Having dedicated the first half of his term to a successfully maintained and electorally vindicated consolidation of a fiscal surplus, President Javier Milei identifies a primary challenge for the second half as positioning Argentina on a sustained growth trajectory. He benefits from a recent electoral mandate that facilitates consensus-building, a weakened opposition facing an ongoing corruption mega-trial, and the financial support of a superpower, evidenced by a currency swap of US$20 billion secured (despite the apparent disappearance of an additional US$20 billion package). Furthermore, a regional ideological shift appears to be in his favor, with indications of confirmation in the upcoming run-off across the Andes. The initial post-electoral growth figure released was the 0.5 percent growth reported by the INDEC national statistics bureau last Tuesday for the intricately complex pre-electoral third quarter of this year, resulting in an annual growth rate of five percent. Pablo Quirno was quick to assert to the international community that Argentina had accomplished the seemingly unattainable by experiencing growth during a period of austerity; however, it is important to note that much of this austerity was enforced in the previous year when the economy shrank by 1.7 percent.
Moreover, the determination of that 0.5 percent was not an entirely spontaneous process. In July, the initial measurement indicated a contraction of 0.1 percent, which was subsequently revised to a growth of 0.1 percent. August recorded a growth of 0.3 percent, later adjusted upward to 0.7 percent. September also showed positive performance, allowing Argentina to evade a technical recession, defined as two consecutive quarters of negative growth. It remains to be demonstrated whether these corrections were driven by political rather than technical considerations. However, for the first time in nearly a decade—since Mauricio Macri appointed the late Jorge Todesca to lead INDEC upon assuming office in late 2015, with Marco Lavagna ensuring a commendable continuity across both the Frente de Todos and current administrations—a suspicion of manipulating the figures has emerged. The pursuit of sustained growth through enhancing the competitiveness of the real economy, particularly by significantly boosting productivity levels, is framed as a matter of structural reforms in labor, taxation, and pensions; however, there are pressing issues that require attention first.
First and foremost, an unconvincing monetary policy that fails to accumulate Central Bank reserves, as persistently urged by the International Monetary Fund and a majority of economists, is necessary to reassure creditors and reduce a country risk that remains stubbornly above 600 points despite the electoral victory. A monetary policy that relies solely on the sustained implementation of currency and capital controls, which are only relaxed to permit private individuals to travel abroad and save, while depleting international reserves. This situation is temporarily alleviated by continuous injections of around US$20 billion, derived from last year’s tax adjustments, a trade surplus nearly matching that amount, an IMF loan from last April, and a recent currency swap. However, these measures appear inadequate, necessitating an additional package of similar magnitude, alongside the imposition of prohibitive interest rates in the absence of these interventions, as evidenced in the third quarter. The impact of interest rates is clearly observable, as the number of companies seeking the Argentine equivalent of Chapter Eleven has surged to levels not seen since the economic crisis that led to the downfall of the Macri administration in 2019.
In September, industrial idle capacity stood at 38.9 percent, slightly above the 39.2 percent recorded five Septembers ago, during the total lockdown imposed by the coronavirus pandemic. The annual growth figure of five percent, which partially offsets last year’s contraction, is uneven at best. It is driven by a surge in select sectors such as energy, mining, and agriculture, while the manufacturing sector remains nearly 10 percent below 2023 levels and construction is down over 20 percent. This decline not only results in job losses but also hinders modernization efforts. The prohibition on public works, exacerbated by the ‘Cuadernos’ corruption trial, prioritizes the fixation on fiscal surplus over the pressing need to enhance infrastructure. The government is relying on the evident aversion to Kirchnerism, as demonstrated in last month’s midterms, to secure a broad consensus for its reforms. However, their efforts may encounter not only Kirchnerite obstructionism, despite the latter’s larger parliamentary presence compared to the rest of the opposition. With Milei’s idol Donald Trump setting a strident example of protectionism for the world, respected establishment figures like Paolo Rocca are advocating for an industrial policy that extends beyond mere reforms. In times when monetary policy exhibits instability and the real economy is struggling, it becomes imperative to engage in discourse.