Is the honeymoon between Javier Milei and the markets over? The question remained buoyant after Argentine bonds accumulated sharp falls in the last week and the country risk rose to 1,582 points, almost 300 more than 10 days ago. At the same time, the parallel quotes of the dollar once again showed a gap of more than 40 percent, retracing the reduction experienced since last December.
The strong correction occurred just on the eve of the La Libertad Avanza government turning six months old, a period in which the management’s emphasis was placed on monetary and fiscal issues. Milei prioritized getting rid of the Central Bank’s liabilities (he converted them into Treasury debt in charge of all Argentines) and a very strong cut in public spending, with absolute contempt for the real economy. Thus, while the president celebrated having made “the biggest adjustment in the history of humanity” (is this something that should be celebrated?), the indicators that mark the pulse of daily life, such as consumption, salaries and activity, fell at levels only seen in the two most traumatic episodes of this century: the pandemic and the outbreak of convertibility.
In this area that people suffer every day, the only asset that the government can show, which is the reduction of inflation, is finding its limits. From 25.6% in December (self-inflicted by the devaluation ordered by Luis Caputo), the May index that will be released next Thursday could break the 5 percent floor, but it is unlikely to continue falling. In the Market Expectations Survey published by the Central Bank last Thursday, the participating consulting firms predicted that prices will continue to evolve at that pace and that the year will close with an increase of 146%, closer to the 211% that Alberto Fernández left in 2023 than a stabilized and recovering economy.
Dissatisfied here and there
An example of the limits of that model was given by Caputo. Far from the “rockstar” label that Milei gave him, the Minister of Economy realized that the total liberalization of the market advocated by his boss has a limit. That is why he judicialized the rise in prepaid bills and filled the path towards the liberation of public service rates with obstacles. His pragmatism did not leave the providers happy (the energy distributors continue to be ignored by the increases and the generators collected their debts with a 14-year bond) or the users, despite the fact that the increases applied in electricity, gas and transportation They were softened.
Without raising their voices much, through political commitments, some sectors have already issued public warnings about the depth of the crisis. “The continuity situation of many companies is at the limit. It is unfeasible in any activity to have a company that invoices zero or practically zero,” Gustavo Weiss, head of the Argentine Chamber of Construction, said this Friday, a sector hurt by the stoppage of public works.
The Argentine Industrial Union also does not agree with Milei, who during his visit to Santa Fe told agricultural businessmen that “economic activity began to rebound.” The head of the UIA, Daniel Funes de Rioja, contradicted him: “I would not dare to say that there are green shoots,” he stated at the end of a meeting with the Chief of Staff, Guillermo Francos, in which he grumbled about the advantages taxes that foreign firms will achieve on local ones through the RIGI (Large Investment Incentive Regime) proposed by the Executive.
Behind these issues there is another one with high social impact: unemployment. In addition to the layoffs in the State (“we have already laid off 25,000 state employees, we are going to lay off 50,000 more,” said Milei), those in the private sector are added. A report from the IPA Observatory (Argentine Industrial Pymes) states that “the impact of the crisis in these few months is even greater than that of Macri in four years. Only in the first three months of 2024, 58 thousand jobs were lost in Argentina, of which 11 thousand correspond to SMEs.”
In this regard, the Buenos Aires government admitted, through the report of its General Directorate of Statistics and Censuses, that in the southern area of the city of Buenos Aires unemployment is already in double digits (10.6%). Regarding poverty, the estimates are even more gloomy: the UCA estimates that in the first quarter it reached 55.5% of the population, almost five million more people than at the end of last year.
Did it go too far?
The picture scares even those who defend monetary orthodoxy and strict fiscal discipline. The International Monetary Fund, perplexed by such a savage adjustment, reiterated this week its request that the chainsaw “not fall disproportionately on working families,” while recommending “expanding political support” to carry out the reforms. In Washington they fear that the government has gone too far and that a social reaction will prevent it from staying the course.
Meanwhile, economists debate whether the exchange rate is behind schedule or not and are looking closely at the liquidations of agricultural exporters, which are much lower than expected: in May they contributed 37% less foreign currency than in the same month of 2023.
They also distrust that the government can lift the exchange rate, as it had promised. Marina Dal Poggetto, one of the voices most heard by the establishment, described the program as “trap-dependent” because if the foreign exchange market is released it will be impossible to keep rates low, liquidate liabilities and continue transferring debt from the BCRA to the Treasury. “What we are seeing here is a collapse in activity in pursuit of cleaning up the Central Bank’s balance sheet. I can’t understand that rush, the underlying problem is not being resolved,” she said in an interview with Radio con Vos. And she left a reflection full of pessimism: “They are making society pay for an adjustment that, for me, leads nowhere.” «
