Economist Javier Alvaredo recognizes that inflation and the financial deficit are two serious problems that the next government will inherit. But he sees spaces to act, not only balancing the accounts, but also thinking about growth.

Por Rodolfo Pollini

With what scenario will we enter next year in terms of deficit and spending?
With two serious problems: the inflationary front and the financial deficit, which despite the effort made on the operational side escaped on the interest side. On the spending side, the government made a great effort, especially in the portion that it was able to operate, which is the non-indexed portion, which is not transfers to the provinces or social spending, and that had consequences on economic activity.

In what, specifically?
Once again, it was proven that a very strong fiscal adjustment on the spending side, which is not enough, ends up affecting the level of activity and collection and does not serve to solve the problem in a credible and lasting way. The challenge is what to do from now on on the fiscal side that allows generating some degree of growth. That limits what can be done with the expense. As inflation was increasing, the purchasing power of social spending deteriorated and it would seem logical to give it some boost. To address the fiscal issue there will be no choice but to go on the tax side.

Is there space to do it?
In some places yes and in others no.

In which sectors do you see room to act?
Clearly, the export duties, which were poorly designed by the Government. A fixed amount scheme not linked to an exchange rate ratio was introduced and equated to sectors that do not have the same competitive advantage. Something will have to be done there and we hope it is done well. Today the complexity is different from that of 2002, because a good part of the costs were almost pesified and now a good part are dollarized, so the equation must be seen not only from the income side but also from the expense side. People from the same sector talk that three-quarters of a point of the product could be raised on that side.
Then, there is the reversal of (Nicolás) Dujovne's tax reform, which was not successful. I am referring to the reduction of the Profit rate from 35% to 27% and the application of a rate to dividends. If you reverse that until you carry out a more comprehensive reform, and return to 21% in employer contributions in the service sectors, where the largest companies are located, you have something similar to three-quarters of a point of the product.
Something also needs to be done with the people who did the money laundering. I'm not saying punish them, but there is a clause that leaves people very exposed. If they find an asset that you did not declare, you lose the benefits and you would end up giving the State more than 80% of what was laundered. We have to see if these people are declaring 100% of their activity, which in the past they did not do, and with an intelligent plan and removing that threat, the tax base could be expanded.
In the context of the agreement with the IMF, one can think of a tax on those who have funds abroad. On the laundering side you have 25% of the Product, and if you add what was externalized before, 50%. With an aliquot of 2 points on that, between half and one point of GDP can be generated. If it is to adjust public accounts, generate confidence and improve the financial situation, I do not see it as scandalous. It would be a sign that everyone is paying for the adjustment. There are possibilities of collecting 2.5 or 3 points of GDP aimed at improving the fiscal situation

How will this year end?
With more than 1% primary deficit.

Are you saying all this with adjustment and balance in mind or also some growth?
I think there is a chance for growth. The Government has to define its priorities and there has to be a fiscal framework, a monetary framework and a consistent income policy. From there, you have to sit down with the IMF, explain the program, explain why it will have results and, based on the agreement on the fiscal part, sit down with the creditors.

Would the reforms that had already been discussed before with the IMF be tied to that?
Personally, I do not see urgency to undertake the reforms. The most important thing is that whoever takes office has the political power to lead a consistent economic agenda. If these reforms are not made by a government with political strength, they end up being modified in Congress, and generally for the worse.
From a labor point of view, what has the most impact on companies today is litigation. The best service that can be done to the business world in the labor issue is there. Then it will be seen if the best way is to make agreements by activity or something general. In some sectors, legislation must be modernized. It is not clear to me that it is the same for everyone.

And the pension reform?
I'm not saying that it should never be done, but there is no urgency either because it does not generate an impact in the short term. The Brazilian experience is quite successful, but it had no impact on accelerating economic recovery. A commission of specialists would have to be assembled, of which there are some, to explain why it is necessary and that it should not remain just a fiscal adjustment. It would also be necessary to distinguish between the benefits granted after having made the legal contributions and those that are not and see what is done with age. That women have a different age to access the benefit goes against other gender equality initiatives.

Finally, what can be done about monetary policy and interest rates?
If you provide certainty about the exchange rate, with agreements that inflation will converge in an orderly manner and that the exchange rate will not lag behind in real terms, yields in pesos compete with yields in dollars. With predictability, a fiscal path that tends towards a surplus and a debt renegotiation that removes uncertainty, the rate could be several steps lower. With macro political consistency strengthened by an economic and social agreement, it may be credible that inflation will converge to 38% next year. Without financial requirements to cover abroad, a real positive rate in pesos of 8% would be enough to generate demand for pesos. We are talking about a drop of one third of the current rate.