Every month we are bombarded with a large amount of economic data of various kinds. Data on inflation, growth, fiscal deficit or balance of payments fill the headlines of the newspapers and receive comments throughout the specialized press.
For several months now, the tendency to think that, while inflation data are more than worrisome, the growth figures are acceptably good has been installed on the market. How to know then in what Argentina we are? Are we wrong, but are we doing well, or have we completely misguided the road and need a turn in time?
The only way to know is to put in context each number and relate it to the others. Let’s see: It is known that the fiscal deficit is 9.8% of GDP (4.2% of the Treasury’s operating deficit, 2.3% of interest on Treasury debt and 3.3% of the Central Bank’s interest deficit) ). That, then, is the annual loss incurred by the State in its effort to grow the economy. The counterpart of this enormous effort that the State makes is the growth rate of the economy, whose last estimate had been 2.7% annually in 2018.
In other words, the State annually loses 9.8% of the total size of the economy (about US $ 60,000 million annually) to produce a general benefit of 2.7% per year (about US $ 16,000 million annually).
Therefore, the State is generating a net loss of US $ 44,000 million per year even taking into account the growth. 7.1% of GDP is lost due to state activity. Curious this: in the first place, subsidies on public tariffs have almost ended, and the deficit, both gross and net, has increased rather than decreased. And secondly, the authorities should take care of themselves before publicly praising the rate of growth, given that for every four pesos that the State invests in growing the economy, one hardly recovers.
Can you sustain a loss of US $ 60,000 million annually for the economy to grow US $ 16,000 million?
With such figures of fiscal deficit and growth, it can be concluded that it is difficult for the State to do something more in the economy that results in growth, and also, that this growth is artificially “inflated” by an incessant state activity. Let’s say that, with luck, we can think about continuing to grow at this rather weak rate if this deficit can be sustained over time. And this is the central question: Can a state loss of US $ 60,000 million per year be sustained so that the economy continues to grow only US $ 16,000 million annually? How long? This is where other statistics that we receive month after month come into play.
A deficit, whether from a family, a company or the State itself, is sustainable over time if and only if there are resources available for it to be financed. Otherwise, it is impossible to think about the temporal continuity of economic policy and we must think that either the authorities change the economic schema at the root, or that the economic scheme is responsible for changing by itself with or without the blessing of the authorities. . And how can this loss of 9.8% of the GDP currently held by the State be financed? In two ways: in pesos or dollars.
Financing the gross and net state loss with pesos implies issuing monetary base at a feverish pace. If we bear in mind that today we are hovering around 25% annual inflation, it is almost trivial to suppose that trying to issue at the rate necessary to finance the State implies bringing the inflation rate to levels above 40% or 50% per year. But that is not the worst. The worst thing is that in order to be sustainable over time, inflation would be necessary year after year, which is neither socially nor economically nor politically possible nor acceptable.
There is then only one possible way: finance a large part of the 9.8% fiscal deficit in dollars. But this will depend on the availability of dollars. The thermometer of the quick availability of dollars is the current account deficit of the balance of payments: that is, the sum of the trade surplus or deficit plus the interest, dividends and royalties that must be paid abroad. This figure was giving strong positive figures during the first part of this millennium, which marked the easy availability of foreign currency to finance growth. But over the years erosion has been very marked, so that today Argentina suffers from a balance of payments current account deficit of around 5.5% of its GDP.
In other words, the dollars that previously flowed almost spontaneously in the economy and stimulated growth now not only do not come, but there is a hole of US $ 33,000 million annually to be covered with loans from abroad only to “leave tied”, that is, , so as not to lose Central Bank reserves, which, by the way, amount to US $ 60,000 million, equivalent to a single year of state deficit. Key fact: the one-year state deficit is equivalent to all Central Bank reserves. It is worth mentioning that a combination of three factors is needed: the issuance of pesos, the entry of loans in dollars from abroad, and the reduction of Central Bank reserves to support the gigantic US $ 60,000 million that in just one year the State loses in order to grow. only 2.7% per year.
If this situation is meditated for a while and the figures are carefully examined, it falls to maturity that the current situation is maintainable only for a short period of time. Minister Caputo himself said in Congress that this situation is not sustainable even for five years. In other words, it does not reach the end of an eventual second term of President Macri. We do not say it, said Caputo in Congress.
The daily sales of dollars that the Central Bank made up to even very close to the arrival dates of the harvest make clear that we are already in this full process that includes issuance, loss of reserves and borrowing to sustain a situation that is not sustainable for a long time. No longer for the five years that the minister denied as possible, but we are stuck in an economic scheme that is not lasting, probably, not even for two years.