A little over a week ago, Kristalina Georgieva met with Javier Milei in Italy. It was all smiles and coincidences. The World Bank, almost at the same time, was preparing a possible assistance package for Argentina for US$2 billion to finance social and educational aid plans that, in essence, are dollars that enter the Central Bank.
A few days before, Luis “Toto” Caputo was enthusiastic when announcing the negotiation of a new agreement with the IMF that could bring fresh funds to accelerate the exit from the stocks. As if that were not enough, the approval of the eighth review of the agreement between the Fund and Argentina and the disbursement of US$ 800 million must be added.
More or less with those words one could summarize the progress of Argentina’s financial relations with the organization a few days ago, all in line with an almost celebratory look on the part of the market. At the same time, Congress moved forward with the delayed Bases Law and Tax Law.
This idyllic panorama became complicated when the IMF He extended his statement on the review of Argentina, putting on the table some “buts” that were decisive. Suddenly Gita Gopinath spoke and asked for greater control of the social impact of the adjustment, a verifiable way out of the trap and although Javier Milei denies it, a flexibilization of the exchange rate that in Creole language is nothing other than a devaluation of the official dollar.
He IMF of these times speaks of social impact and that a “disinflation process could prove more persistent, causing prolonged hardship and intensification of social tensions, even with the reinforcement of social spending.” This IMF, which now seems more progressive than the most open socialism, seems to be determined to harshly demand from the governments that embody and even surpass the programs for the reorganization of the economies, while it forgave those who subsidize, issue and increase spending without control. all.
The Fund puts Argentina, once again, in a delirious alternative. The latest pronouncements of the organization ask the country to devaluate and warn of an abrupt fall in the economy. The market, which had been nervously watching the vote on the Base Law and the Tax Law, once again entered a state of nervousness that was not always controlled. The long holiday in Argentina partly hid the negative movement that Argentine assets had in New York. Tomorrow the impact can be seen in local markets as questions pile up.
There is no favor from IMF, that aggravates exchange rate demands, advances negative forecasts for the country in the midst of the adjustment of the economy or warns about the social impact of the measures it takes. Javier Milei. The scenario is complicated because, in addition, the organization requests details about the monetary path, an issue that shows growing problems at least due to the level of issuance in the last month.
Gopinath’s list of requests seems endless: “Impressive progress has been made towards achieving overall fiscal balance and priority must now be given to further improving the quality of adjustment. Efforts must continue to reform the personal income tax, rationalize subsidies and tax expenditures, and strengthen spending controls. Beyond this year, deeper reforms of the tax, pension, and pay-as-you-go systems will be essential. income, including to eliminate distorting taxes,” he said.
Milei It offers the Fund the greatest adjustment in the country’s history and, as a consequence, fiscal balance, although that outlook may change to a deficit in June, as Milei himself recognized. Something similar could happen with the food inflation curve, a fact that would cause the 4.2% of May not to be repeated in June.
In this context, other weaknesses appear. The treatment of the Base Law and the Tax Law took too long. When it was approved in the Deputies, the market’s demand was to first see the sanction in the Senate. With a significant pruning, the law was voted in that Chamber and there was celebration, although not euphoria. By then it was enough for the title of the law to be approved, at least as a demonstration of the governability power of Milei.
Today politics and economics are already asking for more. The market expectation now is that the Tax Law will be approved this week, without further delays, and insisting on the original sanction of Deputies at least in the titles on the Income Tax and the Personal Property Tax. Without these reinstatements, it is considered that the equation of the laws that Milei requested does not close.
The nervousness is not only among the governors who, after having supported Sergio Massa’s shameful campaign adventure by eliminating Earnings on the Fourth Category, now demand that the president return their share. Milei He is also to blame because he himself during the campaign also raised his hand in favor of that tributary monstrosity of Massa.
He IMF He allowed the unspeakable to Cristina Fernández de Kirchner, Sergio Massa and Alberto Fernández, curious because he did it while Kirchnerism was in full force and that same Government was insulting and questioning the organization. The IMF is now tightening.
It is a curious classic, at least from Argentina: the organization demands that governments willing to apply healing recipes, even at high political cost (in 2001 they did something similar to Domingo Cavallo) and extends a warm hand to the populists. subsidizing demagogues, from whom he asks little perhaps for fear of precipitating a new crisis in Latin America. It is a game with which the populists seem to have taken advantage of the IMF and, in part, to the United States, capable of putting up with anything as long as not creating a new Venezuela in the region.
Faced with these realities, there are many who believe within La Libertad Avanza that the Government should rethink strategies if the disbursement of funds intended in the new agreement with the IMF is accompanied by conditions on its use.
This whole debate has little to do with economics and a lot to do with politics. The Government needs to show good news as soon as possible. This is not a surprise to anyone: the drop in consumption measured by several consulting firms showed an average of 10% in May. More complicated numbers are seen in cement shipments, which although they had a slight monthly improvement in May, fell 27%, or car sales fell by 14%.
The recession is installed and, after the fall in inflation, it now appears as the main problem on the minds of ordinary Argentines who in May, for example, had a year-on-year drop of 20.5% in the purchase of cold cuts, hamburgers , frozen, sausages and eggs, among others.
Again: the Government needs good news as soon as possible. The Base Law and the Tax Law are no longer enough to keep the mood of the economy up and the outside world is asking for more details about the future of the economic plan.
Meanwhile, an unprecedented effect in Argentine history continues to be maintained: support for adjustment and the promises of Milei It is almost intact. The president maintains his positive image above 50% and even had the luxury last week of showing himself in first place in image within the list of Latin American leaders.
Kirchnerism still does not understand that the most important part of this phenomenon is not due to Milei’s virtues but to the economic and social terror to which they plunged the country in the last 20 years. That alone explains the disorganization and the total absence of any chance of recomposing an opposition Peronism.
There is a sample of the current Kirchnerist delirium that speaks for itself. K’s desperation reaches the point of thinking about Mayra Mendoza as a possible Buenos Aires candidate as an alternative for the future in the internal battle that La Cámpora is fighting against Axel Kicillof.
Despite the news provided by the impact of the adjustment behind closed doors and the pressures that appear from the IMF, the government has achieved some victories in recent days that can cement the beginning of a recovery. The approval of the Bases Law and the Fiscal Law in Deputies, where the number seems guaranteed, are added to the IMF disbursement and the renewal of the swap with China.
In Europe, Milei is not doing badly on his tours, although the one that ends tomorrow has had more priority on an agenda of personal satisfaction than on matters of state. The doubts about her meeting with the German Chancellor Olaf Scholz and the mistake of having requested an audience with King Felipe VI when there is a virtual break in relations with the Government of Pedro Sánchez, were left behind on the trip that ends this Monday. Yes, Argentina’s position at the G7 table was important and the country’s chance to show a change in the direction of the wind after years of crazy foreign policy.
Milei He must be very careful with the step he will take next week to rebuild his cabinet. The crossovers between two men who have hated each other for years like Luis “Toto” Caputo and Federico Sturzenegger are not free or harmless. Argentina cannot afford to have an internal crisis with its Minister of Economy. Milei understands it and that would be the translation of her phrase “No one touches Toto’s ass”, but she still has a lot to resolve if she wants Sturzenegger to be in charge of launching the reforms after the approval of the Base Law.
All of this will happen while businessmen continue with their string of complaints and show less endurance than ordinary Argentines who bank the cost of adjustment in the hope of investing in a country that is changing.
