What is the way out of the crisis in Argentina? 5 economists give their vision

( Spanish) — Argentina is looking for a way out of the exchange rate and inflation crisis in which it is immersed and which seems to give no respite: the peso has devalued against the dollar in the informal market, the country risk remains high and year-on-year inflation in June was 64 % and is expected to continue growing, all amid a drop in GDP in recent years and poverty that remains high.

The country is thus dragging major problems that it has not been able to resolve, including a high deficit in public accounts and a significant monetary issue, especially during the covid-19 pandemic; an economy and informal jobs on the rise; shortage of reserves and liquidity to meet debt payments; subsidized energy tariffs in the context of rising oil and gas prices due to the war in Ukraine; and an eternal distrust in the peso and the economy in general, built from crisis to crisis, among other factors.

But how can you get out of this economic crisis?

consulted different economists, who contributed their views on the situation in Argentina.

Marina Dal Poggeto
Economist and executive director of the consulting firm EcoGo

“Two things are needed: a horizon to make decisions that do not cover a single government, and governance to make those decisions. You urgently need a stabilization program, which starts with price correction and narrowing the exchange rate gap, and reduce the fiscal imbalance “.

“But it will not last if progress is not made with structural reforms that give the economy air, and for that, systemic competitiveness must be increased: half the price of products are taxes, but the collection is 30% due to informality. This structure must be changed: improve the labor market, informality and the public sector. You cannot have a universal pension system (administration of retirement funds) where everyone retires with so few contributions.”

“But you have the unions, social movements, governors, and local businessmen who benefit from the status quo.”

Martin Kalos
Economist and director of EPyCA Consultores

“Today the economic problem requires a political solution. The internal one in the government coalition prevents the decisions that need to be made, and it is a problem that has lasted several years: the lack of coordination between the economic policy of the Ministry of Economy, the monetary policy of the Central Bank and the Energy policy of the Secretariat”.

“In the case of Argentine energy policy, today it is more crucially a discussion about tariffs in homes and industries and subsidies, because tariffs do not cover the cost. For more than a decade, Argentina had a policy of delaying tariffs: the Expenditure on energy subsidies will exceed 2.5% of GDP in 2022 and largely explains the fiscal deficit”.

“This deficit has been financed for 4 years with issuance because Argentina does not have access to markets and new indebtedness, and this affects the acceleration of inflation. By not adjusting rates, we are adjusting pensions and social rates.”

“A first solution is to start drastically reducing energy subsidies, to save part of that money and on the other hand use it better, for example with direct transfers to households with difficulties to make ends meet.”

“Monetary policy should focus on the run (Editor’s note: the devaluation of the peso in the informal market). The measures announced these days were uncoordinated and do not attack the underlying problem.”

“And then you have to take measures: it has to imply the rationalization of resources like the one mentioned, and a clear intervention in the foreign exchange market. The official dollar has to accelerate its periodic devaluation because it cannot continue to fall behind with the accelerating inflation.”

Javier Marcus
Economist and university professor

“How to get out of the crisis is the million dollar question and it has two possible answers.”

“One is the short-term solution, how to cope with this crisis until we have a better scenario. At this point there are two scenarios, one is to devalue and raise rates with a confidence shock, accommodate the variables that are out of kilter. But there are You have to be encouraged because you have a problem with inflation starting from very high values. In a regime of high inflation, this devaluation is dangerous and that is why the government is trying to take isolated measures to advance in time, socially containing the population until it reaches a better scenario, although in the midst of that you can fall into the negative scenario that we just talked about, where prices increase and economic activity decreases”.

“The other solution is in the long term, to get out of the permanent crisis in Argentina. With that reputation and that history, patches have been put on since the fall of 2011 (the problem is that we do not grow), and the change to which we have to going is for the private sector to grow, to have more possibilities to export, and the public sector to become smaller”.

“For that, a very radical change is needed in the social agreements, the productive matrix and the size of the public sector. The entire productive matrix is ​​associated with a model of politicians, unions and businessmen linked to public works and social plans, which determine the incentives in the economy.

“This is really a fairly announced crisis: the government took over starting from a fragile situation, then you had the pandemic and the war in Ukraine. Adding those things up, either you had a terrible social crisis in 2020 or you were printing to pay for that pandemic expense and energy, and you put it off.

Nicholas Pertierra
Chief Economist of the Scalabrini Ortiz Center for Economic and Social Studies (CESO)

“The main source of macroeconomic and financial instability comes from the scarcity of reserves, and what the government can do there is take all the measures it is taking to reverse this situation, and that the impact it has on activity is the smallest in terms of quantity of employment. To have more margin in reserves you need fewer imports, those imports are achieved with less activity, but not all activities have the same impact on employment. The typical case is energy or high-end cars range: they don’t have the same impact on activity. This is one of the fronts, managing reserves.”

“Financially, it will continue to be a complicated front, because in the context of debt renewals ahead, in the next six months, it may become increasingly difficult to issue debts that mature in the next government.”

“There is a sector that needs the crisis to deepen in order to then apply those reforms that they consider to be pending, those structural reforms. In that sector, they are going to continue betting on the deepening of the crisis and this forces the government to adopt a very defensive: it will hardly be possible with friendly signals to the markets to avoid all possible fronts. That falls far short and does not have to imply giving up other tools and instruments”.

Jorge Vasconcelos
Economist and chief researcher of Fundación Mediterránea-Ieral

“Argentina has repressed inflation, but it also has repressed growth. If the economy were reorganized, we could have a pleasant surprise of sustained growth in the coming years. The important thing is that nothing is done hidden, surprising and everything is raised in the light of day.

“That means that public opinion and the leadership can discuss the issues and there are no fears of strange things. There has to be a combination of orthodox and heterodox measures.”

“There are three points to take into account: one is stability, the second is fiscal sustainability, and the third is the issue of integration into the world. Argentina has been losing many opportunities because it is not integrated into the world.”

With information from Pepe Gil Vidal.