Argentina's President-elect Alberto Fernandez first spoke to new IMF head Kristalina Georgieva and warned her that Macri's fiscal adjustment to lower the deficit will not continue, as she had recommended a few hours earlier from Berlin.
"I understand the relevance of fiscal viability, you don't have to convince me of that. But it is my duty to anticipate that in the situation in which the Argentine economy finds itself it is difficult to make further adjustments. We can not make any more fiscal adjustments because the situation is of enormous complexity, the level of adjustments in the era of Macri was tremendous," replied Fernández.
In the phone call, the President-elect promised a sustainable plan that "will allow us to grow and comply with the obligations that Argentina has with you and with the rest of the creditors". To that end, they plan to take the withholdings of the current four dollars to a minimum of 10 percent and increase the personal property tax, sources told LPO that Fernández's technical teams are currently working on the plan.
"With these two measures, the deficit of 1.5 GDP points that Macri is going to leave us could be reduced to half a point and with that the continuity of the program can be negotiated with the IMF," the sources said.
Sources indicated that the President-elect of Argentina intends to finance the pension increases and other expenses through issuance of currency. "Macri increased the monetary base by around 7%, Alberto and his team believe they can increase it by 45% without speeding up inflation," the sources explained, although they were careful to clarify that this would be accompanied by strong "financial repression". The heterodox plan has the imprint of Mercedes Marcó del Pont and Miguel Pesce, the latter of whom may be sent to the Central Bank. Miguel Kulfas, who plays for a Ministry of Production or Economy post, also supports it.
At the international level, this vision is supported by the followers of Modern Monetary Theory, which finds in Senators Bernie Sanders, Elizabeth Warren and Congresswoman Ocasio-Cortez, their most powerful advocates.
Perhaps most distant from this vision is Guillermo Nielsen, who would be in charge of debt renegotiation and the Treasury Department. "But Guillermo is in line and in any case the Treasury marks the missing resources, is not responsible for the issuance," the sources explained.
Within this group of heterodox economists, they cite as an example that with a fierce monetary adjustment, inflation already exceeds 50 percent. "It is clear that at least in the case of Argentina, it is not a monetary phenomenon," the sources added. They explained that Fernández's aim is to lower inflation by 2020 through a social agreement that converges wages and prices at around 35% annually.
In fact, the president of the IMF surprised everyone by showing "interest in the proposal of a Social Pact to reduce inflation," but said she is "anxious" to know more details of the economic plan.
The idea of Alberto's team is that an initial shock of demand, through increased pensions for example, will generate an economic recovery that will enable debt payments.
In this way, Fernández tried to rely on Georgieva's predictable request to "take care of the most vulnerable population" and celebrated "the coincidences regarding the reduction of poverty and the eradication of hunger".
"I have been moved by his priorities: reducing poverty and fighting hunger in an economic environment that allows growth and generates jobs, to improve the lives of the Argentine people," Georgieva replied following her harsh words to Bloomberg.
After the phone call between Alberto and Georgieva, the IMF released a two-paragraph statement in which they barely moved one centimeter beyond the international bureaucratic language: "It was a very constructive call regarding the Argentine economy and Mr. Fernandez's vision of the country's main challenges for the future," begins the text signed by the president of the organization.
"I have reiterated the Fund's willingness to collaborate with your government and work to pave the way for sustainable growth and poverty reduction. We agree to continue maintaining an open dialogue for the benefit of Argentines," she concluded.
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