Friday, March 24, 2023

Argentina on the verge: some very brief reflections

Brief visit to Argentina to visit my dad. Some brief reflections here. At any rate, it was perfectly timed with the news of the collapse of exports associated to the draught, which will lead to a decline in export revenues of the order of somewhere between 15 to 20 billion dollars. A problem, since Argentina already doesn’t have reserves and dollars are tightly controlled. This came with the news that the IMF had eased the international reserve targets, which were somewhat hard to reach even before the export news.

The drama was heightened by the banking crisis, and the additional rise of interest rates in the US, which makes a recession in the US, with global consequences, more likely. That was followed by the defense, by some well-known economists, of the notion that the country will not reach the fiscal targets either, and that a break with the IMF is in order. Note that the two things are not disconnected. The fall in exports, implies directly a fall in fiscal revenues from export taxes, and indirectly it reduces the ability to import that leads to a slowdown of the economy.

It should be clear that, although the short run situation is truly unsolvable, and that the issue is external, the lack of dollars, and not a fiscal problem, the situation does not require despair. Even inflation is associated to the depreciation of the currency, and the need for wage readjustments, leading to wage-exchange-rate spirals (yeah it is distributive conflict, even if now some heterodox economists think that is blaming workers). The reason for that is that the IMF knows as well as everybody that the fiscal revenues are going to collapse and that the targets will not be reached. My mom used to say, nobody can do the impossible.

So, the fiscal target will be eased for sure. Also, it is my understanding that there are no significant payments to be done this year to private creditors. And the only money that the IMF would give the country would be to pay the IMF anyway. The question is what happens after the elections this year, and with a new government, that will face significant external obligations in dollars.

A default cannot be discarded. But export revenues are bound to go up, not just because a fourth year of draught in a row would be incredible bad luck. Also, part of the gas pipeline that will allow the more intensive exploitation of natural gas in Vaca Muerta might be finished, and the export of lithium might get a boost. In other words, who ever gets elected might face a much brighter scenario next year. Hope springs eternal.

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