Bullish about the economy, or just bull?
Anybody listening to Economy Minister Martín Guzmán Zooming into the Council of the Americas on Thursday could only come away with the impression that the government has all its economic ducks in a row with perfect timing for PASO primary and midterm voting. If the bottom line of all macro-economic indicators is the growth rate, Guzmán upped his projection for this year to eight percent – the highest figure in over a decade – amid what he called “a solid economic recovery” with investment on the rise. Furthermore, the minister claimed to be bringing inflation under control, from a peak of 4.8 percent in March to below three percent in the next few months, also denying any risk from a swollen money supply which he prefers to praise as “the formation of capital markets in pesos.”
Moreover, this admittedly uneven revival of the productive sector is not coming at the expense of the financial – the nation with the world’s second-highest country risk has suddenly become a model debtor. Not only will the International Monetary Fund (IMF) be recovering virtually all the Special Drawing Rights arriving here last Monday before the year is out, thus blithely overlooking the Senate bill approved last May stipulating that this money could only be spent on the “social debt,” but this coming Monday Buenos Aires Province Governor Axel Kicillof, perhaps the most truculent critic of indebtedness in government ranks, will be announcing a bond swap agreement reached with the province’s creditors.
If at first sight an outsider might perhaps wonder how a government presiding over a virtually double-digit economic shrinkage last year amid the ravages of an erratically handled coronavirus pandemic could possibly win the upcoming elections, they might start asking how it could possibly lose when presented with this glowing picture. Yet both outcomes remain perfectly possible without looking any further than the economy. Guzmán’s rosy indicators “wherever you want to look” need to be seen against a backdrop of thousands of shuttered businesses, at least a quarter of a million permanent jobs lost (with far greater havoc among the informally employed) and some three million people ejected from the middle class into poverty while consumer confidence is at its lowest levels since the run-up to the last PASO primaries in 2019.
Perhaps the series of lively debates in recent days over whether the current Alberto Fernández administration or his predecessor Mauricio Macri indebted Argentina more is as good a litmus test as any for economic performance. In government eyes this debate is a slam dunk – they only need to point to Macri’s 2018 stand-by from the IMF running up a colossal liability of almost US$45 billion to rest their case, which is premised on only dollars owed abroad counting as serious money whereas any peso debt is totally fungible. This premise is not accepted by Kicillof’s predecessor María Eugenia Vidal (now running as an opposition candidate for Congress in this city), who kicked off this debate by quantifying debt as US$30 billion in the first 18 months of the Frente de Todos administration as against an annual average of US$16.5 billion during the 2015-2019 Macri presidency.
In neither case is a black and white picture convincing – blocked from assuming debt, Kirchnerite presidencies ran up huge fiscal deficits of up to 6.5 percent of gross domestic product whereas Macri incurred a record foreign debt while approximating a zero deficit but in both cases formidable sums have been added to the country’s red ink. Six of one and half a dozen of the other, one might think.
And what is the verdict of third parties neutral in this debate? One of the most interesting comes from the extreme left, Frente de Izquierda municipal candidate Gabriel Solano, who (without minimising the IMF stand-by in any way) seems to find the peso debts of this administration potentially more dangerous and far from innocuous. Printing so much money to assist the Treasury risks hyperinflation, he points out, while increasing pressure on interest rates – the snowballing Leliqs and the quasi-fiscal deficit under this administration are on a far greater scale than anything under Macri.
But the last word in this debate will not belong to any candidate but to the electorate – both next month and in November and also in 2023 when the classic 18-month lag for the current monetary policies to take full effect will have transpired, permitting a more balanced judgement.