November 26, 2014
No cause for panic
Some people talk as if the world were ending at the start of the year but there is no need to be apocalyptic. A blanket denial of any dollar problems would also be foolish (if only because of the very visible impact on various stock markets around the globe last week) but they fall well short of being irreversible or adding up to a crisis on the scale of 1989 or 2001 (or even 1975, perhaps the most common comparison). Any grounds for panic stem not so much from objective economic reality as from the combination of two otherwise competing factors — a government which gives every impression of operating on the basis of improvisation with an absurd multiplication of exchange rates and an almost hysterical coverage by some mass media. There is a good case for arguing that the many people who delight in dramatizing life in Argentina could find far more serious cause for concern in last month’s power cuts or the provincial police mutinies triggering widespread looting. If neither the government nor their media opposition can keep their heads, then the general public (which has so often shown itself to be wiser than either the politicians or the pundits) should keep theirs and indeed there were signs that this was exactly what was happening yesterday despite all the dire forecasts.
Even accepting that the problems are primarily economic (and there is certainly no lack), it would be a mistake to focus unduly on the dollar — or even on the deficit financing of the public sector which is ultimately funded by further erosion of Central Bank reserves and the frantic printing of money which makes inflation so difficult to control. There is a huge debate over whether the price restraints agreed to early this month are still viable after Thursday’s major devaluation but even if the answer is yes, this only shrouds the underlying problem of the massive disarray of relative prices which can only grow amid the recent upheavals — something which even a successful price freeze could never remedy. And while all eyes are on the national budget and the Central Bank, one of the biggest problems arising from the major devaluation is the impact on provincial finances, especially where dollar-linked debt is concerned — already a crisis which was barely averted by the national government’s rollover late last year.
Meanwhile critiques as to the lack of any integral government plan abound but are premature — all we can say at this stage is that the government has embarked on corrective action but it is still early days to say whether this action is complete or incomplete.