Dilemma of three “groups” of prisoners
Players, Game and Conflicting Incentives
Post Primaries 2022 scenarios
The account of pesos and dollars entering the home stretch
Once again, the Primaries triggered a grotesque move in politics worthy of TV sitcom that could even be funny were it not all of us are involved in it.
The imperative need to close an agreement with the IMF against a BCRA (Argentina’s central bank) that is running out of net reserves and a Treasury with difficulties to roll over its maturities in pesos now faces an extra shock within the three spaces which define the political game (the government, the opposition, and the IMF). This presents additional difficulties for a potential economic program within the framework or an IMF agreement the day after the final election that could prevent a new change in the inflationary regime. It should be noted that due to the Law of the Strengthening of the Sustainability of the Public Debt (Law 27.612) sent to Congress in September 2020 (approved and regulated in the first half of 2021), any IMF agreement should be approved by simple minority at Congress.
In fact, unlike in 2019, the government’s defeat sets a floor on ridiculously low asset prices “if Argentina’s road path is not Venezuela”. If Argentina’s assets are not worth zero, the exchange gap is not infinite, and we drift away from monetary disruption scenarios like those in the 1970s and 1980s. But the road towards 2023 is very long and certainly not linear in a world that starts to visualize the way out of the Pandemic and the enormous liquidity poured into developed countries’ Central Banks.
For the moment, we continue to consider the three scenarios that we presented in our memo “Primera lectura post PASO” (First Post-Primaries Reading), but with a reallocation of occurrence probabilities. The mediocre gradual adjustment program that kept inflation at around 50% in 2022 within the framework of a quick agreement with the IMF that we keep including as a base scenario in our reports finds growing difficulties to be validated by the IMF and the opposition, while the chances of the lack of a plan until March and of the Government with a BCRA with no reserves “pedaling in the air” keep growing.
This is since the difficulties in achieving cooperating are hampered but the change in the positioning of forces (if the Primaries results are replicated on November 14, the Government would lose the majority in the Senate and would drift further away from the own quorum in the lower house) and basically to the very infighting within the government, the oppositions and now also the IMF. It is difficult to dance and coordinate this 3-dancer tango against the open infighting within each of the spaces taking part in this game.
Even when the Government is in a tight spot, and there are voices within the coalition, and closer to the governors, that suggest bringing corrections forward in 2022 based on a shock program (which could find cooperation) aiming at a breather in the face of the electoral year, the truth is that the dispute looks far from being settled. Meanwhile, several of the decisions being taken to narrow the difference of almost 10 p.p. against the government coalition (41.5% vs. 31.8%) obtained at the national level at the Primaries run counter to a quick program. Regardless of whether the final outcome might or might not help organize the space, depending on whether the defeat is confirmed or the differences are reduced.
For now, the effective fiscal impact of the measures considered is much more limited than what is being leaked. Up until now, the concrete measures including a supplement to the family salary announced yesterday add another $80 billion in 2021, due to which our fiscal projection of $1.5 billion ($815 billion in the last quarter) looks defensible and the monetary financing does not implode. For its part, further exchange controls introduced this week temporarily reduce the dollar drain and gives the BCRA room to sustain the devaluation pace at 1% (with inflation above 3%) during the 24 business days until the election. The way to come out of this spot will depend on the positioning of the coalition after the definite outcome. In all likelihood, they will try to accelerate the crawling peg at a pace closer to that of the inflation one, but if they keep pedaling in the air and the gap hits them hard, pressures on the nominality and the official dollar will increase and not insignificantly in the first months of 2022.
