Argentina 2023: another better crisis not

A deep dissatisfaction of a vast majority of society with the state of affairs (the “status quo”) sometimes leads to supporting drastic changes in the organization of the economy, such as those experienced by Argentina towards the end of the 1980s. after hyperinflation.

But there is nothing mechanical in this process, especially if it is not motivated and mediated by a crisis. Instead, an alternative hypothesis is that by the end of 2023 a sufficiently strong political power will not emerge to carry out a reform of the political and economic institutions, such as to cause a stabilizing big-bang as in the early 1990s.

The political-social balance will not be in a position to offer such a change, because we are not going to a terminal economic crisis and because (as happened in 2019 with the macrismo) there will be quite a lot of support for Kirchnerism. Given this, the economic problems are going to continue in the current degree of precariousness, and the inheritance is going to be heavy again. In the absence of a drastic political-economic turnaround, several context and implementation problems arise in order to face stabilization.

The most difficult is to change the current unbalanced relative price structure, starting with the exchange rate and tariffs, so that it does not imply an overadjustment that deteriorates real wages and social conditions. It is facing the classic trilemma of today, and always between relative prices, distribution and fiscal-monetary balance.

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But the central battle will be in the resolution of fiscal and quasi-fiscal or financial dominance. Both must be addressed within the design of a credible stabilization program and are two related but distinct issues. Fiscal dominance implies operating on flows (expenditure and income), but quasi-fiscal dominance depends on stocks (debt) and the interest rate, which in turn is interrelated with the monetary and exchange regime. And it also depends on the expectations of how it will be resolved, in order to avoid default beliefs that lead to bubbles or runs. All this has to happen after an exchange rate adjustment and within the framework of a balanced non-financial primary result.

The issue of non-financial fiscal adjustment through spending, which implies much more than the reduction of energy subsidies, is not going to be easy at all. A profuse literature, which seems to have been forgotten, teaches that the fiscal result does not come out of a cabbage, but rather is the product of the interaction of formal and informal fiscal institutions. The current state of affairs does not look good at all.

We are plagued with soft-budget constraints, which are a vast set of fiscal windows that are the product of incredible budget decentralization and fragmentation, with a collection of trust funds and decentralized agency operations that escape budget control, as the PIMA report pointed out. of the IMF in its last review of Argentina. The corollary of this situation is that it is not a question of appointing a Minister of the Economy and a team and empowering them by lip service.

The institutional context of Argentine democracy indicates that they will not have power in these circumstances, no matter what is said. There are very diverse groups (far beyond social organizations) that are going to seek to block a reform program, and the team on duty that wants to carry it out will quickly become depressed, especially when they see the private sector look the other way. or worse still oppose.

But since the reforms have to come, like it or not, it is necessary to think better about the organizational strategy to survive, or not die too quickly, in the attempt. Before starting with the details, even though some of them are crucial, an angular vision must be adopted, under a well-defined leadership and coordination. The human team is going to have to be much more comprehensive and numerous than in the past, also integrated with “loan players” from international organizations, less exposed than the local ones.

The team should have 4 columns and avoid the existence of an active “fifth column”, which is normally armed by the same political power. The front column, of command and control, is the Minister of Economy and his Secretary of Finance, who are going to centralize decisions and will be in charge of a very significant part of the public sector. The second firm leg will have to be in the BCRA and the Finance Secretary, who cannot be loose or separated from the Economy in this transition stage.

The third is perhaps the largest and most diverse group and encompasses the entire sectoral real economy, internal and external trade policy, and which brings together regulatory, deregulation and competition entities and expands into various ministries such as production and infrastructure. The fourth, also fundamental, has to be the president of the Chamber of Deputies himself (or himself), who has to be an integral part of the economic team and from where laws and reforms are coordinated.

Given the current macro-financial fragility, it is tempting for many to assume, or take it for granted, that a macro crisis in 2023 will resolve the adjustments required in 2024 and that they will rain from above from drastic reform schemes. The risk of doing this is not only to be wrong in predicting something that is not going to happen, that is to say the “failure of fatalism”.

The problem is that it will not allow you to prepare for the alternative. I am not saying that there is no value in thinking about a zero-based reformulation of economic policy. I say that if there is no space, then the economic and political institutions currently in force in the country will transform these proposals into expressions of desire. Moral: one must think in a complementary way about which organization is going to make sustainable something that is the closest thing to a sustainable macroeconomic regime change under the available institutional configuration.

Saying this now, a year earlier, is not premature. You have to prepare yourself because it is very possible that you will have to play the game putting together a lot of the strategy and details in the locker room, before going out onto the pitch. At least we have, sufficiently in advance, a well-coordinated human team with sufficient angular vision to face this context and who does not have to go out now to explain every detail of a decision tree that is too contingent on an uncertain future context.