Martín Guzmán: “Wages, Pensions and Social plans will beat Inflation”

The Minister of Economy, Martín Guzmán, insisted today that “there is nothing more destabilizing and regressive than an exchange rate jump (that is, an abrupt increase in the dollar). Such a devaluation, he pointed out, “damages production.”

Guzmán stressed the importance of “fiscal sustainability” and in response to the question of whether the State could contribute to a reduction in the price of food by reducing the VIA; He said that “today the country is not in a position to give up tax revenues; You have to be able to finance the State, strengthen it, ”he responded in an interview with the Toma y Daca program, on AM 750.

Guzmán also ratified the postulate, which the government made in its recent meetings with unions and employers, that this year wages should beat inflation and, when asked if the same was true for pensions and social plans, he said that it was also true for them.

Increasing the purchasing power of the population’s income, Guzmán insisted, is an objective of the government, because it is right that it should be so after three years of falling real income, and also because it is a necessary condition to sustain the recovery. . “The economy needs a strong demand and the purchasing power of wages is what contributes to that. It is part of the macroeconomic program and we transmit it to unions and companies, ”said the minister.

Specifically, regarding retirements, he explained that the new retirement formula is related to salaries and fiscal income, which the government intends to increase more than inflation, so that retirements, he pointed out, just like salaries “have to beat inflation after how much they lost in 2015-2019; it is an objective for the entire period of the government ”.

However, the new pension mobility formula determined that in March the pensions and social benefits linked as AUH and PUAM (Universal Pension for the Elderly) will have an increase in March somewhat greater than 8.1% (the second digit is not yet specified ), lower than the inflation rate of the first six weeks of the year, which is unlikely to result in a quarterly inflation of less than 8.1 percent.

Guzmán addresses businessmen in the recent call with which the government intends to “coordinate” expectations and align them with the inflation target of 29% 

The minister explained that the government attacks inflation “with two blocks: macroeconomic policy and the coordinating role of the State” to align expectations of both unions and companies around the inflation target of 29% included in the 2021 Budget He said that the budget is the “pillar” to deepen the economic recovery.

“There are sectors such as tourism and gastronomy in a disadvantageous position and others with a more solid position. There is idle capacity and in this regard, the role of the State must be expansive, to strengthen the recovery. The budget also aims to advance fiscal sustainability ”, he explained.

He also emphasized that addressing the fiscal deficit requires debt or issuance. “If we get into debt, we only do well if we generate repayment capacity, that is why we must preserve the sustainability of the debt. And the issue is not free, it creates problems for us about the exchange rate. You have to solve that problem. We define a deficit value, part is financed with deficit, part with issuance. We want to accumulate reserves to be more resilient.

That is why we have an exchange rate target of $ 102.40 ″, he pointed out, which implies a devaluation pattern of between 24 and 25% in the year. “We concentrate that pattern in the first month of the year. And the budget defines the outline of the tax table. With all this scheme, macroeconomically an inflation of about 29% is feasible. Expectations need to be along that line. That is why dialogue with workers and employers is so important ”, emphasized the official.

Guzmán, who has notably raised his public profile lately, with visits and presentations in the interior provinces and his recent role in the meetings of the Economic and Social Cabinet with unions and businessmen, where he was even applauded, was presented in the interview as “the official of the moment ”and responded in a leisurely tone to an extensive interview.

“We are not condemned to anything. We own our own future. We have to build a calmer economy. There are countries that managed to solve their inflation problems. We are taking steps to achieve a sustained recovery and at the same time reduce inflation. It is a process: to go solving one by one the problems of the Argentine economy, “he replied when asked if Argentina is condemned to live with chronic inflation and repeated dollar shocks. “In order to solve the problems, it is necessary for the economy to recover.

Without that there is no way that works; inflation is a multi-causal phenomenon and all its causes must be attacked with a comprehensive scheme ”, he explained. According to the minister, on one side is macroeconomic policy, which in the past has generated inflation and adaptive behaviors, which contributed to sustaining it, and on the other, “the State, which has a role in the sense of coordinating expectations.”

The official placed great emphasis on the need to increase exports, in order to generate enough dollars to sustain growth. “Exports have been stagnant for almost a decade: a country that wants to grow, when it grows demands more imports to produce, but at the same time in an economy with a weak currency, savings generate demand for dollars. If we don’t generate more exports.

We collide with the external restriction, the dollar increases and goes to prices. And at the same time we have the fiscal problem, which we have to solve. In many cases, due to not having credit, it is issued and part goes to the dollar, but if the economy does not generate enough dollars, there is pressure and price increases, ”he explained. For this reason, he added, “it is necessary to work in dialogue with all sectors to define what is feasible, seriously and rigorously, not with super-optimistic expectations.”

According to the minister, the problem of the Argentine economy is that it does not have an economic structure capable of satisfying all the objectives ”, which he then listed, in a kind of economic policy doctrine: 1) inclusion, 2) productive dynamism, with aggregation of value; 3) stability, do not crash. against crisis after crisis, 4) federal equity, 5) being masters of our own destiny, respecting sovereignty. “Macroeconomic policy is oriented towards these objectives, but that requires a productive structure that generates more value, more employment and more foreign exchange,” he explained.

Guzmán refused to give importance to the absence, in the recent call for businessmen, of the most important business owners. “What we are looking for is a country where dialogue deepens and generates learning. We invite everyone. We have noticed that everyone is tired of the problems that the Argentine economy has and there is a desire to turn the page and we also saw a lot of enthusiasm, that’s okay, “he replied.

Guzmán and the director of the Fund, Kristalina Georgieva. The minister was very critical of the credit granted in 2018 to the government of Macri. 

The minister emphasized the importance of “fiscal sustainability”, which he considered a “pillar” of macroeconomic stability. “There is nothing more destabilizing and regressive than an exchange rate jump: it damages production,” he explained, so he ruled out that the State could resign tax revenue, such as a reduction in VAT on food. “Today the country is not in a position to give up tax revenues. You have to be able to finance the State, strengthen it, “he explained.

Regarding the negotiations with the IMF, he said that he still has no date for a trip to Washington. “We have to wait a bit”, due to logistics and international circulation issues in the framework of the pandemic. At the moment, he explained, the negotiation with the Fund is done by videoconference and by telephone.

The minister was very critical of the agreement that the government of Mauricio Macri signed with the Fund in 2018. “We seek not to repeat mistakes from the past: in 2018 the government agreed to a very harmful plan on the premise that the fiscal adjustment would generate confidence and it would allow to recover the credit and that the contractionary monetary policy would allow to reduce the inflation; none of that happened; the contraction deepened and inflation increased.

All that must be put aside ”, he emphasized. “The program was made with its back to the people and Congress. We sent a bill: any programs with the IMF must be approved by Congress ”. According to the minister, in 2018, instead of accessing an IMF loan, the government had to restructure the debt. “The USD 45,000 million were used to pay an unsustainable debt, delaying a situation that we later had to resolve, and capital that left,” he said.

Guzmán also confirmed that an issue of SDR, the IMF’s “currency,” will help Argentina increase its reserves by approximately USD 3.3 billion. “It is not something that is rejected or accepted, it happens,” he explained, noting that many of the Fund’s partner countries are in favor of expanding international liquidity in this way. “In 2020 it was pushed and had the opposition of the US. Now they are working to get the support of the US. Obviously it would benefit Argentina, we would have more reserves ”, he explained.

The minister affirmed that the credit granted in 2018 to Argentina was “a political loan” to support the Macri government, but when asked if as a result it could be renegotiated in other terms, he refused to delve into the subject.

Regarding the current negotiation, Guzmán affirmed that the IMF “what it is going to do is work within the rules of the game of the International Financial Architecture”, which for the current situation aims to negotiate an “Agreement of Extended Facilities”, of a term up to 10 years. “Our premise is that we drive; We owe ourselves a multi-year economic program that does good for Argentina ”.

“We would not want the IMF to be in Argentina – he pointed out – we would have preferred another path in 2018: we had to restructure the debt, but this is the reality we are facing”

Finally, with respect to rates, he pointed out that the Ministry of Energy and regulatory entities are working on a new rate schedule, which will replace the previous one and that “reasonable” rates are sought for families and that allow the “competitiveness” of the Business. And he specified that the “social rate” will be expanded from one million to 3.8 million people reached. “It is contemplated in the budget; We seek that the international price shock, which is positive, is not regressive. That is why we seek an agreement with each sector ”, he concluded.