Javier Milei’s administration has unveiled a set of initiatives in recent days designed to stimulate domestic demand and, in turn, an economy that struggles to gain momentum. The libertarian administration has expanded dollar bank lending to encompass a wider range of companies, not limited to exporters. Concurrently, reports from the Labour Secretariat indicate that it is pursuing a minimum threshold of AR$1 million (US$653) for gross registered wages. The latest of these measures involves utilising funds from the ANSES pension agency to provide banks with the necessary liquidity to commence offering mortgages at interest rates lower than those presently available. That prompted some to mock the economic team’s “Keynesian turn,” considering Milei’s strong opposition to policies inspired by the British economist John Maynard Keynes – specifically, those aimed at stimulating domestic consumption to invigorate the economy.
“Keynes was an evil genius and the enforcer of the sinister,” Milei said in April at a debate organized by the government itself on The General Theory of Employment, Interest and Money, the central work of the British economist’s thought. Several economists, however, contend that while there may be some marginal improvement, the measures ultimately fall short of achieving their objective of stimulating depressed consumption. Economic activity experienced a decline of 0.8% month-on-month in July, as reported by the activity index developed by research firm Eco Go, with the year-on-year figure remaining unchanged. On the demand side, investment experienced a decline of 6%, while consumption decreased by 1.2% compared to the previous month. Both indicators experienced a decline on a year-over-year basis, with investment decreasing by 8.8% and consumption contracting by 0.6%.
The three measures exhibit a unified rationale, as highlighted in a recent analysis by research firm Vectorial: “trying to stimulate demand and activity through credit and income, without departing from the fiscal adjustment framework.” They also point to an “implicit diagnosis” the government has yet to acknowledge openly: “The economy is not growing fast enough, and fiscal adjustment on its own is not enough to generate the dynamism the program promised.” For Vectorial, the fundamental issue is that none of the three initiatives possess sufficient impact to effect a meaningful change. The mortgage plan encompasses 18,000 loans according to government estimates – “a number that doesn’t move the needle in the property market.” Research firm LCG stated that the measure was “another sign that they are keeping an eye on economic dynamism.” However, it noted that “the measure may have some specific impact, though without macroeconomic significance,” echoing the same conclusion it arrived at regarding the extension of dollar loans to companies.
“In any case, we think it makes sense to look for various ‘sparks’ to try to fire up the economy, even knowing that there are more structural drags holding back a takeoff,” LCG said. Vectorial noted that opening dollar credit to companies “can provide liquidity to a limited group of firms with genuine projects.” However, there is scepticism regarding its effectiveness as intended by the government, as the primary constraint in the local economy is not a lack of foreign currency credit, “but the weakness of domestic demand.” Finally, it stated that the wage floor “points in the right direction,” but represents a marginal improvement, as gross wages in numerous collective bargaining agreements “are already above that figure.”
