Is “Plan Llegar II” coming?

The imminent closing of candidate lists for the next national elections is plagued by frantic intrigues. Bids are natural in any democratic process. What is striking is the contrast between the large number of candidates and the scarcity of ideas. Meanwhile, the economic and social situation continues on the path of accelerated deterioration.

Since the change of the Minister of Economy in the middle of last year, the government has been working within the “Plan Llegar”. In simple terms, the strategy consists of resigning itself to maintaining a high fiscal deficit financed with monetary emission. In order to suppress the inflationary impact, the excess of issuance is absorbed with Leliqs, and the official exchange rate is overvalued. Thus, the Central Bank increases its liabilities (issuance of Leliqs) and reduces its assets (it loses reserves due to the exchange rate delay). The increase in the Central Bank’s liabilities and the decrease in its assets will inevitably lead at some point to a big devaluation. 

Will the “Plan Llegar” achieve its goal of devaluation after the change of government? One way to quantify the tension that the “Plan Llegar” is going through is by contrasting the reserves with the Leliqs measured in official dollars. According to information published by the Central Bank, it is observed that:

• In December 2017 reserves were USD 55 billion and Leliqs measured in dollars were USD 65 billion.
• In December 2019 reserves were USD 45 billion and Leliqs measured in dollars had fallen to USD 20 billion.
• In May 2023 reserves were USD 33 billion and Leliqs measured in dollars had risen again to USD 60 billion.  

These data show that, just before the exchange rate crisis broke out in the previous government, the amount of Leliqs measured in dollars was very similar to the current one. In that critical instance, the dollar rate went from $20 to $60 between 2017 and 2019. This strong devaluation made lost the value of the Leliqs to a third in dollars terms. From this point, having failed to reduce the fiscal deficit, the current government tripled the Leliqs again but with a much lower level of reserves. This foreshadows a new large devaluation.

From the political point of view, the concern is whether the “Plan Llegar” will fulfill its purpose of making the devaluation occur after the change of government. But from the people’s point of view, the important thing is whether or not the opportunity to end the decline emerges after the great devaluation that is coming. There is a risk that the great devaluation will tempt the new authorities to postpone addressing the dysfunctions and distortions of the tax system, the co-participation, the social security system, and the overlapping of expenditures between levels of government. In other words, due to a lack of vision and political audacity, the end of the “Plan Llegar” is the beginning of the “Plan Llegar II” in view of the mid-term elections of 2025. 

Even if the great devaluation is accompanied by an explicit fiscal adjustment, it will not change the results. Raising taxes and lowering expenditures by applying the “red pencil” is a bet on failure. The reason is that the poor organization of the State, which is the source of the fiscal deficits, is maintained. This became evident with the “zero deficit” policy of the Cambiemos government in 2019. The primary deficit was lowered to close to zero by increasing export duties and forcing reductions in budget items. Experience showed that the public sector quickly returned to the deficit. Faced with an organizational problem, fiscal adjustment is not the solution.

To put an end to the decadence, a comprehensive reorganization of the State is needed, which demands disruptive changes sustained with political audacity. As part of these transformations, it should not be discarded to modify the Constitution to eliminate mid-term elections. This would help to avoid falling into the temptation of embarking on a “Plan Llegar II” whose guaranteed end will be similar to the traumatic outcome of the current “Plan Llegar”.