Budget or fudge it
Argentine budgets are wishful thinking at the best of times and the ‘guestimate’s in the preliminary draft of the 2019 edition that entered Congress last week offer no departure from this tradition. Instead of simply listing the revenues and expenditures on either side of the balance sheet (which is all a budget need do), the drafts have always gone out on a limb to forecast almost every possible macro-economic indicator, thus gratuitously riding for a fall. At least the draft for next year abstains from predefining the exchange rate for the dollar (the assumption that the value of the United States currency should be decided in this capital rather than in Washington or New York always seemed curious) – it could hardly do less after pledging a free currency float with the International Monetary Fund (IMF). Otherwise this draft budget presumes to call the shots for the next year amidst a currency crisis within a highly imbalanced economy in an increasingly volatile world.
Two of the various forecasts for 2019 draw the most attention – inflation of 17 percent and a two percent growth rate. The former figure is almost certain to undershoot reality while the latter might well turn out to be an underestimate. Any year’s growth is always relative to the previous year and this drought-stricken 2018 complete with financial crisis has been so dismal that even a mediocre 2019 would represent a big improvement. The likelihood of a much improved harvest and the even greater probability of lavish public works spending to aid President Mauricio Macri’s re-election hopes combine to make two percent an unduly cautious estimate.
Unless, of course, such drastic austerity to keep inflation down to that 17 percent is contemplated that its recessive effects would minimise growth. And something extremely drastic will be needed if there is to be any chance of bringing inflation down to that level. This year’s experience offers little encouragement with the boat leaking all over the show – the 2018 inflation so controversially “recalibrated” from 12 to 15 percent at the end of last year (with a final objective of five percent for 2020) now has a new official target of 27 percent. Collective bargaining has already been adjusted to this new reality with pay increases around 25 percent now permitted, making for wage-push inflation too. Pensioners have been less fortunate – an adjustment of 5.69 percent for the second quarter purports to cover inflation when last month’s cost-of-living increase alone stands to top four per- cent. The overspill from devaluation is everywhere, not least in the rent increases within Argentina’s highly dollarised real-estate market or fuel prices for an economy which moves on wheels. These examples could be multiplied but everyday reality should leave readers in no need of a reminder.
Even if this 85-page report is writing in sand, its passage through Congress will be anything but an abstract formality. Plenty of work lies ahead elaborating the fine print of the draft and knocking it into shape for final submission to Congress in the 10 weeks before the statutory deadline of September 15 (which has always been respected by governments of all stripes in otherwise unpredictable Argentina, strangely enough). It will then need to be steered through the Lower House and the Senate with the government in a minority in both Houses. Yet whatever the journey to be followed by this draft budget, economic reality is sure to follow its own course.