Do not devalue, increase reserves and social containment: the keys to the Massa plan

Explain the situation of local economy it is relatively easy. What’s more, it can be described in a single sentence: the macroeconomy ran out of dollars.

There are two kinds of deficit, the internal one, which is the fiscal one, the difference between taxes and expenses and the external one, which arises from the balance of the current account of the balance of payments. Of these external deficits or surpluses, that is, of the real availability of dollars in the current economy, depends on the ability to sustain the price of the dollar. Then, the stability of the macroeconomy and prices depend on this capacity.

Broadly speaking, anyone who knows nothing about economics inevitably perceives a basic relationship. If there is a currency run and a devaluation, that impacts prices. And if your income is fixed, that is, if it depends on a salary, you also know that your purchasing power will fall with the rise in the dollar. If he also lives in Argentina he will surely be trained in observing the phenomenon.

What has happened since the change of government, for reasons that are not analyzed here, is that despite the continued existence of a surplus trade balance international reserves were not accumulatedthat is, they were not able to accumulate dollars in the Central Bank. The dollars in the Central are the reinsurance of the stability of its price. In other words, if the government has many international reserves, it can, with a minimum of expertise, decide the price of the dollar. The problem that was added in 2022 was that in addition to not being able to transform the surplus commercial in reservations, the same surplus began to disappear, among other reasons due to the increase in the prices of energy imports.

Almost zero international reserves, the end of the trade surplus, more external credit exhausted can configure the beginning of the disaster. Running out of dollars can become the prelude to a hyperinflationary process. The economy peered into this abyss after the departure of Martín Guzmán. And these weeks of interregnum Silvina Batakis until the assumption of Sergio Tomas Massa (STM) they were the time it took the government to get out of the state of shock due to the change of scenery. The new unity of the Frente de Todos, catalyzed in the restructuring of the cabinet, was nothing more than the product of the fear of leaning into the abyss.

On the basis of assuming the lack of dollars, the new minister’s first speech made the new roadmap clear. The center point was the decision not to devalue but to travel that path, to avoid devaluation, what is needed today is not available, dollars. That’s why STM He emphasized that in recent days he worked with the different exporting sectors to obtain the advance of 5 billion dollars in foreign sales. Although he did not detail the incentiveshe did speak of “signed commitments” and extension of terms for agriculture to settle with benefits. Probably this is also related to the announced special DNU regimes for different export sectors.

The 1,200 million dollars from organizations are resources that were already agreed upon, that would now materialize, to which another 750 million would have been added. One piece of information that had come to light, but which has now been made explicit, was the existence of several short-term credit offers from international banks, both to strengthen reserves and to repurchase debt. as far as he could tell The uncoveringthe offers would be for between 3 and 4 billion dollars. Rounding up, in a fairly short period of time the government could obtain around 10 billion dollars to reinforce reserves. If this goes well, the specter of devaluation would indeed begin to recede.

The same announcements could have been made by Silvina Batakis, but surely there would not be the same certainty of realization. The result sought today is highly dependent on business relations and the political expertise of the new minister. In other words, Massa may be the representation of a renewal of the “class alliance” that sustains the government.

The second part of the ads were in two dimensions. The first was a tax adjustment that points to a deficit of 2.5 points of GDP. On the one hand, there is the will to cut the contributions of the Central Bank to the Treasury, which will mean reducing expenses and financing in the market, and on the other hand, it was decided to deepen the tariff segmentation and the elimination of subsidies, now with the support of the entire coalition. the new minister he didn’t talk about interest ratesbut rates have already started to rise, which will mean meeting the more rational demand of the agreement with the IMF. Negative rates were one of the main causes that prevented the accumulation of reserves.

The real, unspoken objective of the fiscal adjustment is to slow down the economy in order to curb imports and the bleeding of foreign currency. Making services more expensive satisfies the fiscal objective, but at the same time contributes to the reduction of energy imports. The last dimension was about social containmentbasically a new adjustment formula for retirement and pensions that allows compensating the shock inflation of recent months and a reordering of social plans.

For more details, we will have to wait for more announcements, but above all, observe the animal spirit of the markets in the coming days. The new game is just beginning.

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