By Roberto H. Cachanosky, Libertad y Progreso
Minister Guzmán’s announcements about an agreement with the IMF seem more like a prayer to the Virgin Mary that something can be achieved. Too much voluntarism is observed in the proposals and its quantitative goals are quite complicated to achieve considering where we come from and how they are going to face the problem.
The first point to consider is the curiosity at the heart of the proposal. The minister said that there will be no adjustment, referring to a drop in public spending. On the contrary, they plan to increase it with increased spending in infraestructure. At the same time, there will be no tax reform, labor reform or any structural reform nor will they touch the spending of 3% of GDP on economic subsidies. The minister’s proposal is that the reduction of the deficit will go through the growth of the economy. In other words, they hope that the economy will grow more than public spending.
The minister said that there will be no adjustment, referring to the drop in public spending. On the contrary, they plan to increase spending in infraestructure.
Said more directly, they are copying the opposition’s model of a failed gradualism. As a matter of fact, Macri also bet on lowering the fiscal deficit as a percentage of GDP due to the growth that would result from a rain of investments that never came. On top of that, when they failed at balancing the budget, they started spending more on infrastructure believing that, in the Keynesian style, it would reactivate the economy. This was an absolutely wrong decision: nobody starts to reform the house when the money is not enough to make ends meet. Furthermore, it takes on debt to be able to finance these reforms. There comes a time when you fail to pay for the credit and your house is auctioned off for non-payment of the debt.
This idea of lowering the deficit without lowering public spending, without structural reforms and balancing the budget looks more like a prayer to the Virgin Mary than a serious economic proposal to reduce the fiscal deficit.
Minister Guzmán did not dedicate even half a line to explain how they are going to solve the problem of the quasi-fiscal deficit that already includes almost $5 billion of debt in LELIQs and Pases and that last year generated a fiscal cost of 3% of GDP.
If creative accounting is maintained, then there is credibility that monetary issue will serve to finance the treasury in 2022.
Last year’s primary fiscal deficit was 4.2%, not including SDRs and profit transfers, which are an accounting invention. Thus, it is diffcult to understand how they are going to lower the primary fiscal deficit from 4.2% of GDP to 2.5% without creative accounting. If cretive accounting is maintained, then it is not credible that monetary issue to finance the treasury will fall in 2022.
Let us remember that monetary issue was the main source of income of the treasury in 2021, representing 4% of GDP. Lowering it to 1% of GDP in 2022 will be quite an achievement without structural reforms.
Talking about strengthening the internal capital market, as the minister stated, means that more internal savings can be captured though an increased tax burden. This unpredictability in the rules of the game is hurtful in an economy that in 2021 only managed to rebound after the 10% drop in 2020 as a consequence of eternal quarantine.
Let the next government fix it in 2023, if we don’t face a crisis before, is what the minister and the President seem to think.
In short, we got a very unbelievable technical proposal that looks more like betting on a miracle than economic science.
We will see if this situation can last two more years, but clearly the bet is to leave the problem to the next government. Let the next government fix it in 2024, if we don’t face a crisis before, is what the minister and the President seem to think.
Roberto H. Cachanosky is a Member of the Academic Council of Libertad y Progreso.