Argentina goes through the polls in primaries that filter candidates for president. With the generals in October, the only sure thing is that the winner will have a colossal challenge financially. Inflation of more than 100%, rising poverty, sunken currency... And depending on unsuspected partners to get by.
The primaries serve as a thermometer of what can come. In the last ones, of 2019, President Mauricio Macri, a liberal, saw Alberto Fernández, a candidate from the Kirchnerist left, prevail, who would later take the government from him. The following day the stock market collapsed 38% and the exchange rate with the dollar fell close to 20%. They don't like surprises: polls that don't hit the mark and the irruption of libertarian candidates like Javier Milei don't rule them out. The polls arrive in a delicate situation. Lack of shock measures and unpredictable factors leave no margin. “Malpractice and bad luck are combined. The context is very complex”, sums up Santiago Manoukian, Head of Research at the Ecolatina consultancy.
The drought has been the coup de grace. With the sale of soybeans, corn or wheat abroad, agriculture is a great source of income for dollars. Dry the earth, dry your arrival. The lack of water has volatilized 40% of the main production and 20,000 million dollars in exports. It is equivalent to 20% of what is imported in 2022, they detail in Ecolatina, since purchases abroad are paid with foreign currency. As a large part are inputs or goods that are transformed, the activity ends up being harmed.
The drought factor leaves international reserves at a minimum. They were already falling after the pandemic emerged, in which they were used to boost activity. Although the official balance sheets of the central bank speak of international reserves for 24,000 million dollars, the net ones – assets minus liabilities in foreign currency – are 9,000-10,000 million in negative, according to private calculations. Manoukian even takes them to -8,300 million in the most conventional criteria.
"You owe more than what you have," summarizes Andrés Borenstein, economist at the consulting firm Econviews and professor at the Torcuato Di Tella University. With the markets closed years ago and the lack of foreign exchange, the sample of the delicate situation is the juggling to go covering the maturities of the debt with the IMF. The love-hate relationship with the Fund dates back to 2018, when the Macri Executive requested a loan of 45,000 million dollars. The money was flowing, in part thanks to meeting objectives "with accounting engineering and gadgets" and a permissive Fund, says Manoukian. Then came a restructuring in 2022 –more disbursements to cover the debt itself– and new agreements in 2023.
The IMF has gotten serious. He knows that deficit or reserve goals have been breached and the necessary major adjustments have not arrived, especially in spending. The economic ministers, the current one and who arrived a year ago Sergio Massa, now a candidate, have not done their homework. Unpopular measures lose votes. Faced with defaults, the Fund has saved disbursements, unleashing a search for alternatives because the debt and interest for July and August had to be covered so as not to default. The results, unusual.
First he reached for a swap with China. Then he pulled a $1 billion loan from the Development Bank of Latin America and the Caribbean. The trident was completed by Qatar with 700 million in special drawing rights, the internal currency of the IMF. Everything to reach the end of August, when the Fund would disburse some 7,500 million from the last agreement. "There is still uncertainty as to whether it will be approved," highlights Borenstein in any case. The situation means that in practice the same money goes to cover pending holes... with the IMF. “The agreement that was negotiated this year includes disbursements to pay previous credits. He lends them so that they can pay him”, explains Matías Bolis Wilson, chief economist of the Argentine Chamber of Commerce and Services.
Prices are another drama, installed above 100% year-on-year. "If important decisions are not made, the road to hyperinflation is paved, although it is far away," warns Manoukian. There has been a sin of printing tickets without stopping, of enduring fictitious prices for electricity and gas, subsidized, or of trying to control prices.
The Government excuses itself in the pressure of the Fund, the drought or the war for all evils. "But everything already exploded in 2022 due to totally inconsistent policies, financing a large deficit with currency issuance, Soviet restrictions on imports...", says Borenstein. Despite everything, on paper the economy holds up. After years of ups and downs, the first quarter closed with an advance of 1.3%. It is because the spending of Argentines makes up the data: it is what grows the most within GDP, 6%. One consequence is that the level of savings is at a minimum, half that of a decade ago (according to data from the Argentine Catholic University).
As the peso is worth less and less, “you tend to spend, not save. There is a pro-consumer bias that accelerates inflation.” "Saving is impossible", completes Bolis Wilson. The remainder of the year can be tough. History shows that when reserves fall, so does activity. “The third quarter is the most complicated. The effects of the drought will be seen in the real economy, activity and consumption point to falls. The situation is very complex because there is not much room to promote consumption, nor to take on debt abroad, and there are not enough dollars to import, ”she anticipates. Along the way poverty rises. 39.2% are poor, 2.7 points more than the previous data.
Another front: to prevent the currency from losing more value or currencies from flying, an exchange trap is in force that prevents free access to the dollar. A citizen can acquire 200 dollars a month if he meets increasingly restrictive conditions. As people want to move and save in dollars, there are official and parallel alternatives that leave a tangle of indecipherable exchange rates. There is one for those who travel, for those who buy online, for those who save, for the farmer... The blue dollar, the reference parallel exchange rate, is trading twice, in records, exceeding 600 pesos. "There is no plan to get out of the stocks or to return to the markets," criticizes Borenstein. The debate on dollarizing has flown over the campaign, but due to the size of the economy and the assets to be transformed, it seems impossible. And monetary policy would be at the mercy of US decisions.
You have to get away from daydreams and roll up your sleeves. No patches, full scale, it matches. “We have the GDP of 12 years ago. There is a lack of credibility, leadership, something difficult between elections”, says Borenstein. He mentions expired labor laws, poor digitization or import control. “There is no room to continue procrastinating. Before you went to the market, the reserves, the IMF... All the roads are already closed”, urges Manoukian. He proposes a plan of fiscal measures –zero deficit–, prices –less indexation of public spending– and without exchange restrictions. It's enough...?
