Friday, June 21, 2024

OP-ED | 07-01-2022 22:59

Incessantly Muddling Factors

The Frente de Todos administration seems far more bent on delaying than accelerating a debt agreement with the International Monetary Fund.

If the abstract presentation of Economy Minister Martín Guzmán to brief provincial governors on the government’s negotiating strategy with the International Monetary Fund is anything to go by, the Frente de Todos administration seems far more bent on delaying than accelerating a debt agreement. This emerges far more clearly from what Guzmán did not say than what he did – rather than facing up to its responsibilities with the cruel dilemmas facing the Argentine economy, the government can pass on its hot potatoes to the IMF with the convenient argument that everything hinges on a debt deal.

This strategy is bolstered by making the perfect the enemy of the good in the form of adopting one of the chief IMF demands in such a way as to hamper progress of the negotiations – namely the insistence on cross-party consensus in order to ensure the permanence of a deal. This perfectly reasonable demand raises the bar even higher for the ruling coalition because it requires both external and internal adhesion. Many analysts simplify this problem into keeping Vice-President Cristina Fernández de Kirchner on board but many government leaders (not least the veep herself) see co-opting the opposition as highly desirable with the idea of sharing or even transferring the blame for subsequent austerity (even if blaming Mauricio Macri for everything does not help here). And while Kirchnerism dodges any talk of default (and would willingly sign a debt agreement which, say, postpones any repayment for several years and then in pesos), that extreme option is not limited to the far left, as San Luis Peronist Governor Alberto Rodríguez Saá has made abundantly clear.

Regardless of whether Guzmán genuinely believes it or whether he finds it the best way of ensuring vice-presidential support, his main pitch is to revive the late Néstor Kirchner’s deceptively simple argument that repayment must follow growth because “dead men pay no debts.” Hard to dispute that logic except for the fact that it begs the question of whether that growth is nominal or real. Inflation is a guarantee of nominal growth with the bonus of boosting revenue and thus dodging the need for public spending cuts but it is also backdoor austerity from the way it batters real wages and pensions.

Guzmán’s presentation largely airbrushed the problem of inflation but he cannot postpone it forever because it is not only being fuelled by the traditional culprit of the fiscal deficit but by a snowballing quasi-fiscal deficit – as the minister was reminded last week, not by any opposition critic or IMF technocrat but by Chaco Peronist Governor Jorge Capitanich, directly challenging Guzmán’s strategy of shifting dollar debt to peso bonds. The Columbia scholar did at least answer this challenge to his pet policy by reaffirming the aim of pegging interest rates above inflation in order to encourage peso savings and capital markets but this only opens the door to new dilemmas – not only are higher interest rates direct as against indirect austerity, both recessive and inflationary as well as making deficits costlier to fund, but they conspire against the consumer-led growth favoured by Kirchnerism via keeping the value of money behind inflation.

Another hole in the presentation was the government’s continuing inability to define the updating of public service billing and transport fares, allegedly a hostage to the IMF negotiations. There seems no way out of this disarray of relative prices which does not imply more inflation – maintaining subsidies at the current level would mean an increase reflecting last year’s inflation of around 50 percent while raising them would further swell the deficit at the root of the problem.

Achieving consensus across the Argentine political spectrum and then reaching agreement with the IMF technocrats (as of this week headed by a highly orthodox former Brazilian Central Bank governor) is looking like a mission impossible. The government is constantly assuring us that an IMF agreement is just around the corner yet not only does it look like a long shot but various preliminaries remain pending – there is no letter of intent nor plan while not only is the budget spanning several years supposedly to be submitted to Congress last November still awaited – we do not even have a 2022 Budget. President Alberto Fernández might continue to procrastinate but he does not have much more time with Central Bank reserves at alarmingly low levels (despite trade surpluses of at least US$25 billion in the last two years).

As things now stand, the government is applying the taboo word “austerity” to ideas.  ​

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