Once again, the shadow of default darkens the Argentine economy

(Photo: Economist Martín Redrado (right) not too optimistic about the future of the Arg economy) 

Buenos Aires, December 14th. Yesterday, Thursday 13th, Santa Fe Province governor, the socialist Miguel Lifschitz, organized an economic summit in Buenos Aires, with a dream team of well-known economists not aligned neither with the coalition party Cambiemos, nor with the kirchnerismo, the Peronism branch in charge to the government from 2003 to 2015.

One of them was Mr. Martín Redrado, former chairman of the Central Bank, and other was the former Ministry of Economy and a potential candidate to the presidential election in 2019, Mr. Martín Lousteau.

Mr. Redrado told to the audience that the economy will not go out from the current recession too soon as the Government expects. He remarked that the GDP will continue dropping until the third quarter of 2019. This last quarter of 2018 would drop 6.1% and the next one (the first of 2019) would drop another 4.1 percent. “Government say that the economy takes off in the first quarter and I ask myself why it would happen if wages are still below inflation rates, and there is no stimulus for new investments. Only we can expect a better performance in the foreign trade, but this only represents 10% of the GDP”, Mr. Redrado opined.

Another key issue is the exchange rate. When Mauricio Macri took the Government, dollar cost AR$9. Currently, dollar floats around AR$39.  But “the market” fears that in front of an electoral year, the Government set back the exchange rate to avoid that a new devaluation sparks inflation one more time.

“The point is that there is AR$170 billion fixed deposits holden by companies, looking for maximum profitability. And these deposits press over the exchange rate. I don’t discard a new devaluation in the middle of the electoral campaign”, Mr. Redrado added. He stressed that Argentina will no exit from the recession in a V way as the Government wants, but it stay in an L way, i.e. it will maintain flat. “There are no drivers pushing the growing”, he remarked.

But economists at the meeting agreed that the next government will must re-discuss the agreement with the International Monetary Fund, and they do not discard a new default-via.

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