A few days ago the Consumer Price Index for February was released, which was 6.6% Is about a very high figure that cannot be explained by the evolution of salaries, nor by rates, nor by the exchange rate, nor by the monetary issue. For example, comparing February of this year with February of last year, the monetary issue was 39.76%, much less than half of inflation. What explains, then, the current rise in prices? According to my point of view, a combination of expectations, speculation and distributive bidding. In an economy that is growing, as is the case with Argentina, the size of the pie increases and, consequently, the dispute between the different actors grows to appropriate the largest portion of the benefits of that growth. In this process, there is an increase in the profitability of some sectors of the economy through these price increases that are not justified in any way by the rise in costs. It is what we call distributive bid.
Many of those raises are “preventive increases”. In other words, increases made by the members of the value chains in the event of a devaluation or any other possible factor that would later make the replacement of final or intermediate products more expensive. The increases try to ensure that the sale price of the existing stocks is not below the new prices that the suppliers “assume” to set. In these cases, expectations play a central role: the assumption that prices are going to increase generates the actual increase in prices. Then, if that assumption is not met, the effect has already been produced: prices have increased. is what we call expectations and speculation. Those expectations drive decisions in the present based on the assumption of what would happen in the future. In this scenario, the main referents of neoliberal ideas announce that, if they win the next elections, they would cause a large devaluation and a strong anti-inflationary shock. Of course, these statements influence the expectations of the different economic actors.
Many of these business actors are the ones that have signed agreements such as Fair Prices, which then do not comply. They are free not to enter into these agreements but, once signed, they should be bound by them. The lack of compliance with these agreements probably had no less weight in the 6.6% inflation for the month. Thus, it is necessary to act more energetically on those who do not comply with the agreement.
One of the great battles that the government is waging is to achieve the compliance with the Budget Law. It proposes that, in order to avoid resorting to an anti-inflationary shock, it is necessary to go through what we could call a slightly descending ladder: changing the expectation that prices always go up for another according to which they can move down gradually. Along these lines, the multi-year projection of the Budget sets an inflation target of 60% for this year, 44% for next year and 33% for 2025. In no case are these anti-inflationary shock measures because we are aware of the social consequences that this type of policies have had and would have on the population if they are applied. If a large devaluation is carried out, inflation could be stopped but at the cost of reducing consumption and producing a strongly recessive scenario where, as always, those who suffer the most are the most vulnerable.
In another order of things, on Monday the 13th the IMF agreed with the national government on a modification of the goals of the program. It made the accumulation of reserves more flexible taking into account, among other factors, the impact on public accounts caused by the drought. The new agreement will allow an approximate disbursement of 5,300 million dollars.
We’ve said it many times: there are no good agreements with the IMF. The great drama of Argentina is having taken the credit of 56 billion dollars with the international organization (disbursements were interrupted in August 2019 reaching a total of 45 billion dollars). From then on, the country is in trouble: the only option it has is to fight to achieve the least bad agreement possible. When it was signed, in March 2022, a paragraph was included in the memorandum stating “our base case is subject to significant uncertainties, which implies that policies may need to be recalibrated accordingly. Weather-related shocks could affect our exports, with negative repercussions for foreign exchange inflows and tax revenues.” There is no precedent for a clause of these characteristics in the agreements with the IMF. It opened the possibility for Argentina to request a review of, in this case, the accumulation of reserves.
I think that Argentina must advance in the request for another review. In March of last year, when the agreement was signed, the interest rate at which this loan was agreed upon was 1.19% per year. As a result of the rise in interest rates in the United States and in the European Union, this rate currently rose to 4.57%. The difference between one rate and another represents an additional payment of about 1,500 million dollars per year. But also, they keep fining us with overcharges. Added to this is the aggravating circumstance that these surcharges are no longer 2% but 3%. According to the IMF, if a country maintains a debt for more than 36 months that exceeds that authorized according to its participation quota in the organization, its charges go up by 1%. These surcharges represent a payment of around 1.5 billion additional dollars. In total, this is about $3 billion per year. To renegotiate this issue is in fact to renegotiate the fiscal guideline of the agreement. For this reason, it is necessary to discuss the cost of the renegotiation of this financing, a flag, among others, that the economic team should take forcefully.
Much remains to be done, everything seems insufficient, but the direction is correct. The other, the policies proposed by the neoliberal opposition, would lead us to the precipice.
* National deputy for the Frente de Todos and president of the Solidarity Party.