The Ministry of Economy and the FMIthrough a joint statement, announced this Sunday that the ongoing negotiations have ended and that a technical agreement was reached which must then be submitted to the Fund’s Board of Directors. This can be extended for two or three weeks and on July 31 the agency’s recess begins. Also this month there are maturities with the Fund for US$2.7 billion. The fine print of the agreement is not yet known, but the multilateral organization anticipated that the “agreement seeks to consolidate fiscal order and strengthen reserves, recognizing the strong impact of the drought, the damage to exports and the country’s tax revenues.” There is no doubt that the adjustment continues.
Devalue without saying that you devalue
Last week Sergio Massa and Kristalina Georgieva met again online to settle the stalled negotiation with the Fund. The agency fired heavy ammunition with the publication of its External Sector Report (ESR), which included the usual recipes: devaluation, counter-reforms and adjustment.
According to Malena Galmarini, head of Aysa, Massa “gets very spicy” in the zoom meetings he has with the organization. However, the candidate minister gave in to the requests of the Fund of a jump in the official exchange rate with a series of measures that will be announced in the next few hours that are like a covert devaluation because new parallel exchange rates (higher than the official one) are created for a sector of importers and exporters. According to him, it would be applied a COUNTRY tax on imports of certain items, there will be a new version of the agricultural dollar at $340 for certain exports, and The exchange rate of the solidarity dollar and the card dollar will be unifiedthat is, the savings dollar will be more expensive.
The measures may have inflationary effects because the industrial structure, which is backward in relation to the central countries, imports intermediate and capital goods to produce, that is, if the dollar is more expensive, its purchases will become more expensive and the employers will seek to transfer it at a price. In 2022, 71% of total imports were capital goods (such as machinery), intermediate goods (industrial supplies) and parts and accessories for capital goods; and in the first half of the year they represented 74% of total imports. For its part, the agricultural dollar impacts internal prices because it makes inputs more expensive since agricultural employers can sell abroad with a higher exchange rate. In the event that they incorporate corn, as reported, this grain is used for animal feed (poultry, pigs) and businessmen will transfer it at a price. Freight, health and education, medicines, inputs and intermediate goods linked to the basic food basket, fuel, among others, would be exempt from the tax.
He soybean dollar y agro dollar they meant a huge millionaire transfer to the pockets of the agrarian employers (more than $500,000 million).
Massa’s super scissors cuts retirements, AUH and social programs
While the Government launches new prizes for agropower, the cuts continue. The primary fiscal deficit target for this year established in the agreement with the Fund is 1.9% of GDP. The agency would authorize it to be 2% of GDP, only 0.1 percentage point of difference, that is, the adjustment goal would be maintained.
The minister has been complying with the reduction in spending, but the adjustment goal was also affected by the drop in income, since collection in real terms from export duties, import duties, profits, and the PAIS tax decreased. The Ministry of Economy, in the first semester calculated a collapse of $740,000 million (0.4% of GDP) for export rights in relation to what was projected in the 2023 Budget.
According to a report from the Congressional Budget Office, primary spending fell for twelve consecutive months in real terms. In the first six months of the year, the primary expenditures of the National Administration fell in real terms by 9.8% compared to the same period in 2022. On the other hand, the amount allocated to interest on the debt increased 18.3% in the same period, therefore total expenses fell 7.8%.
The pruning of Massa in the first half of the year in real terms affected retirement and pensions (-4.6%), family allowances (-28.2%)energy subsidies (-27.3%), transfers to provinces (-25.3%), among others.
Las social benefits they descended accumulating a drop of 10.0% in the first semester in relation to 2022. The report warns that “for the first time in the year, reductions are observed in all its components: retirement and pensions, family allowances, non-contributory pensions (-0.1%) and social programs (-23.8%). Within the social programs, Potenciar Trabajo (-2.6%) and Food Policies (-9.8%) were cut in real terms. Meanwhile, the game of the Universal Child Allowance (AUH) plummeted 12.8% discounting inflation. The government of the Frente de Todos promised “first, last”, but first there were the banks, the big businessmen and the agrarian employers.
Stop the economy?
The agreement with the IMF and its classic recipes accentuate the recessive trends. Spending cuts and positive real interest rates are a “stimulus” to slow down economic activity because it makes credit for production and consumption more expensive.
The economic activity registered in may a year-on-year drop of 5.5%, as published by INDEC. Thus, it accumulated two consecutive months with negative figures, since in April the official body showed an annual drop in the Monthly Estimator of Economic Activity (EMAE) of 4.2%. Agricultural activity had the most pronounced drop of the year due to the effect of the drought. Accumulated economic activity for the first five months of the year contracted 1.3%.
The consultants, who participate in the Survey of Market Expectations (REM) of the Central Bank, calculate that this year the Gross Domestic Product (GDP) will decrease 3% this year.
Fund pressure for further adjustment may slow down the economy. Meanwhile, inflation for the lower income sectors does not let up. In June the baskets that measure the poverty and indigence line increased in the last twelve months above inflation (123% and 124%, respectively). Since the return of the Fund to the country, poverty rose from 32% (second semester 2018) to 39.2% (second semester 2022). Nothing good will come for the working class from a new renegotiation with the IMF, it is necessary to reject the agreement and mobilize for the sovereign ignorance of the debt.