Stabilization and growth can only materialize with a new government

ARGENTINA - Forecast 10 Jan 2023 by Domingo Cavallo

During the last four months of 2022 the economy performed in line with the “optimistic” scenario of our forecast from August 23, 2022. There are no reasons to introduce changes to our forecast for 2023. However, to forecast the economy in 2024 it is necessary to discuss the political and institutional landscape for 2023, which is an election year.

Our forecast for 2023 does not anticipate progress in removing the fiscal imbalances or reducing relative price distortions; however, it does not foresee that the existing imbalances will worsen.

The proposals made by the main candidates of the opposition about possible big changes in the organization of the economy, and about a complete elimination of the fiscal deficit and monetary emission, help to reduce the risk of hyperinflation such as occurred during the transition of the government of President Alfonsin to President Menem in 1989. But, at the same time, the presence of stronger organized groups of beneficiaries of the social and economic subsidies that have become a significant proportion of government spending, and the ultimate cause of the large fiscal deficits, feeds the skepticism of economic agents about the viability of a speedy process of reform and successful stabilization.

For this reason, we predict that in terms of inflation and growth, 2024 will not be very different from 2023. The big difference will show up in terms of the organizational and micro-economic reforms that would emerge from the removal of exchange and price controls, the elimination of subsidies, the privatization of companies that were nationalized during the Kirchnerist governments, and the reform of the monetary system to prevent excessive monetary emission. The possibility of sharp disinflation and a renewal of sustainable growth would emerge after that, in 2025.

There is a high probability that the reforms that would take place after the change in government in December 2023 will resemble those of the 1990s far more than those that prevailed starting in 2002.

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