A balancer in economy

Since his inauguration as economy minister in August last year, Sergio Massa he was bombarded by several fronts which he had to dodge. He began his administration amid a very large currency run and soaring inflation. During the first weeks, she succeeded in calming the tension that her predecessor had aroused as to the economic direction that the government would take. His moderation and political capital secured him a vote of confidence that calmed the waters.

After the rate hike, he was able to contain the rate at which the demand for money fell and for a few months peace of trade reigned. However, in terms of inflation, it took until November to break through the 6% per month. On fiscal accounts, he announced rate segmentation to reduce subsidy spending and stopped asking for direct monetary assistance from the Central Bank. In addition, some budget items have been reduced and, to some extent and in real terms – taking inflation into account – primary expenditure has started to decline. With this, the primary deficit according to IMF accounts stood at 1,955,140 million dollars, or the equivalent of 2.4% of Gross Domestic Product (GDP).

Clearly, in a country with near triple-digit inflation and a high risk premium, balancing the budget must be a top priority and even reaching a surplus that allows it to start paying the bills. Living in debt is not an option and we suffer the consequences of a state that spends more than it takes in every day, billing in a currency that depreciates daily.

Balancing the budget should be a top priority and even reaching a surplus that allows you to start paying the bills

After six months in office, the Minister faces new challenges and must continue to demonstrate his ability to prevent economic imbalances from destabilizing the government. The problem is that it’s not just about the budget deficit, the out of control inflation, the exchange rate or the Central Bank’s exploding remunerated debt, but also that the government coalition seems to be clouding the situation further as with the attack on justice. Given this political decision, the dollar shot up again and the Ministry of Economy had to take matters into its own hands to prevent the rise from escalating and ending up putting excessive pressure on the price level. Hence the purchase of 1,000 million dollars of debt in the hands of the BCRA, authorized by the Ministry of Finance; as well as the increase in the interest rate of passive pensions and the subsequent increase in the yield of mutual funds.

The maneuver made with the purchase of bonds revealed that the market’s confidence in the government is decreasing and, therefore, the fall in the exchange rate was transitory and very short-lived. This complicates the arrival of external financing which will be vitally important to pay the IMF, given that this year the government will receive approximately $3.8 billion less in financing compared to the deadlines with the agency.

The lack of dollars is further aggravated by the losses caused by the drought, which are estimated at 10 billion dollars and imply a loss of tax revenue of more than 3 billion dollars.

This lack of dollars is further aggravated by the losses caused by the drought, which are estimated at 10 billion dollars and imply a loss of tax revenue for the government of more than 3 billion dollars. But in turn, the Central Bank will be more limited in buying dollars and the scarcity of freely available reserves does not give it enough room to intervene in the foreign exchange market and the strategy of delaying the value of the dollar in an election year. is difficult. On the other hand, further adjusting the exchange rate and increasing imports is a highly recessive factor. In 2022, 52% of imports were divided between “Capital goods” and “Intermediate goods”.

Thus, the room for maneuver is increasingly rare, since the variables to be affected are fewer. With an election year underway, it will be necessary to see what position Massa wants to play and on this basis, define his actions as minister. In the event of a formula leader, he must consolidate his figure from his current position and try to arrive with an economy irreversibly affected but not sunk. The main difficulty that will be presented to him is the actions of his own allies and a bad market reaction can put him out of action. On the contrary, a possible internal dispute and the departure of his figure could trigger an institutional crisis that will leave the next government with an economy in freefall.

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