Saturday
October 25, 2014

Return to growth will be harder

Monday, August 11, 2014

Experts: default won’t significantly aggravate employment rates

By Francisco Aldaya
for the Herald
Economists told the Herald that the country’s July 30 default on restructured debt, whose payment was frozen by New York Judge Thomas Griesa, is unlikely to greatly aggravate public sector hiring in what’s left of the year. Nonetheless, it will prove a sturdy obstacle in any bid to reignite the economy and job creation.

“There could be less generation (of jobs), and we are seeing stagnation, but we’re not seeing a widespread phenomenon,” said UBA economist Mariano Kestelboim, arguing that the auto sector’s crisis is an isolated occurrence that hasn’t spread to the rest of the economy.

The run of outstanding issues resolved with foreign entities such as the agreement to compensate Repsol for the expropriation of its majority stake in oil company YPF and on the repayment of defaulted debt to the Paris Club group of creditor nations had generated high expectations among firms of favourable conditions for growth in the second semester, and the failure to strike a deal with the holdouts caught many off-guard.

“We all thought the ‘vulture funds’ issue was going to be resolved, and that activity was going to increase again, but all of that was postponed,” added Kestelboim.

Former Central Bank governor Arnaldo Bocco told the Herald the key was addressing the “visible stagnation of effective demand on the domestic market.”

“If this can be repaired, whether by induced conditions or some other way, this situation can change. I don’t see the government standing and watching by as employment rates drop,” he said, considering the Fernández de Kirchner administration “will take a proactive approach to strongly boost consumption through credit lines.”

Asked how the government could finance an expansive policy in the face of an increasing budget deficit, Bocco pointed to alternative sources of cash including bilateral deals with Russia and China, as well as the issuing of debt domestically.

Ricardo Delgado, one of Renewal Front leader Sergio Massa’s chief economic advisers, told the Herald that the current domestic economic woes outdated the non-resolution of the holdout issue.

“I don’t see a drastic decline in employment before the end of 2014, but it’s hard to think of growth if there isn’t enough investment, particularly in a context of high inflation.”

By late 2013 there were signs of a decline in activity, he added, concluding that such problems will be harder to resolve without the return to foreign credit lines the government had apparently sought out to secure.

@franma1990

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