Does manual adjustment come with the IMF, does instability continue without growth and inflation, or is there a possible solution of inclusive growth without crisis or without adjustment? If the pre-electoral reality is observed, it may be the first or the second option, or both, but certainly there is no place for the third without macroeconomic discipline, without which no country has succeeded.
The world is recovering economically from the pandemic crisis and with it the prices of Argentine exports. After an estimated contraction of more than 3% in 2020, the IMF estimates that the world economy will grow by almost 6% in 2021, moderating to 5% in 2022, slightly less than what was expected in the middle of the year. The OECD has slightly more conservative estimates, with growth of 5.7% and 4.5%, respectively. These forecasts indicate that in 2021 world production will exceed pre-pandemic levels, although less than was expected at the time.
There are considerable risks due to uncertainty about the recovery of health, the breakdown of value chains and the tightening of labor markets and the consequent increase in inflation. But even so, international food prices are at levels similar to the previous peak reached in 2011. Advanced economies are recovering at a good pace, but emerging economies have lost the previous momentum, and those who export prices they can be reduced, although those of imported raw materials – oil and metals – will remain high.
In 2021, global production will exceed pre-pandemic levels, although less than expected
Even so, the improvement in the international situation will not help enough, given that internal conditions today are not favorable.
Loss of income
Many look with longing at the situation that existed ten years ago, when Argentina reached the highest level of per capita income in the last quarter of a century. But since then there has been a fairly sustained decline in income, only offset by the use of accumulated reserves and increased indebtedness, and not only since 2016. Today, with a recovery in 2021, the average income of Argentines is 15% lower than in 2011, and even 5% less than in the disastrous 2019, with strong disincentives to production and exports and generalized and massive subsidies, which all Argentines end up paying.
These policies, magnified by a unsustainable fiscal and quasi-fiscal deficit, in the context of a complex and inefficient exchange system, which only benefits those close to bureaucratic power, will lead to more inflation and a deterioration in production. In the long run, there is a glimpse of an economic “venezolación” of the country.
If serious arrears of payments to the IMF are added to this, access to international financing from international organizations and bilateral financing, including that of China, would be quickly closed, already weighed down by heavy losses on its loans.
With or without the IMF, Argentina requires a track record of fiscal sustainability and inflation reduction in order to achieve potential growth open to the world
With or without the IMF, Argentina requires a path of fiscal sustainability and inflation reduction in order to achieve not a short-lived increase in demand, but a potential growth open to the world.
The best way out
The solution for Argentina is to achieve a break in dependence on the terms of trade (relation between export prices and export prices), which was partly achieved in the 1990s, but was eventually lost due to not taking care of macroeconomic balances.
We must remember that there was no regional economy with more programs with the IMF (11 instances since 1984) than Argentina, and when it did not, it was due to favorable international price bubbles to the country.
A desirable trajectory will require a period of fiscal adjustment, probably aided by favorable international winds. Within this scheme, an effective program of support and improvement for the poorest sectors, but recognizing that the country is poorer.
Policies favorable to private, non-monopoly and privileged economic development, is the other essential aspect, based on clear and stable rules and a competitive exchange rateAlthough the liberalization process should be implemented pragmatically, during a transition period, but one that attracts both foreign and Argentine capital (always marked by experience with erroneous policies).
Finally, this requires a degree of consensus among a weakened executive branch, a Congress possibly in the hands of the opposition, unions and businessmen, but recognizing that alternative experiments have always led to failure, although sometimes mitigated by high prices for the always undervalued Argentine agricultural exports.