Already in the year 2023, the surprise still persists due to the outcome that the Argentine economy finally had during the past year: not only was a crisis avoided, but also compliance with all the goals agreed with the International Monetary Fund was modified. This result was somewhat impressive, added to a context of great political weakness.
However, this apparent success of Sergio Massa’s economic team has a markedly short-term nature, with a program whose only goal is to end the mandate in December in the least disruptive way possible, but without the possibility of resolving any of the underlying problems.
It is clear that the agreement with the IMF was extremely lax from the beginning, aggravated by the fact that some of the goals were made more flexible by the Fund itself, and others effectively eluded due to the accounting creativity of the Government. In this way, as it has been for the last three years, imbalances accumulate and work by deepening, ensuring higher costs by the time someone perhaps decides to resolve them.
“The factors incorporated in 2022 changed the incentives for people and companies”
Even so, in order to avoid a crisis and at the same time meet said goals, the economic team required applying measures that aggravated the distortions present in the economy, deteriorating damages that are probably difficult to reverse over time in order to get through the present.
Among this group of measures is, for example, the forced deferral of payments by local companies committed to foreign agents, by imposing deadlines of up to 210 days to access the foreign currency requested for importation. As a consequence, the transfer of more than 10 billion dollars was arbitrarily postponed as a means to curb the loss of foreign currency and thus reach the goal of accumulating reserves, but in many cases seriously damaging the trade relations of importers with their respective providers.
In the same sense, the exchange rate delay, the restrictions on imports (and access to foreign currency in general) and selective devaluations have been nothing more than shortcuts to artificially avoid a true exchange rate correction together with its consequent impact on prices. Presumably, the other side of this action has been the null transparency of the foreign exchange market and the coexistence of multiple exchange rates, which discourages investment while making it difficult to make projections and make decisions. Undoubtedly, the exchange rate must be included in the list of unsustainable policies to be reversed in the near future.
The Export Increase Program, known as the soybean dollar, is also hidden in its two versions as a forced resource for the Government to earn dollars. In view of this, the soybean sector will be waiting for a new improvement in its exchange rate to settle foreign currency, like many other items now motivated to claim similar benefits.
On the other hand, in the inflationary sphere, price controls were the main and almost only policy proposed to combat the increases. Once again, the results of this measure were short-lived, but they have generated a significant change in relative prices and serious distortions in the productive framework. To give an example, the latest inflation data reflects that clothing and footwear have affected 480% in the last three years, while in the same period the communications item saw a price increase of less than 150%. .
“To avoid a crisis, the economic team applied measures that aggravated the distortions”
All these factors have perversely modified the incentives of both individuals and companies, who have turned to consumption and the purchase of capital goods and stock accumulation, respectively. This has resulted in an artificial stimulus to the level of activity, as a result of the high and growing inflation, the absence of savings alternatives and the need of individuals and companies alike to find some destination for the surplus of pesos in circulation. This then reflects that the celebrated growth observed during 2022 and the supposed success of the program with the IMF have not been mounted on a virtuous and sustainable process over time, but rather, on the contrary, has a few notable points, such as the incipient moderation fiscal in recent months, but many sources of concern. It is clear that the Argentine economy will not function this way for much longer, and that the costs of normalization will be greater the longer the current situation continues. In fact, the fourth quarter of 2022 already showed a slowdown in the level of activity, predicting that 2023 will no longer be a year of growth but one of probable contraction, in a context of greater macroeconomic fragility and growing political tensions.
Advantages, the pillars on which attempts to solve this delicate situation must rest are known and their success is proven: they involve the release of controls and restrictions, as well as distortive interventions, so that the price system once again function as a signal emitter, the interaction between supply and demand resumes its fundamental role in the market, and that incentives once again be freely defined to guide the actions of agents in the economy.
*Director of the Center for Economic Studies of the FREE Foundation.
**Academic Director of Fundación FREE (think tank that defends and promotes freedom, private initiative and limited government, with offices in Argentina, Uruguay and Venezuela).
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