The president’s lack of leadership, and the VP’s authoritarian and leftist stance, feeds economic pessimism
Key health and economic indicators published after we posted our last Quarterly forecast show some improvement. The number of COVID-19 infections fell in November, and the first two weeks of December. GDP and employment preliminary estimates by INDEC for Q3 show a stronger-than-expected recovery. The prices of soy and other export commodities have climbed to levels not seen since the commodity boom of the mid-2000s.
Improved indicators notwithstanding, the pessimistic mood of the majority of the population does not seem to be reversing.
There are several possible reasons for this. First, the inflationary outlook is not good. The monthly inflation rate is above 3%, in line with the increase in the monetary aggregates, and there are many regulated prices, including the official exchange rate, that have been repressed; their future realignment will surely produce more inflation.
Political conflicts, and the way the government functions, are also fueling pessimism. There is evidence of increasing political conflicts between the government and the opposition, and also between the followers of the vice president and the government officials who report to the president. Intra-government conflicts are particularly relevant, because Vice President Cristina Kirchner is the true holder of the political power. She chose President Alberto Fernández to head the electoral ticket in order to engage Peronist party independent voters who disliked her authoritarian and leftist inclinations, and would have not voted for her. But Fernández, who during the 10 years prior to his appointment as presidential candidate had criticized the policy decisions of then-president Kirchner, is now showing lack of personality and determination to impose his views over those of the vice president. Kirchner’s views continue to be as authoritarian and left-leaning as they were during her previous presidential terms.
Most of the recent decisions and announcements about future policies reflect her views, rather than serving as part of a coherent economic program. Price controls and utility price freezes have been extended to telecommunications, cable television and the Internet, which will certainly discourage new investment in those sectors.
The timid attempts by the economic minister to introduce some fiscal adjustment on spending to make negotiation with the IMF possible have been boycotted in the Kirchnerist-controlled Senate. Kirchnerism proposes increased taxation, in the context of already record-high tax pressure that discourages investment, exports and employment.
To speed up recovery and control inflation, the Kirchner has recently advocated for a combination of wage and pension increases, accompanied by stricter price controls. As expected, these policy proposals, passively accepted by the president, end up hurting the same people they intend to benefit, because they discourage investment opportunities and worsen working conditions in the private sector.
We continue to forecast a slow recovery and accelerated inflation for 2021, in an increasingly disorganized economy incapable of reigniting sustained growth, and achieving low inflation.
Now read on...
Register to sample a report