa’s tour in the United States are also important to find out if Argentina will opt for a waiver or reschedule goals. It is also important to see what inflation and growth expectations are on the balance sheet.

– Continuing into 2023, we are at a time when companies are starting to close their projects for the next year. Making futurology that costs nothing, how do you see it?

– More difficult than in other years, the picture is one of greater uncertainty. Massa would have oversold his arrival to the government by saying that he had an economic program that would have given him greater certainty. And what we are seeing is a Massa acting just like the President, postponing decisions and consulting the Vice President, Cristina Fernández, in political terms. But if we are with economic uncertainty, at the same time we have a political situation that accentuates the economic problems. So it’s hard to look to 2023 for businesses when it’s hard to see the end of 2022 in terms of numbers.

– Will inflation in 2023 be lower, equal or higher?

– In the best possible scenario, it will be equal to or greater than that of 2022. The speed of inertia and the measures that are being taken without a substantial program do not reduce the likelihood of a major crisis scenario in the coming months.

– What can happen to the economy in 2023 depending on the election calendar?

-The first part of the year will be conditioned by who will be the candidates on each of the fronts. After the PASO, another expectation will come which, to the extent that the opposition confirms that it is a competitive option to replace this government, can help to have a calmer second half in terms of tensions with the dollar and inflation. In other words, the flip side of what happened to us in 2019 after the PASO.

– If you win PvC: would you grab a more difficult or easier to manage economy than in 2015?

– If the elections were held today, the economic conditions are worse than in 2015. Poverty is greater and deficits are not financed.

– Macri opted for fiscal gradualism and currency shock. What will he play in 2023?

– The crisis is not asymptomatic now as it was in 2015. Disenchantment with the state and increased inflation mean that starting the program in 2023 must be very powerful. Social conditions leave no room for gradualism.

– What are you thinking?

– That macro-reforms are not only necessary to recover fiscal and monetary institutions. Micro-reforms are also needed: modernization of the labor system, the state and integration into the world of many activities.

– Why does the economy go on and the balance sheets of companies do not have significant debts, are they quite healthy?

– Companies work in an almost closed economy, with high inflation and an exchange rate gap. People and companies get rid of money and consume by trying to anticipate imports or protect themselves from inflation. Companies have no debt because there is no credit and because they have no investment plans. The downside is that there is no money deposited in the financial system. Almost 70% of the credit available in Argentina was consumed by the state.

– What opportunities does the world have today for Argentina?

– As usual. Energy, food and tourism. On these three fronts there has been a change from before the pandemic and Argentina has an advantage there. Mercosur should take advantage of this window of opportunity to close the deal with the European Union and become preferred suppliers in a context where it will have problems with Russia. There is still an important window.

– Can I advance in the EU Mercosur agreement?

Lula’s speech in Brazil goes in the opposite direction and Argentina is unfortunately aligning itself with what Cecilia Todesca said this week at the last meeting of the common market in Uruguay. They propose that in order to move forward in the Mercosur-EU agreement, the agreement must be reopened to discuss other issues. There is no opportunity, I insist, to become privileged suppliers of the EU.

Between ABC and JxC

Dante Sica was Minister of Production and Labor of the government of Mauricio Macri 2018-2019. He and Secretary of Industry with Eduardo Duhalde in 2002. he Maintains a dialogue with the former president of JxC and is also close to the space of Patricia Bullrich. He is a founding partner of the consulting firm abeceb.com and one of the economists who best knows how the real economy works and how it trades with Brazil.