Tuesday, March 8, 2016

More on the Argentine adjustment

I'll post a longer discussion later, but I wanted to provide a short update on the situation in Argentina. Everything indicates, as I had noted before, that the government of Macri wanted to accelerate inflation, with depreciation and an increase in the electricity bill.Macri rehired the technician (Graciela Bevacqua) that had been fired by Cristina Kirchner, and that led to the (mostly true) critique that inflation was higher than the official measure indicated.  More importantly, for a government that constantly bashed the previous administration for lying about inflation, they fired the same technician as soon as it became obvious that inflation was accelerating (you can check the numbers in Cavallo's website; this is the son, not the infamous finance minister; as it can be seen inflation accelerates again in November 2015, right after the election, with the huge depreciation of the peso).

Also, it is clear that the economy is slowing down, with the index of production provided by Ferreres suggesting a fall in January of about 1.1%. Not clear what the new unemployment rate is, but the increase in the layoffs in the public sector, and lower growth will lead to higher unemployment. It is true that given the current account problems the economy had already slowed down in the last 3 years or so, but the adjustment and the depreciation will likely throw the economy in a recession (we will see if the hopes of the Argentine new developmentalists pan out, and export-led growth compensates the collapse of the domestic market; I, obviously, doubt it).

Finally, Argentina is also finalizing an agreement with the Vulture Funds, which basically accepts all their demands. Regularizing the situation and having access to international financial markets is not a bad idea, but certainly there was no reason to cave to the Vultures' demands. So more inflation, to reduce real wages, and lower growth, also to weaken the labor force's bargaining power and roll back the social progress of the last decade or so. And that's why Macri was elected anyway.

PS: There are many other problematic issues in this very short administration so far, including the packing of the court, and the treatment of human rights organizations, to name a few. But it seems that in general I more or less got it right in my talk on what to expect in November, and the article that followed.

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