The Argentine economy fell 19.1% in the second quarter of this year, as a consequence of the lockdown. It was the most brutal contraction since there are statistical records and surpassed the one suffered in the first quarter of 2001 (fall of 16.3%) after the collapse of the parity between the peso and the dollar. The National Institute of Statistics and Censuses published the data when the Minister of Economy, Martín Guzmán, was preparing to present to the Chamber of Deputies the budget project for 2021, in which a growth of 5.5% is expected.
Martín Guzmán was strengthened after agreeing on a debt restructuring with foreign private creditors, but last week he suffered a defeat before the Central Bank: the monetary authority managed, against the opinion of the minister, to extremely toughen the "stocks" that limit the exchange market and, specifically, the purchase of dollars. "They are transitional measures that do not make us happy, they serve to avoid more instability," he temporized before the group of deputies who physically attended the presentation. Guzmán had just starred in a curious gaffe: believing that the microphone was still closed, he commented to Sergio Massa, president of the Chamber, that he too "could sarase", that is, say nonsense.
The budget for 2021 raises some skepticism among analysts. First, because it calculates for the year as a whole a change of 102 pesos per dollar, when in the free (or illegal) market the dollar is now at 144 and the "counted with settlement" (which is obtained by buying financial assets in pesos and reselling them in dollars) reaches 147. Second, because it foresees an inflation for 2021 of 29%, despite the fact that last August the interannual rate exceeded 40% and private estimates place it at similar levels for next year. Third, because the duration of the pandemic remains unknown. And fourth, because President Alberto Fernández and Guzmán himself are preparing a tax reform that would be applied in 2021 and that, logically, the budget does not contemplate.
Another factor of uncertainty is the payment of extraordinary subsidies to workers affected by the measures against the pandemic. It is not known how long they will last. "The projections from which we start as a guide for economic policy," said Martín Guzmán, "are prudent. The context demands that we exercise extreme reasonableness. We need policies to transform reality on the basis of caution and responsibility, not illusions and doubtful foundations ”. The minister himself admitted, to questions from a deputy, that it was not possible to draw up an economic plan in an international context as uncertain as the present.
Martín Guzmán intends to correct the budget deficit, which due to the pandemic is now approaching 10%, and reduce it to 4.5% in 2021. That is, adjustments will be necessary in a difficult situation. It will have a reduction in the payment of interest on debt (thanks to the restructuring, they fall from 3.4% of the total budget to 1.5%), but it will still be complicated. In the budget law it is estimated that 35.8% of Argentine workers remain in the “informality”, oblivious to the payment of taxes and labor regulations. It is a very serious data, although not as serious as others recently published by the Institute of Statistics: one in ten Argentines lives in poverty, 14% of Argentines go hungry, 44.7% of Argentines are poor. Currently, earning a thousand dollars a month allows access to the richest 3% of the country.
The estimated budget deficit will require maintaining a frenzied manufacture of money, since Argentina, with a country risk of over 1,300 points, can only obtain foreign credits at prohibitive rates, above 12%. It will take 1.6 trillion pesos (23,000 million dollars at the official exchange rate) to cover the planned expenses, which will be achieved by printing banknotes (something that could trigger inflation if the economy reactivates) and, in to a lesser extent, with the issuance of debt in pesos. The need for currency is so dire that, with the two Argentine printers working 24-hour shifts a day, it has been necessary to hire the services of a Brazilian printing company.
For Martín Guzmán, the urgent thing is to "reassure the economy" after 10 years without growth, after the "shock" of the devaluations of 2018 and 2019 and after the devastation caused by the pandemic. He expects real wages to "recover" thanks to a return to growth, stimulated by public spending.