Depreciation of 102%, 48% inflation, 33% poverty, and a 3% fall in gross domestic product. Data describing the worst economic performance since the 2001 crisis, and they provide a big challenge for President Mauricio Macri, who not only has to be a pilot of the storm, but will be forced to face the pressure inherent in the process. general election
A group of selected specialists, spoke with Río Negro to describe the macroeconomic scenario in 2019, and answered five specific topics, to get a complete picture of what the new year brings.
With regard to inflation, economists believe that the downward trend in prices will be gradual. The high interest rate policy is very important, because it suppresses consumption and demand for money. The consensus is that for the following year, the floor will be at 30%.
Regarding the dollar, specialists emphasize that the current exchange rate does not reflect the equilibrium balance, and that prices must be at least $ 44. It is expected that the dollar will take steps next year.
Regarding economic dynamics, there is a consensus that it will be difficult to repeat the strong fall of products registered this year in 2019, and that from the second semester reactivation can start registering. Even so, it will not be enough to avoid further decline in GDP, around 2%.
Finally, the influence of the electoral process on market confidence is highlighted. Investors look at the sustainability of the government with a good eye, and are worried about what will happen with foreign debt if Cristina Fernández has a serious chance of returning to power.
1) Will inflation fall?
2) Will the dollar continue to rise?
3) Does the government have zero deficits?
4) Will there be reactivation in 2019?
5) Is there a risk of default?
Tigani: "Risk of default depends on survey"
Pablo Tigani holds a Ph.D in Political Science, Masters in International Economic Policy, a financial consultant and an MBA professor at Argentina Business University (UADE).
1) Inflation can decrease if the situation of system regularity is maintained and if the dynamics of aggregate demand are currently maintained. Consumption accounts for 75% of GDP growth, and we end the year with a decrease in consumption of 8%. Investment does not come, public expenditure falls, and exports do not increase. This means that we face a sharp decline in aggregate demand for 2019. Within that framework, inflation can only go down if most people behave like sheep.
2) What is clear is that with this inflation rate, the exchange rate has returned. According to the IMF itself, today's exchange rate is at least $ 44. But if there are no pesos on the market, small markets, it is difficult for the dollar to rise. The key today is the renewal of financial instruments used to achieve dominance against the dollar. Pressure must be given to the letter holder. The problem arises if at some point in 2019 the Leliq stock is not updated.
3) When we talk about a zero deficit, we are actually talking about primary zero deficit, because if we add a financial deficit and a quasi-fiscal deficit, red is 8% of GDP. If it added to the current account deficit of 4%, the shortfall reached 12% of GDP. And also the debt / GDP ratio exceeds 90%. The financial situation is even worse than in 2001. The only thing that prevented the invasion was the agreement with the IMF, which can only be carried out during 2019, and massive efforts from all economic sectors.
4) Obviously there will be no economic reactivation next year. But we must consider that 2018 is a very bad year, with a GDP decline of around 3%. For this reason, when comparing 2019 data statistically with this year's data, there is a possibility that the decline will be smaller, close to 2%. It must be taken into account at the same time, that the government will end its mandate with a smaller GDP than it receives, and distribute it worse.
5) Yes, there is a risk of default. That can be in the next four quarters or in the next six. So that the risk of default fails, roll over permanent debt needs to be done. And that is only possible if during 2019, when looking at elections before the presidential election, the ruling party retains its current political hegemony. If the official coalition starts to crack, it's difficult. A clear example is the risk dynamics of the country, which, after the G20, goes up and does not go down. There is good telephone connection, but there is no money disbursement or strategic alliance.
"It will be very important to meet social demands, which will undoubtedly grow next year in a strong recession scenario."
Pablo Tigani, doctor of Political Science and economist
Giacomini: "Monetary policy is poorly designed"
Diego Giacomini is an economist, master of international economics, with a liberal orientation. He is part of the staff of the Economía & Regiones consulting company, and a regular columnist in national media.
1) With the current balance presented by the Central Bank accounts, it is very complicated that anti-inflation policies can be sustainable. Today there is a floor of monthly inflation between 2.5% and 3.5% which is difficult to drill. This automatically feeds back inflation expectations, and increases exchange rate pressures and incentives for fixed interest rates are high. Monetary policy is poorly designed, and therefore 2019 inflation will be similar to this year.
2) The dynamics of exchange rates are typical of Argentine preferences for foreign currencies. Saving in dollars is not irrational but quite the opposite. That we save in dollars is a spontaneous, defensive and rational market action. If we compete for the currency, Argentina will donate spontaneously, because it is the currency that we Argentina choose freely. Therefore, the IMF calls for zero emissions, to avoid this with the peso in hand, Argentina does not compete to get rare dollars. If inflation continues to increase, there will likely be a new round of exchanges next year.
3) In a country, the sector that produces wealth is related to exports, with SMEs that produce jobs, or companies that invest. The problem of adjustment caused by the government is not enough, because it is poorly designed, falls in these sectors. Who assumes the government at the end of 2019, must make adjustments at least 50% higher than this government. If this management goal is a reduction of 2% of GDP, another 3% will be needed. Adjust more adjustments.
4) In Argentina we are accustomed to the dynamics of even negative years and oddly positive years. But even that is impossible to wait for next year. Our projections show that the economy will end this year with a 3% decline, and by 2019 we can expect a 1.5% decline in products. This implies that by taking the mandate of Change from end to end, GDP will end at a lower level than December 2015.
5) The traditional definition of default is that this occurs when a country stops paying for its commitment. But countries pay their debts, take new debts on the market to be refinanced. And the truth is that today Argentina has no access to the credit market. Financing for 2019 is guaranteed by the IMF. But Argentina is slowly being pushed towards default. You cannot know whether in 2020 or 2021, but it is clear that what was achieved with IMF assistance was to kick financial difficulties into the next mandate.
"Monetary policy is co-opted by political classes that use money as an instrument to improve their position"
Diego Giacomini, master of International Economics
Ferreres: "The economy will grow next year"
Orlando Ferreres is one of the most important economists in the country. Trained at Hardvard (USA), he worked for more than 25 years in the Bunge y Bornfue group Secretary of Coordination and Programming during 1989, was the founder of study Ferreres y Asociados, and regular columnist for the newspaper La Nación.
1) The government pays handsomely for opting for gradualism during the first two years, and finally falls into a typical surprise recipe, one year before the election. Even so, we believe that inflation will begin to subside. We estimate that 2018 will end with 47% inflation and the estimate for 2019 is around 26%. That is, we expect a decline in the strong price level for next year.
2) The dollar must follow theoretical balance parity. At present the figure is $ 44, and if you take into account the shortcomings of foreign currency, it should be even higher. The way to achieve that balance is to reduce interest rates, something that the government does not want to do now. What happened to Leliq was very decisive, with banks pressing to guarantee performance.
3) Today Argentina depends on what they lend. The IMF will give Argentina up to US $ 56,500 million next year, which will increase debt in the future, and China will give us swaps equal to US $ 19,000 million. And if someone sees a Central Bank reserve, they don't exceed US $ 60,000 million. The government needs to find a way to generate genuine foreign exchange earnings, and for that it needs to export again, without implying an increase in the tax burden on foreign trade.
4) We expect activities to increase, and that 2019 will peak with economic growth of 1.7%. Most consultants, and even the government, announced a reduction in products. We, on the other hand, expect the impact of next year's harvest to be strong, especially soybeans, which can contribute up to 2% of GDP. Not optimism wrong, but the numbers we have. Positive data will start arriving from the second quarter.
5) This is something that is clearly related to what happened to politics next year. Short bond prices have fallen far more than long-term bonds. This happens because the market evaluates that the risk of default is much higher if the election wins Cristina Fernández. It will be very important to observe the path taken by traditional Peronism and what will be the position of Kirchnerism, which seems irreconcilable. The government believes that the agreement with the IMF allows him not to need to take funds to fulfill his commitments next year.
"Management of the economy is orderly, because they don't face entry problems. Public spending is a record."
Orlando Ferreres, economist, consultant
Alvarez: "We will see the dollar grow with inflation"
Rodrigo vlvarez is an economist and international financial consultant. He is a partner and director of Analytica consulting, and he works as an assistant professor of Evaluation of Investment Projects at Universidad Argentina de la Empresa (UADE).
1) The reading we have is that most of this year's jump in the exchange rate has moved to prices, but because of the decline in demand in the third and fourth quarters of 2018, companies must hate your profit margins. For this reason, we believe that as early as 2019 many companies will try to recast lost profitability, and it is hoped that the downward trend in inflation will continue, but at a much slower pace than expected. We estimate the inflation rate of 30% in 2019.
2) It is difficult to think that next year's inflation will get a lot from the exchange rate. The exchange rate appreciation process ends in 2017, and 2018 is a turning point. At present Argentina has important external financing restrictions, which force it to use available dollars to function, and the dollar comes from trade. I doubt that the government will allow a new appreciation process, and next year we will see the dollar grow at an inflation rate.
3) I think in fiscal terms, 2019 is the year of maturity, because until that year the funds sent by the IMF are guaranteed. His doubt is that he will graduate from 2020, because from then on it is unknown how Argentina will return the $ 57,000 million received from the IMF, and that would imply renegotiation with new requirements. Clearly the market wonders whether Argentina will reach the level of surplus needed to cover at least the interest expense, and avoid that the relationship between debt and GDP continues to increase.
4) Recessive trends will begin to recover from the second quarter of next year. But this year left a negative statistical barrier, so the 2019 recovery would not be enough to ward off the fall of 2018. The economy fell from the third floor to the second basement by the elevator shaft and broke his leg. You should start climbing the stairs slowly, and maybe at the end of next year on the ground floor. When you see 2019 full, maybe on average you talk about a 2% reduction in the product.
5) Situation & # 39; do not pay & # 39; must be separated, as happened in 2001, from the strategy of 'accountability management' & # 39; What Argentina has to do starting in 2020, is to work with private debt, improve and expand the maturity profile, clearly on a voluntary, not compulsive basis. And of course renegotiation with the IMF. The agreement with the IMF was prepared to know that it was impossible to comply with payments since 2022, and anticipate the necessary renegotiations.
"The market will behave in a more friendly manner if there is continuity of Macri rather than if Cristina returns".
Rodrigo Álvarez, economist, financial consultant