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OP-ED | 21-07-2018 09:16

Editorial: A clarity of focus

This weekend, Buenos Aires may be hosting the world’s most important economic czars yet this event is not all about Argentina but rather about a much bigger universe.

The eyes of the world are on the Argentine economy with the conclave of G20 ministers in Buenos Aires this weekend (or at least most of the planet, given that this score of heavyweights accounts for 85 percent of global economic output, 80 percent of world trade and two-thirds of total population). Not to mention the presence of International Monetary Fund (IMF) Managing Director Christine Lagarde whose organsiation’s recent US$50-billion stand-by agreement with Argentina remains very much the trending topic in current economic developments. And what do these eyes see? Just taking the main indicators announced this week by the INDEC national statistics bureau, the good news is the primary deficit of 0.9 percent of gross domestic product for the first half of this year (ahead of target) and the bad news is last month’s inflation of 3.7 percent (or 16 percent for the first six months, thus making nonsense of the 2018 budget estimate of 12 percent). An uncertain present whose solutions can only come from the future not the past, according to President Mauricio Macri in Wednesday’s pep talk.

Yet the immediate future in in this quarter does not seem to bear out Macri’s assertion in his state-of-the nation address to Congress little over four months ago that “the worst is already over.” Everything points to recession. Purchasing-power has been badly hit by the escalating prices confirmed this week with most collective bargaining agreements reached so far this year falling short of the 16-percent inflation in its first half – any attempts at correction will only lead to a new spiral with wage-push inflation. Consumerled growth has thus been ruled out without immediately being replaced by export-led growth, despite a major devaluation triggering the recent inflationary upsurge. The primary deficit might be progressing ahead of schedule but is almost doubled by debt interest service of an estimated 2.5 percent of GDP while the trade gap yawns wide – the combination of these factors leaves Argentina with the worst balance of payments since the 2001-2002 meltdown. A 15-percent reduction in public works is already explicitly part of the IMF agreement, thus hurting construction (very much the motor industry of the last two years, especially for job creation) with further cuts now being negotiated with the provinces. Yet this austerity is not simply masochism but an unavoidable part of ending the inflation which makes most overseas investors first explore the 90 percent of the planet without this scourge before coming here.

This weekend, Buenos Aires may be hosting the world’s most important economic czars yet this event is not all about Argentina but rather about a much bigger universe – indeed Argentina’s GDP ranks 19th among the 20, ahead only of South Africa. In this context the question (to paraphrase John F. Kennedy) should not be what the G20 can do for Argentina but what Argentina can do for the G20 as host. A full list of the world’s economic problems would obviously exceed the limits of this editorial space but the trade war brewing between the G20’s two top members, the United States and China, must surely be at or near the top. A world under the destructive international leadership of Donald Trump has entered into crisis with the main pillars of the 21st century in doubt – free trade being replaced by “fair,” globalisation, multilateral conflict resolution and even liberal democracy amid a general crisis of confidence. Default can be ideological and moral as well as financial – despite being at best a middleweight among heavyweights and at a crossroads itself, Argentina can still offer a confused G20 a clarity of focus, if it can look beyond itself.

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