Challenges and priorities for the new stage of government

This note began to be written on Sunday, October 26, when the elections had not yet produced results, but the outcome at the polls does not alter the main challenges facing the government: there are key factors on which it must focus to achieve sustainable economic results.

The Government recorded two relevant achievements in the macroeconomy:

1. Sustained fiscal surplus during most months, consolidating a considerable change in the variables and culture of Argentine economic policy.
2. Sustained decrease in the inflation rate monthly until June of this year, when the disinflation process entered a resistance phase. Despite this, the inflationary reduction remains significant.

Once this electoral stage is over, the Executive Branch must review its economic policy, given weaknesses still unresolved. The first step is create conditions for accumulating reserves: A process of growth, corrections and pro-market signals cannot be sustained without solid support.

The exchange rate delay – a tool used repeatedly by previous governments to artificially contain inflation – sooner or later generates unsustainable pressures between the macro and microeconomic spheres, with high costs. In economics, nothing is free, someone always pays.

This happened in the current model since June: the market stopped considering the value of the dollar reasonable and began to operate at the ceiling of the band. Without the support of the Treasury and the US government, the volatility and price would have been much higher. The most powerful country in the world intervened to protect Argentina for geopolitical reasons.

Given this situation, the Government needs a deep self-criticism: the model showed exchange deficits and demands a change of course.

The scheme of exchange bands It was not successful. What is imposed now is a managed float, with interventions from the Central Bank to moderate volatility, until the market gains maturity and can operate with less intervention.

During the next two or three years, the monetary entity should remain active in the exchange market, always maintaining fiscal balance as the axis of the macroeconomy. The processes require a learning period; abrupt liberalization is not viable in all markets. The central thing is to maintain the correct direction.

Another crucial aspect is the fall in economic activity. Since the beginning of the year, the EMAE has not shown a growth trend. In recent months, exchange rate volatility – and especially interest rates – has seriously affected the real economy.

The current interest rate levels, in addition to encouraging carry traderestricted consumption: mortgage, personal, commercial loans and financing for companies increased their rates, causing retraction, postponements and defaults. Many companies found themselves almost unable to access loans for working capital or long-term investments.

Argentina, like any economy, needs reasonable and stable real and nominal interest rates to generate predictability among market actors.

The Executive Branch must think in the long term, but ensuring short-term bridges that allow progress: without them, future reforms become even more complicated.

Changes in the labor, tax and pension sphere They are essential, but they will only be possible if the macroeconomy stabilizes and the real economy begins to show signs of sustained recovery, under an exchange rate policy that allows reserves to be accumulated.

Finally, there are two essential conditions for successful economic policies: the humility to recognize and correct one’s own errors, and permanent dialogue with the real economy, the social pulse of the “Argentine street.”

The Government has a two-year window. Capitalizing on this second opportunity is essential to lay the foundations for a more stable and fair economy.

The author is an Economist, director of Authentica Consulting