It is true that the pandemic hit fully in an economy that had come from two years of decline in the government of Mauricio Macri, Nevertheless, the government never looked for the option of balancing the budget or working on an economic development plan that would allow it to have more income in the future.
During the government of Cristina Kirchner The foreign debt was partially paid off, and borrowing in pesos was resorted to in the domestic market, but the problem of the fiscal deficit was never resolved. During the Macri government, external financing was taken in dollars, but the problem of the fiscal deficit was never solved. During the government of Alberto Fernandez debt is being taken in pesos at a fixed rate and adjusted for inflation, but the problem of the fiscal deficit is not being solved.
If we add to these three presidents that the debt and the deficit they generated were not accompanied by a development plan, we have a stagnant country with inflation from 2011 onwards.
The Kirchnerism bible indicates that monetary issuance or debt in pesos does not generate inflation, however, the results of that statement are elusive. Argentina lives with an amount of pesos that is difficult to measure in our memory. By the end of the year, the monetary liabilities of the Central Bank could add up to a whopping $ 9.1 trillion, and the reserves are located around the US $ 38,000 million, this would result in an equilibrium dollar in the $ 240, it would be a tragedy for our economy.
Borrowing without a plan to balance the public budget and develop the economy is frankly suicidal. It leads us to the lender of last resort, which is the Central Bank, have to go out like a firefighter to issue pesos and inject a large amount of pesos without backing into the economy, which will bring inflation and devaluation as a correlate.
The electoral defeat of the ruling party in the primaries last Sunday triggered the economic debate; the ruling coalition could launch a mega-issue of pesos to solve its problems. The government does not stop to think about the process of price formation in the economy.
Price is where supply and demand meet. In Argentina, the supply of products is increasingly scarce due to lower production. Those who go in search of that offer, each day that passes they have in their pockets a greater number of bills (without value) to be able to pay for those scarce goods, the logical consequence is a rise in prices that does not stop.
Something similar happens with the informal dollar or blue. The dollars that can be traded in the market are increasingly scarce, so scarce that banknotes that were kept in the hands of investors prior to the year 2000 have come out in significant quantities, they are the dollars known as small head, those that in the United States already they were withdrawn from circulation. The Central Bank gave these bills legal tender, however, if we go to any country in the world they are not accepted, you can only take them to the United States and exchange them at a financial institution, after opening an account. We are so backward in time, and so degraded that we trade dollars that have not been printed for more than 20 years.
Argentina has not generated new savings, the economy has not grown since 2011, the new generations are spending their parents’ savings, and investment has been absent in the country.
Our Gross Domestic Product is consumption plus investment plus (export minus imports). It is composed of 79% by consumption, 15% investment, 17% exports, 14% imports and 3% is a remainder that does not have a specific allocation. As you will see, Argentina has a lot of fat (consumption) and little muscle (investment) to grow. Nutritionists say that to lose weight you have to grow muscle so that it eats fat. In economic matters, if you make investment grow, you will surely strengthen consumption in the longer term.
Investment should grow at levels of 25% of GDP, while exports should be at levels of 30% of GDP. Argentina is a country that is located very far from the centers of consumption and power. You need a high exchange rate to export, this will allow you to avoid your high freight costs when placing merchandise abroad, it would boost employment in the domestic market, strengthen consumption in the country, and have the necessary dollars not to pass economic distress.
- The issuance or indebtedness that does not have as its objective fiscal balance and an economic development plan to repay the contracted debt in the future, the only thing it will achieve is to lead us to a new failure.
- We are on the wrong path from 2011 onwards. We do not grow and we live with an inflation that, between 2011 and 2017, was around 25% per year, and from 2018 onwards it is located at 50% per year.
- To continue with the same recipe is to reach similar results. We need a plan agreed upon by the entire political class, continuing to be submerged in the crack will inexorably lead us to a new crisis.
- The banking system is quasi-nationalized, of the total deposits in pesos, only 40% are loans to the private sector, and of the total deposits in dollars, only 25% are loans to the private sector. Thus the economy does not work.
- The State has the power to collect taxes generating a suffocating tax pressure for the economyTo this must be added that entrepreneurs lack funding. In this context, investment and exports do not grow, muscle shrinks and fat grows, which is consumption. Issuing without backing or going into debt, without a plan to balance the public budget and implement a development plan, does not look healthy at all.