One of the great economic successes of the government was a strong decrease in inflation, from 25% per month in December 2023 to 4% per month in May 2024. Although since then it has been slower, because it reduced it almost a year to the level of 2% per month, where it is today.
Although this seems paradoxical, it usually reduces galloping inflation faster than moderate inflation, because in the first there is no inertia, in the second yes. There is evidence that what is happening in Argentina is consistent with the experience of other countries. For example, hyperinflation in Bolivia in the eighties or post -war Germany stopped and moved to numbers during the night. On the other hand, this reduced more moderate inflation in countries such as Uruguay, Colombia or Chile, because there was a strong inflation inertia.
An important point of stabilization processes is to know when they are usually recessive and when vast. A decrease in inflation from 25% to 4% was expansive, despite the strong financial adjustment. In fact, by the end of 2024, the economy already grew 5% per year. This success, however, had important costs: a growing deficit on the account of the current account, which reached $ 5,000 million in the first quarter of this year. From these numbers the debate about whether the metabolic delay was intensified, and to draw attention to the reserves.
An interesting fact is that stabilization based on the exchange rate (EBTC) is at their beginning expansive and experience a shortage in external accounts. The work of Calvo and EGH and those that I wrote with Nissan Liviatan show that in these cases, after a favorable beginning in the second stage, the economy usually suffers from the exchange rate course, which helps to correct external accounts and cooling of the economy, especially consumption.
Central Bank of the Argentine Republic. (Source: files).
In our country, it seems that the typical EBTCS cycle is given, because after a strong initial recovery, the economy slows down. We go to the second stage, at which the problems are different. This is no longer in order to avoid economic and social disasters.
Now we are talking about the transition to growth, which is not easy. In addition, this is done with a change in the monetary strategy, which was implemented from the program with the IMF, in which the amount of money became the nominal anchor of the program. In general, this type of strategy, unlike EBTC, is recessive, partly because the interest rates are high. As a consequence of these changes in economic policy, he, according to, entered into a new stage of lower stature and higher interest rates.
Everything indicates that the initial rebound is coming to an end. The fall in inflation was central to achieve it, and for this the fiscal adjustment was fundamental, predictability, which was in the exchange rate, and the collapse of the exchange. From the point of view of the famous letters and symbols, we are from recovery that can be characterized as V, and now it seems that we are going to a square root. That is, after the rebound, the economy continues to grow, but at a much lower pace.
In the government, they do not believe in stimuli to give oxygen to the economy, because they think that this should fall into the Keynesian world. The big question is how the film follows in the context in which the monetary policy is a contract, and the fiscal policy continues with the competition. The answer is that the strategy includes creating conditions for growth and expecting that over time it stimulates the entrepreneurial spirit and mobilizes investments.
We know that for growing macroeconomic stability; And in such a great progress, it was achieved, although it is necessary to put an end to control elements and gap in exchange. The economic discovery is also important that it is quickly moving, although it takes time, as well as deregulation, lower taxes that are supplied in a slow cell and move with the reforms of labor and retirement, which are two excellent problems.
Much has developed in creating conditions, now we are waiting for strawberries of dessert, significantly increasing investments. There are two problems that still make noise and delay it. The first is a country risk that, after it fell in the first year of the government, seems stagnant by 700 points. Part of the problem is an international environment where an appetite for investment in developing countries has decreased.
But this also affects the fact that it is impossible to increase reserves, and that with debts that are mainly in dollars, there are doubts about how Argentina can pay if a black swan occurs.
The second question is the doubts that exist regarding the stability of the promised policy, especially the fear of the return of populism. Unlike financial investments that are easy to leave, investments in industrial or mines are “plunged into the country” and are largely irreversible. This, as Rudy Dornbush said, companies prefer to wait until they specify that it does not always happen quickly.
The commitment of the government is clear, macroeconomic stability, deregulation, competition and smaller taxes should increase productivity, investment and growth. But investments have the opportunity to wait until the horizon becomes unclear due to fears in political changes or that the course will be strengthened. The big task is to look for measures to accelerate decisions and awakening the “animal spirits” that Keynes spoke of.
