Argentina at risk of bankruptcy

The first economic policy change announcements gives Argentina do not convince.

The Super Minister of Economy, Sergio Massa, who took office on August 3promised to reduce the government gap, zero currency issues and strengthen foreign reserves, for which an increase in credit for exports should compete.

But, as the former Minister of Production and Labor observes Dante Sica, who returned to direct the Abeceb consultancy, there is no way of knowing how these adjustment targets will be met. These are proposals that do not pass firmness.

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Last Thursday, the Central Bank of the Argentine Republic (BCRA) pulled the basic interest rate from 60% to 69.5% per yearto fight an inflation that points to 93% by the end of 2022.

As a result of inconsistent and isolated economic measures taken during the President’s administration Alberto Fernandez, but also for a long time, political uncertainties are getting worse. The public accounts gap, which is 1.8% of GDP, and the external accounts gap (twin deficits) lost coverage because there is no external credit and reserves, which were US$ 10 billion in 2013, fell to US$ $2.3 billion. What’s left are currency issues, which is more inflation in the vein.

THE policy aimed at putting out political fires with subsidies and the indefinite postponement of solutions produced a huge misalignment between relative prices. For example, in the two-year, seven-month period ending in July, while French bread prices rose by 236.3%, electricity tariffs were corrected by only 56.3%.

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Despite the regrets, the projections are for the Gross Domestic Product (GDP) in 2022, it was 2.7% (in 2021, it was 10.3%). But the outlook for 2023 is down.

The loss of confidence of external creditors is best demonstrated by the jump in the trajectory of the Argentina risk, the “insurance” charged on bond interest, which was at 2,465 percentage points a year on August 9 (or almost 25 percentage points year above international interest rates) This level characterizes an imminent risk of bankruptcy (default).

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The rush for the blue dollar (parallel exchange) jumped from 208 pesos to the dollar at the end of 2021 to 292 pesos to the dollar on Wednesday, up 40.3% in 2022.

Dante Sica notes that there are no political conditions for an orthodox stabilization plan. Either Sergio Massa will attempt a partial correction for which he will use his political trump cards, or the adjustment will be disordered, which could lead to hyperinflation and recession – a situation that would have unforeseeable political developments today.

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