Entrepreneurs and economists have put up an imaginary door on August 13. That day the primary, open, simultaneous and mandatory elections (Paso) will be held and, depending on the result, a different economy should be considered.
The 2019 Steps, which left the government of then-President Mauricio Macri without a chance for re-election, brought to reality what until then had been a possibility (the return to power of the Front for Victory), breaking economic expectations and accelerating the devaluation of the peso against the dollar, inflation and the brake on activity.
That memory is in the heads of economic agents, except that now there is a difference: the acceleration of devaluation, inflation and the slowdown in activity began in July 2022, with the departure of the former Minister of Economy, Martín Guzmán (see graphic), mess that the current minister Sergio Massa fails to solve.
So, the next Steps could once again change expectations, since there is a certain consensus in the markets that a national political change is coming towards positions more favorable to private activity. If the current crisis becomes more acute, the scenario will be more propitious for tougher political positions (such as Javier Milei or Patricia Bullrich); if it is less serious, it will help more dialogue-oriented positions (such as those of Horacio Rodríguez Larreta, Sergio Massa, Miguel Pichetto or Juan Schiaretti).
This has generated a freeze on economic decisions (investments, hiring employees, new projects, etc.) that is deepening due to the worsening of the macroeconomy and a government that is not correct in its measures.
“From here until Paso I see a very complicated economy, because all the decisions that the (national) Government is making are restrictions. Both the real economy and financial activity are absolutely suffocated. The financial sector is condemned to have to finance the State with a risk of default very large and the real sector has no chance of making a profit, let alone investing,” says Diana Mondino, economist and president of Banco Roela.
slippery ledge
In economic matters, the consensus is that we are heading towards an economy that this year will fall by around 4%, a monthly inflation of 8% to two figures and a free dollar without a ceiling. In this uncertainty, a wrong decision complicates the future of any company.
“You see an extremely unstable economy, clinging to a ledge from which we began to slide. We are going through one of the most important droughts in decades, with falling international prices and US$ 20 billion less, international reserve targets that we already knew were not going to be met, and outdated fiscal accounts. There are few things that the Government can do from here until the Paso and what has to be reformulated later nobody knows in what terms it will be done”, explains Gustavo Reyes, chief economist of Ieral Cuyo.
In this uncertainty, adds the specialist from Mendoza, the dollar “is the entrance ticket to Noah’s ark”, therefore, with accelerated inflation “it cannot be ruled out that the economy will destabilize even more”.
This acceleration unleashed the specter of hyperinflation for several reasons. In November 1988, inflation was 6% to 7% per month. In 1989, such a vertiginous and exponential process was unleashed that in July it reached between 190% and 200% per month, at a time when there was economic activity and individuals and banks could freely buy dollars.
For now, the country is far from those figures and, unlike at that time, currently the recession and the lock on the dollar act as a significant brake. But they would not be enough to stop hyperinflation, as Reyes warns: “We must avoid a massive flight from the peso and this can be achieved with certainty or having dollars, which is why a good agreement with the International Monetary Fund (IMF) can help improve the system exchange”.
inflation vs. dollar
For Ariel Barraud, director of the Institute of Economic Research (IIE) of the Córdoba Stock Exchange, the speed of the acceleration of prices, from here to Paso, will be decisive, because it increases the deterioration of the income of the workers, and this will mark the decisions of a good part of the electorate.
“The problem is that there is no concrete policy to cut this acceleration. Massa’s thing is to continue with the usual, control prices and appeal to force ”, he adds.
Even the last important measure of the Central Bank, raising the reference rate by 10 points from 81% to 91%, sounded more like a drowning slap than a really effective policy.
“Since there is nowhere to anchor the values of the variables, any isolated number is something like a leap into the void, because it is not articulated within a program,” warns the economist from the Cordoba Stock Exchange.
But anchoring the prices of the dollar and the internal economy are not the only problems that the Argentine economy has. In a scenario of low international prices for soybeans, corn and wheat, the rains in April were insufficient to restore the humidity of agricultural soils, and this raises another unknown, according to the consultant Salvador Di Stefano recently stated at Café Macondo , a cycle of economy and finance that is heard on platforms and social networks.
“You have to wait and see what happens in May to find out if it makes sense to sow wheat. Here is a very big question mark. There may be another economy, not only because of the result of the Paso, but also if the rains in August and September are as expected for the planting of corn in September and prime soybeans in October. Today we have the crushing industries in Rosario, Santa Fe and Córdoba that work at less than 30% of their installed capacity and there is no prospect of an increase in economic activity, which will generate suspensions, plant stoppages and early vacations. Is someone in Buenos Aires talking about this?” she wondered.
What can change once the candidates are defined
“How will the economy be on Monday after Paso? The same as Friday, ”he assured with a Mondino smile.
The phrase was not humorous. An election cannot change the state of the real economy, but it can change the expectations for short-term decision-making.
On August 14, with the results of the Paso in hand, the economic agents will evaluate the new situation. There will be a scenario if the ruling party is left without a chance of victory in the October 26 elections but with a collaborative attitude in management, a different one if it takes an aggressive position against the potential winner and finally a different one if in these last two situations it manages to come out stronger. in the province of Buenos Aires.
The big problem is that the margins of maneuver that the Government will have after the Paso will be even more limited.
“The market knows this, that is why it is very nervous and it is difficult for this context to change. In addition, the real economy has been contracting, the harvest is going to register the strongest fall since 2009, when the gross domestic product (GDP) fell for four consecutive quarters”, warns Reyes.
Furthermore, a victory for the space of Together for Change is not the same as for Libertarians. Both promote the market and the private sector, but with opposite profiles.
“It seems that society is demanding a next government closer to the private sector, which a victory for these spaces would bring some optimism. But even in these sectors for some one or the other will be good or bad news. There are sectors that are pushing for strong changes, such as the dollarization that Milei encourages, and others that are not willing to make this type of change”, says Barraud.
A win for Libertarians could encourage more coverage and protection for what’s next in the dollar.
860%
The result of the 2019 Paso deepened a run on the dollar that would later continue throughout the entire administration of Alberto Fernández. From then until last April, the free dollar rose 859.6%, according to a calculation made by Idesa (see chart). In that same period, accumulated inflation of 547.2% was recorded (for April, a projection of 8% per month was taken), showing a path parallel to the devaluation of the peso against the dollar.