An old acquaintance from Argentina, the economist Rudiger Dornbusch, used to say when referring to the ups and downs and hurricane winds of crises, that “In economics things happen later than you think, but when they arrive they pass faster than you think”.
Of course, the Argentine economy has provided for everything and will surely continue to do so. But in these last 24 hours there was a phenomenon that matched Dornbusch’s phrase, but for the good news: six months into his administration, Javier Milei’s government strung together a series of achievements in the span of just 24 hours.
It is worth clarifying, and the reader knows it well, that the economy did not achieve membership in a select club of countries or the discharge that would allow it to leave intensive care. In August the poverty rates for the first quarter will be known and experts speak of a figure close to 50%.
But that is still a long way off and in these last 24 hours Milei achieved nothing more and nothing less than: the renewal of the Chinese swap, the approval of the Bases Law, the President’s trip to the G-7, the confirmation of a tour to China, the fall in country risk moving away from 1,500 basis points to the 1,200 points that it could not reach in May, the IMF’s approval of a disbursement of US$ 800 million and, last but perhaps most salient, lower inflation since January 2022: 4.2% in May.
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The INDEC reported which were the items that increased the most during the month of May 2024.
The swap and the IMF serve as signals to reinforce reserves and increase the probability that at some point in the second half of the year, economic management will provide more certainty about what exchange-monetary scheme companies will operate in the coming years. Furthermore, to remove nervousness about the payment schedule that the Government faces between now and the end of the year, as the consulting firm Quantum pointed out: to) US$ 4.8 billion to capital and interest organizations (half to the IMF net of disbursements), b) US$ 3.1 billion public debt from the Treasury (although a part is in the hands of the public sector) and c) US$ 5,000 million of capital and interest to the provinces and the private sector.
The President’s trips to the G-7 and the announcement to China are also positive. Both identify more with the agenda of a head of state than with that of a participant in enthusiastic forums of 19th century ideals. Perhaps the confirmation that the President will maintain contacts with the main economic powers in the world, including his main buyer, China, shows another achievement at this time. Xi Xinping, the Chinese leader, could visit the region in November, just in time for the elections in the United States, when the Asia-Pacific Summit will be in Peru, country that, by the way, is committed to becoming China’s hub in the region as told this week The Wall Street Journal: A megaport in the Pacific is being built to connect China with the region by sea. Peru is no longer just about an economy with currency competition as Milei claims, but also about good relations with Washington and Beijing at once. What of all this would Milei like to achieve or achieve in his administration? Financing and works.
Finally, the inflation rate.
There is no doubt that the level fell much faster than private economists estimated.
Because? Very simple. Those who expected a higher rate underestimated the magnitude of the fiscal adjustment that the Government implemented, they thought that a new exchange rate jump would be necessary to avoid delaying the exchange rate and that Milei would loosen the stocks.
All this, added to the collapse of economic activity, caused inflation to plummet and the Government to show a successful result. regardless of what happens from now on and if Dornbusch’s maxim is eventually given in the negative sense.
Every government has its 15 minutes of fame, Andy Warhol would say. Mauricio Macri after leaving the stocks and lifting the default. Alberto Fernández after negotiating with the bondholders. There they reached their peaks and there they stayed.
After these 24 hours, Will Milei go up or down the mountain?
