Buenos Aires Times

opinion and analysis ECONOMIC QUESTIONS

Clueless in Chapadmalal?

Far from being an isolated mishap, the Díaz Gilligan issue is the tip of an iceberg.

Saturday 24 February, 2018
Macri suffered another complicated week.
Macri suffered another complicated week. Foto:PABLO TEMES

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The spiritual retreat in Chapadmalal has left Dr Hale none the wiser as to the Mauricio Macri administration’s plans. He writes:

“The tag of ‘spiritual retreat’ bestowed on the government huddle in Chapadmalal has been widely mocked but I for one am inclined to take it at face value because I don’t see anything material emerging – it might as well have been combined with the spiritual retreat of Pope Francis over the last week as far as any concrete results go. I was hoping for some kind of road map for the next couple of years but all I got from the accompanying press conferences was the idea that Gilligan’s Island, that TV comedy of yesteryear, could be revived as a metaphor for tax havens.

“When I talk about a road map, I’m not asking for a Stalinist five-year plan from Chairman Mau(ricio) – there also seems to me an inherent contradiction between the long-term policies always being demanded and the increasingly rapid pace of change which leaves all future projects writing in sand (not to mention gradualism). But perhaps what I’d most like to see is some serious effort to downsize a bloated state. And this is not attained by setting a primary deficit of 3.2 percent of gross domestic product as this year’s target (perfectly feasible although yet to be seen) if the gap is to be plugged by a borrowing whose service requires a further 2.2 percent of GDP (by the government’s own estimate, it might well end up higher in today’s volatile world) – the final percentage would far exceed all the red ink from Donald Trump’s combo of tax cuts and spending sprees. Is it just my ignorance or was the Chapadmalal beach party a bunch of nowhere men?”

My reply:

“At the extremely high risk of stating the obvious, I take your Gilligan’s Island remark to refer to the very much former Pink House deputy chief-of-staff Valentín Díaz Gilligan, whose three-day chronicle of a death foretold ended up overshadowing whatever agenda might have been intended for Chapadmalal, all in a lost cause. Far from being an isolated mishap, the Díaz Gilligan issue is the tip of an iceberg. One huge obstacle to coherent planning (your main lament) is the lack of a single minister but another is the fact that many of the various ministers occupying economic portfolios have similar problems to the departing second-tier official. Examples would be Finance Minister Luis Caputo (a case comparable to Díaz Gilligan with undisclosed offshore activities), Agriculture Minister Luis Miguel Etchevehere (with his half-million-peso farewell bonus from the Rural Society he previously headed) and Energy and Mining Minister Juan José Aranguren (whose 16 million Shell shares have yet to be divested). Such cases are in turn tips of a much bigger iceberg – the conflicts of interest afflicting a CEO-laden administration, not least Macri himself.

“Anything smacking of corruption invariably distracts most media attention from the various dilemmas underlying economic policy, which are your main interest. You deplore the absence of any economic plan. Nature abhors a vacuum and one of the many disadvantages of no blueprint is that if the government offers no clear future, expectations from other sources are going to arise in its place – expectations including the extreme pessimism of The Wall Street Journal’s Mary Anastasia O’Grady. Gradualism is no substitute for an integral plan any more than one percent less of primary deficit does anything to improve the balance of payments. A plan which spells out means as well as ends and defines the real priorities of public spending so that the rest can be peeled away in due course. Inflation may have moved to the top of public concerns in recent weeks with good reason but cannot be seriously tackled ahead of the correction of relative prices – impossible to update utility bills and transport fares virtually frozen over a dozen years while at the same time holding inflation below an annual 20 percent. And no control over inflation spells no realistic incomes policy.

“The real challenge, however, lies on the debt front. Neither the primary deficit nor the dollar are really the problem – there was actually a pre-debt fiscal surplus in January thanks to less subsidies for transport, gas and electricity plus sharply reduced public works spending from last year’s electioneering, while the laws of supply and demand create self-correcting mechanisms for the dollar around the 20-peso mark. The bad news is to be found in Tuesday’s Lebac issue. If these bonds are to be viewed as buying time for gradualism, the time bought shrank this week. Restoked inflation has shortened horizons – if only around five out of every six Lebac investors were prepared to renew their investment, two-thirds opted for renewal in four weeks at a lower rate (26.75 percent). This means that in less than two months Lebacs to the tune of two-thirds of the current money supply will need to be redeemed. This in turn indicates that a money supply already expanding at an annual 24 percent will now double the 2018 inflation target of 15 percent – even with three percent growth as forecast, there will be problems.

“The debt front, with these shorter horizons, might be the main challenge but not the only one – if the balance of payments is around five percent of GDP in the red, prime culprits are a trade deficit of almost US$9 billion and an even higher tourism deficit into 11 digits. Both these deficits recede with less peso appreciation but the government then loses an anchor against inflation. At the same time the drought is not helping the trade figures with a few billion dollars literally drying up – the soy harvest could be down by as much as 10 million tons from last year. Not that farmers (now facing higher property taxation) have much prospect of the annual five-percent cut in export duties pledged to them in Macri’s 2015 presidential campaign as next month’s 10th anniversary of the notorious sliding scale upping those duties to confiscatory levels approaches.

“Finally, a word on Wednesday’s labour protest protagonised by Hugo Moyano. The former CGT chief has been accused of a multitude of sins but surely the most disastrous of them all is seldom mentioned – the teamster’s obsessive insistence on everything moving by truck to the exclusion of rail freight is a huge part of ‘the Argentine cost.’”

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