Argentina’s crisis. The impact of the Economic Emergency normative. A political and econimic scenario.
- Argentina
- 02/15/2002
- Hourbeigt Ruiz Martinez & Padilla
The Argentinean reality presents a crisis, focused in several fronts.
In the political area, the President Duhalde almost dedicates all its effort to clear the horizon of its command and anyway it cannot eradicate the doubt of if it arrives or not until September of 2003.
In the politic-institutional area, it is open the conflict front with the Supreme Court.
In the social area, there is a double convulsion. On one hand, there are the sectors of smaller revenues that, for the first time, do face recession, unemployment and inflation at the same time. On the other hand, the middle-class suffers the pesification with indexation and re-scheduling of the savings.
In the economic area, the convertibility doesn’t have still a definitive alternative. For the time being, it was substituted by a program of crisis administration: floating exchange rate and wise promise of monetary and fiscal politics, instead of convertibility, deflation, plans of competitiveness and increase of the debt. Everything, amid a test and error process and high uncertainty.
There is a project of Budget with a too sensitive fiscal deficit at the exchange rate, the activity level and the cost of the bank arrangement. To the unison, a Central Bank debuts with new Organic Letter, where it will be key to see if it imposes its own monetary rule or it finishes being the alternative cashbox of the Treasure. That is to say two doubtful anchors. There is a political trap: if the Central Bank (BCRA) doesn’t issue and print new inconvertible pesos, it is possible to runs the risk of social crisis. If it is emitted in excess, the risk goes by a rush without control of the dollar. It is the fear to float versus the fear to the looting.
To make matters worse, Argentina doesn’t still have international financial support. The government believed that, with President Duhalde pacifying and Minister of Economy Remes pesifying, he made sure at least to unlock funds. Up to now, the answer is zero funds. Remes travels to recompose the dialogue with the IMF and to fix a demanding but realizable calendar. If it is not good as initial kick to refloat the payments, Argentina can end up falling in default with the own Fund. The aspiration “of maximum” of fresh funds has a top: it doesn’t stop to finance imbalance macro (loss of reservations or fiscal deficit); yes, to future, for structural reformations. The great doubt is if behind the lack of external support the vision underlies about the convenience of a “Hiroshima Plan” that finishes untying the hyperinflation, then begin from zero and there give help.
In February / March, the Argentina plays to everything or anything. The government aspires to enter in a régime of low inflation. Alone this way, the Plan Remes can subsist. If the internal prices ascend a lot beyond 20 % annual, it would trigger the demonetization, the indexation and the escalation. Both the Budget and the proposed monetary program would collapse, and the economy left with no anchors. Once overcome the threshold of low inflation, Argentina would be close to high inflation and, in the end, to the hyperinflation.
The inflation of January left an intermediate flavor. 2,3% of monthly increase that reflected the price retailers is not a level of alert red. The alert is in the wholesalers’ prices of February. In January, the increment was of 6,6%. But the methodology of the INDEC measures the inflation wholesaler among the days fifteen of every month. The fact of January reflected alone that happened between December 15 and January 15. That is to say, the full initial adjustment will register it the next mensuration of February.
In the short term, the variable that will define to what inflation régime the Argentina goes it is the exchange rate. If the dollar is shot to the interval at once 2,5 / 3 and doesn’t give signs that it can lower, the economy will perform without scales to the high inflation. For not waking up “wild behaviors”, the parity should be stabilized in the time close or below the 2 pesos for dollar. The “overshooting” exchange it is a problem, especially for an economy like the Argentinean, but it is after all a habitual phenomenon in the passage to the flotation. The real reef to draw is the non-escalation: that, with flotation, the Argentineans discover that the dollar can ascend but it can also lower.
February, 2002.
