Will next year be better or worse than 2021 for Argentina if it manages to sign an agreement with the International Monetary Fund (IMF)?
The quantitative answer is simple: no; it will be a year with lower economic growth and higher inflation, with a fall in real wages.
All the cannons of the Government are in place to sign an agreement, as shown by some political marketing actions (the meeting of the minister Martin Guzman with the CGT and the strategy of stating that the agency will make a “mea culpa” before signing another agreement) and other concrete ones, such as stopping intervening in the parallel exchange rate and cutting the subsidy to the “tourist dollar”.
Although the cut of the payment in installments for tourism affects a middle class that is electorally elusive, it aims to offer negotiation items before the imminent agreement with the IMF (Analytica)
In this sense, the consulting firm Analytica affirmed that “the suspension of payment with credit cards in fixed installments of travel and tourism expenses abroad is just one more measure than those that the Central Bank has been implementing within the framework of its general policy of taking care of the reserves ”.
“Although it affects a middle class that is electorally elusive, it aims to offer negotiation garments in the face of the imminent agreement with the IMF. Like any creditor, the Fund requires that the currencies be protected in some way by the debtor, and that is what has been happening, especially after the electoral defeat of the ruling party, “said the report from the consulting firm of Ricardo Delgado.
Previously, the BCRA had adjusted payments for imports and “stopped intervening with its own bonds in the dollar market Counted with Settlement –CCL– releasing its price”, after having used USD 2,360 million since October 2020 for this purpose, added Analytica .
Does it mean then that there will be an agreement ?; not necessarily, but they are basic conditions for the technical negotiation that will begin this weekend in Washington led by the Argentine delegate to the body, Sergio Chodos.
From now on, speculations and fantasies about the possibility that the agency is condescending for having granted an exceptional credit in 2018 or for the friendly relationship between its managing director will end, Kristalina Georgieva, and the Nobel laureate and intellectual godfather of Guzmán, Joseph Stiglitz.
Of course, it is legitimate to ask another question: What would the outlook be like if the country did not sign this agreement to reschedule its heavy USD 44 billion debt?
“The best that the Government can aspire to, after an agreement with the International Monetary Fund, is to find a higher nominality, around 4% or 5% per month” (LCG)
And the answer would possibly be just as short: worse than a scenario with agreement, in principle because all available sources of financing would be closed, like those of the World Bank and the Inter-American Development Bank (IDB).
Only by these sources, the Ministry of Economy calculated that in 2022 they will enter 12,000 million net dollars; Without that money, it would be impossible to calculate the effect of a similar monetary issue to cover next year’s fiscal deficit, analysts warn.
The Government can legitimately lift its chest to underline the strong economic recovery this year, higher than the estimate of private analysts, since it will be close to matching the sharp 10% drop registered in 2020 due to the pandemic and quarantine. But for 2022, the analysts’ forecast is around 2.2% according to the latest Latin Focus report and the Government estimated 4%, while the IMF bet at 2.5%.
As on other occasions, the debates about the name of this process have already begun: if it is a “rebound” or “genuine growth”, but regardless of the different opinions, the data will be significantly lower than this year, combined with inflation which may possibly exceed 51% by the end of this year and could be around 60-70 percent.
In this regard, a report from the LCG study hit the nail on the head, indicating the uselessness of the price freeze as the main weapon to combat inflation, as shown by the preliminary results of November.
The best that the Government can aspire to, after an agreement with the IMF, is to find a higher nominality, around 4% or 5% per month (LCG)
“Once again, the month of November registered inflation above 3%. Two months of discussion on prices for such bad results does not seem to have been a great success ”.
“Despite the freezing of food, an exchange rate that continues to lag, frozen rates and fuels and a not very dynamic activity, inflation does not yield at a rate below 40% per year,” said the study that directs Guido Lorenzo.
“The best that the Government can aspire to, after an agreement with the International Monetary Fund, is to find a higher nominal value, around 4% or 5% per month., once the aforementioned anchors are no longer used as anti-inflationary policy ”, he warned.
As a result, inflation would be “In a range of between 60% and 80% by 2022”, opposite to the 33% projected by the Government in the budget.
“This level of inflation, at a higher level than the current one, reopens the distributional conflict and puts a strain on growth.”
For this reason, “It is to be expected that next year wages will lose again against the increase in prices and the State ends up adjusting spending, liquefying social security income ”.
This adjustment, which the Government has already begun, “results in a highly regressive fiscal policy that could have been softened and even avoided if the situation had been duly communicated to society and a program had been implemented where all the actors would advance in the same address ”, indicated LCG.
“Without dollars in sight, the rapid rebound of 2021 will not be verified in 2022. The need to break out of the two rigid anchors that operated this year ensures a higher inflation level next year” (EcoGo)
“Minister Martín Guzmán insists on the need to coordinate expectations, but he is the first to misalign them, setting unfeasible inflation targets. and, thus breaking the contracts ”.
For this reason, “with this level of inflation, thinking that the economy can grow above the statistical drag is very ambitious. In particular, with negative real interest rates and inflation whose level is already high and possibly intensifying, which possibly results in lower domestic savings and, therefore, less possibilities of replacing installed capacity ”.
In the same vein, a report from the ECO GO study indicates that “Without dollars in sight, the rapid rebound of 2021 will not be verified in 2022. The need to get out of the two rigid anchors that operated this year (the dollar, tariffs and fuels) ensures a higher level of inflation next year”, a diagnosis that seems inexorable compliance.
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Is 2022 better or worse ?: What are the expectations about GDP and inflation if the agreement with the IMF is signed