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March 9, 2021

The Week at a Glance

Argentina: The First Two Months in Black and White

BY Miguel A. Kiguel, Alejandro Giacoia, Andrés Borenstein, Lorena Giorgio, Rafael Aguilar, Isaías Marini

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( 4 mins)

Already in March we can make a preliminary balance of what the summer is leaving us. The best part came from the macroeconomic side. With the price of soybeans firm around USD 500 per ton and the prospects of USD 3.35 billion entering in SDRs from the IMF, literally fallen from the sky, the “exchange rate peace” continued and that took stress away from the rest of the economy, which tends to dance around the dollar.

The fiscal and monetary chapters also contributed to this feeling of improvement. Tax revenues figures from the first two months were good, largely due to the tax on exports, and in result a minimum primary surplus was obtained in January. It has been more than 60 days without aid from the Central Bank to the Treasury and in our base scenario, profit transfers or temporary advances will only show up from May, which should finish diluting the monetary hangover left by the pandemic.

The activity level also provides some smiles. Although the harvest is not looking good (the next 10 days are key in climatic terms), the data for January and February so far do not show that the recovery has slowed down. From the strong drag left by 2020, in Econviews we raised our growth forecast from 6 to 7% and we could even fall short, but we will wait to see more evidence to make adjustments.

However, Argentina’s long-term issues did not improve at all. The vaccination affair consumed a lot of capital in the “Albertism” and left another gap open for the leadership of the toughest “Kirchnerism”, which is almost always bad news for the business world and the economy in general.

The implementation of the tax on large fortunes, the reduction in the personal income tax and the increase in gross income tax in the provinces are all measures that worsen the general welfare, have serious design problems and will have medium-term repercussions. Argentina has a tax structure with many problems: very high, very inefficient and now more regressive.

The president’s speech in Congress left several grievances. In the first place, “the gap” was widened even more and the slogan of uniting the Argentines already seems totally an empty objective that no one pushes. Second, the attack on justice almost like an open war, first in the vernacular “State of the Union” and then with the statements of the vice president. This also cannot be good for business and the economy in a country.

The confirmation that Argentina is in no hurry to close with the IMF implies that we will continue to wait for a macroeconomically consistent program. Other statements by the president that, while not surprising, show a path that Argentina has already walked and did not work, such as nostalgia for import substitution, give a sign that the FX controls are not going to loosen even with soybeans at USD 520.

In this context, it seems that a calmer macro awaits us than we expected a few months ago. But there was no progress (and in some cases backtracking) in solving long-term problems. The country risk has been above 1,500 points for many days, the financial and real investment appetite is low, and in the middle class, emigration talks are the order of the day. Although the emigration numbers are not macroeconomically significant, they are an important factor in the mood of consumers and the “animal spirit” of entrepreneurs. It seems to us that, although 2021 will be better than expected, an adjustment cannot be avoided in 2022. The good way, with an IMF program, or the bad way, if there is no agreement. In our base scenario we expect a growth slowdown to 1.5%, but it could undergo a downward adjustment if a program with the IMF is not achieved when the electoral process ends.

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