Argentines save dollars on mattresses, says former minister – 03/29/2023 – Market

For Dante Enrique Sica, 66, former–Minister of Production and Labor in the government of Mauricio Macri (2015-2019), Argentina runs the risk of suffering a traumatic event later this year, such as the return of hyperinflation, and needs tough measures to get out of a crisis that drags on for decades.

According to him, Argentina is currently an economy without external financing and people are afraid to leave money in banks, preferring to save in dollars, which they keep at home.

The Argentine economy seems to deteriorate day by day. Something to do to get through the next few months, until the October elections? In the short term, with an outgoing government and low popularity, it seems impossible for a package of fiscal, monetary and exchange rate correction measures to be adopted.

Regrettably, we are doomed to continue with very high inflation in the coming months, with strong imbalances. The only alternative is to ensure that these imbalances do not increase and that there is no traumatic event, such as the return of hyperinflation. This is what the government is trying to avoid, in order to increase their electoral chances this year.

Argentina is currently an economy without access to finance, and this issue is starting to create problems in the financial sector. The country no longer has foreign credit and 70% of [crédito] Internally, the public sector takes it. Of every 100 pesos deposited in banks, they transfer 70 to the public sector.

And the level of account holder deposits in banks relative to GDP is very low, at around 9%. People save in dollars and keep them under their mattresses, outside the banking system.

Argentina has not registered productivity growth for ten years and today has a poverty level of over 40% [da população], which reaches 60% among younger people. Of the new jobs, 70% are informal; and we have more than 40% of formal workers in poverty, where they cannot buy a complete basic food basket.

But we are in an election year, and the expectation is that there will be a change of government. If the opposition manages to take power, expectations change. It is not that Argentina’s problems cannot be solved. The problem is that previous attempts at change never came up with a good solution.

There was an expectation that the liberal government of Mauricio Macri [2015-2019], of which Mr. participated, to carry out reforms. What went wrong? The main problem is that there was too much imbalance between fiscal and monetary policy in the first two years. There was an underestimation of the seriousness of the situation in 2015 [ao final do governo de Cristina Kirchner] and overestimation in relation to the expectations of changes. This led to a more lenient attitude towards the fiscal area, and more rigid in the monetary area.

This imbalance took a heavy toll in 2018, when international markets closed down. [para a Argentina], forcing the country to make a fiscal and current account adjustment of almost 4 points of GDP in one year. Which, obviously, generated a very strong negative impact from the point of view of the activity.

Now the opposition is working on a program of change and stabilization, where an important fiscal reform is needed to lower the deficit and have a public sector that can be financed again.

One of the main problems to be solved is subsidies, both for domestic and industrial energy, as well as for transport.

The process of imbalance and fiscal populism of the last 20 years has also generated deficits in public companies, which receive many subsidies. And there are problems in the pension system.

There are many reforms to be done, such as approving the independence of the Central Bank, to restore credibility to the currency, in addition to a regime that gives the country a single exchange rate. [hoje há pelo menos seis regimes].

Argentina also needs to open up to the world. If we do not adopt programs of macro and microeconomic reforms, as in the regulatory and labor areas, it will be very difficult for us to get out of this trap of high inflation, a drop in productivity and growth and an increase in poverty.

How do companies operate in this environment? With serious cash problems in an economy with a lot of intervention. And since dollars are very scarce for the public sector, there are different exchange rates, and companies have to operate in an almost secret economy. There are also employees [públicos] that are increasingly authorizing imports of goods or not, without much criteria, which makes everything less transparent.

This creates distortions and sometimes pockets of short-term business, such as for a company competing with imported products that are no longer for sale on the market. But, generally speaking, there are no incentives to produce. Business planning is almost monthly.

In sectors with good opportunities, such as all agribusiness [35% do PIB]there are no incentives to increase production, as the government increasingly taxes these activities, leading entrepreneurs to lose market share and productivity over time.

What are the odds that the opposition will win? I would say that if the election were today, 90%. Argentina has two grand coalitions, which, in the last six elections, somehow got nearly 80% of the vote. Now there’s a far-right candidate [o deputado Javier Milei]which has between 15% and 18% of the voting intentions.

But it is the opposition that today has more strength, and that will have to decide between perhaps two possible candidates: Patricia Bullrich [ex-ministra da Segurança] and Horacio Larreta [prefeito de Buenos Aires].

Argentina has an agreement with the International Monetary Fund, which seems quite lenient with local authorities, doesn’t it? It’s a very loose arrangement, and the Fund doesn’t want to be Argentina’s executioner. Exchange rate and fiscal targets are met, in quotes, with a lot of creative accounting and a complacent attitude from the Fund. All goals are made flexible so that they can be met.

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X-RAY | Dante Enrique Sica, 66
An economist trained at the Universidad Nacional de La Plata, he was Minister of Production and Labor during the government of Mauricio Macri (2015-2019) and Secretary of Industry, Commerce and Mining in the government of Eduardo Duhalde (2002-2003). He is one of the formulators of the economic plan of the Juntos por el Cambio front, in opposition to the current government.