March 11, 2014
Last month’s Treasury figures can never be cause for complacency even if they have prompted some undue alarmism. More deficit in November than in all the preceding year and almost a tenfold jump on the same month last year might proclaim a fiscal emergency which does indeed exist. But much of the increase comes from greater honesty, trying to weed out the padded revenue figures of previous accounts — the new economic team seems to find reliable data an absolute prerequisite for their work and, despite all the incredulous skepticism, there could be reason to believe that the revamped inflation index due in the new year might actually report prices with accuracy. Yet this greater honesty also brings to light an alarming picture — spending is growing almost twice as fast as revenue (37 to 21 percent). And the fact that revenue growth is slower than most estimates of inflation (which has reportedly accelerated in recent weeks) for the first time in many moons seems to suggest that the economy could be grinding to a halt. Not least because of the uncertainty caused by recent levels of inflation — aware of the need for reliable data but scornful of any correlation between inflation and the money supply (especially on the basis of recent global experience), the new Economy Minister Axel Kicillof could be underestimating the dangers posed by both monetary expansion and deficit financing.
The new economic team fancies its chances of halting the drainage of Central Bank reserves by luring dollars both home and abroad with a change in tactics — more attractive terms for the major corporate players to deposit their export earnings and more flexibility towards global capital markets (paradoxically enough, taking on more debt will make servicing public debt less of a strain on reserves). Yet the November deficit figures precede this month’s looting with the steep increases in police pay and their domino effect within the public sector yet to be registered. Not that wage pressures are any easier in the private sector because the recent price increases and accelerated devaluation (with the official exchange rate already reaching the 2014 budget forecast) promise to turn the collective bargaining season into a long, hot summer.
And perhaps the worst of the fiscal deficit is that, despite all the increases in public spending, the recent power cuts are yet another sign of long-standing public (as well as private) investment shortfalls which need to be remedied now.