Report Nº: 109113/10/2024
The improvement in the financial mood contrasts with the social mood deterioration. Although salaries and pensions have been rising over inflation, their level is still far below what it was 7 years ago, when the current crisis started. The solution is to move on in the implementation of the May Act.
The improvement in the financial mood contrasts with the social mood deterioration. Although salaries and pensions have been rising over inflation, their level is still far below what it was 7 years ago, when the current crisis started. The solution is to move on in the implementation of the May Act.
The country risk is an indicator developed by JP Morgan to measure the percentage points that a country’s government must pay in interest over that paid by 10-year U.S. Treasury bonds. For example, Chile and Uruguay have a country risk of 100 points, Peru and Paraguay 150 and Brazil 200. This implies that the governments of these countries pay between 1% and 2% more interest than U.S. bonds. In Argentina, the country risk is 1,100, which means that the Argentine government can borrow abroad, but pays 11% more than the United States.
The country risk in Argentina has decreased. But it is still very high. The reduction reflects less distrust from the international financial community towards Argentina. This trend is surely fed by the government’s conviction in the fiscal balance and the very good response to the tax amnesty scheme proposed by the government. This is good because next year there are debt maturities of a volume impossible to face only with a fiscal surplus. Therefore, it is extremely important to be able to pay part of these maturities with new debt.
The growing financial optimism does not seem to be correlated with the social mood. What does the evidence say? According to the Secretary of Labor and INDEC, it is observed that:
These data show that the main sources of income of the population –which are salaries and pensions– improved compared to the month of the current government assumption (December). However, they are still far from the level they had in 2017, which is the year immediately prior to the exchange rate and inflationary crisis that was triggered in 2018 and that stretches up today. In other words, household incomes are improving, but the gap with respect to historical purchasing power is still very large.
The same is true for the economy and employment. The economy is showing signs of recovery from the sharp drop in the first half of the year, but it is still insufficient to rise formal employment. For this reason, registered salaried employment in private companies continues to stagnate being the Monotributo and the informal jobs the only employment that has been increasing, as has been the case for more than a decade.
It is urgent to find a way out of the dilemma between the two objectives of continuing to lower inflation and boosting economic recovery. To make both objectives compatible structural reforms must be accelerated. The starting point is to recognize the growing deconfiguration of the federal regime, which has led to the accumulation of overlapping expenditures (the same functions of the State are carried out by the three levels of government) and taxes (taxpayers must pay several taxes from the three levels of government for the same taxable object). This is aggravated by the perpetuation of an arbitrary tax co-participation regime that encourages parasitism by the provinces. The deformation of federalism is what generates the financial and management deficits suffered by the Argentine public sector.
The implementation of the May Act cannot be postponed. To this end, a consensus must be reached between the Nation and a majority of provinces (not necessarily all of them) on a set of explicit rules that clearly and precisely establish the roles and responsibilities of each level of government –avoiding functions overlapping–, unify taxes and replace co-participation with a scheme for the distribution of tax competencies among levels of government. Moving from the stage of fiscal adjustment to that of State reorganization is the way to generate a climate much more conducive to economic growth with price stability. Especially because the provinces will be encouraged to attract investments and make their population prosper.
