The Argentine miracle that is not such

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“Taking into account the disaster inherited by the government of the Argentine president Alberto Fernandez at the end of 2019, it seems to have achieved a economic miracle”. That sentence is the summary of the column I wrote on January 11 of this year in Project Syndicate, Joseph Stiglitz. Neo-Keynesian economist, professor at Columbia University in New York, winner of the Nobel Prize in Economics in 2001, and an implacable critic of multilateral credit organizations such as the IMF and the World Bank -of which he was chief economist-, and of the economists who defend to the free market. At Columbia he was a professor of Martín Guzmán, who since 2019 is the Minister of Economy of the government of Alberto Fernández in the Argentine Republic. As early as 2003, Stiglitz praised the economic policy of Kirchnerismwhich allowed both with Kirchner in government and when his wife was in charge, to have these “academic support” for their ineffective stabilization and growth policies to achieve those objectives.

The “miraculous”

But going back to what he said on this occasion, what the evidence shows about the macroeconomic situation of the neighboring country is very far from what the Columbia Nobel Prize winner pointed out, as noted hours later by leading economists — academics, professors and professional analysts. Argentina presents macroeconomic imbalances that have been getting worse and that, if the authorities stay on the path and with the measures they have chosen, it will be very difficult for the Fernández co-participation government – ​​Alberto and Cristina – to improve the situation which it passes through.

It is true what Stiglitz said, that the economy grows, but it does so due to circumstances that are unlikely to continue. The production of goods and services grows because the Coronavirus pandemic had significantly negatively affected it. In the third quarter of 2021, it has reached the level prior to the pandemic, driven by strong controls on imports of finished products and maintaining the official exchange rate without restrictions of any kind on the import of inputs and raw materials for local production substitute of those products. Because in addition, there has been a strong contribution from the production of exportable goods, whose high international prices have helped maintain its activity despite taxes on foreign sales. If the level of GDP before the pandemic has been reached, it is by no means certain that the factors that explained the recovery will last.

And the rest

The “economic miracle” that is limited to the indicated productive recovery, is not ratified by the behavior of other macroeconomic variables, or even other results usually linked to the economy. Among the first, we must include those that influence inflation and the result of the external sector, which ultimately has its indicator in the level of the Central Bank’s reserves.

A macroeconomic drive cannot be considered “miraculous” if inflation moves at a double-digit rate, the first of which is five. And that, furthermore, when this happens despite price controls, with the setting of maximums and the prohibition of the export of certain products that have a notable importance in the consumer price index. Such high inflation despite the distortions mentioned and to a great extent stimulated by a very high primary fiscal deficit –before interest payments–, and even more financial –when included–, which is financed in almost half by monetary issue of the Central Bank, it will be difficult to attenuate and it would be, yes, a miracle, that soon it does not affect even more the social situation -poverty reaches 40% of the population-, and politics -the confrontations between the Fernandez.

Nor can a macroeconomic leadership be considered “miraculous” if the international reserves available by the Central Bank reach such a ridiculous level that they do not enable the payment of financial debts in the short term, neither with the IMF nor with other creditor institutions. And this, despite the arsenal of measures that have been taken to increase them: multiple differential exchange rates, restrictions on the purchase of foreign currency, export taxes and import controls, among others.

The correction

In short, Argentina is experiencing, despite the “miracle” that Stiglitz declares due to the increase in GDP, significant macroeconomic imbalances: high inflation and a deficit in the external sector. It is not possible to correct them overnight. It would take time and only using a combination of policies that President Fernández has repeatedly rejected, stimulated by Stiglitz, who encourages spending more and not reducing public spending, or reducing the fiscal deficit or monetary expansion, in order to also generate confidence. that today in Argentina does not exist.

Uruguay will continue to feel the brake on several of its exports to the neighboring country, which makes the need for trade flexibility and its innocuous obligations with Mercosur grow faster. The situation of increasing deterioration of the Argentine economy will be reflected, at least until 2024, in a growing intention of Argentine citizens to come and live in our country. We will hardly have here, this time, adverse economic repercussions from a country that is going to another economic disaster. We are far from repeating scenarios in Uruguay like those that arose from the crises in Argentina in 1982 and 2002.

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The Argentine miracle that is not such