For Aldo Abram, executive director of Libertad y Progreso, more question arise from the advent of Mr. Dujovne at the Treasury than from the departure of Mr. Prat Gay, who he blames for not doing something about Argentina´s negative fiscal numbers. While Mr. Dujovne may be prone to the sanitation of public accounts, Abram believes he will only be supported by the president. This means he will struggle to achieve his aims, facing opposition not only from political opponents but also among key players within Cambiemos.
This is our Q&A with the economist:
Q: Do You believe Mr. Prat Gay would have kept his job is the economy had improved?
A: Not at all. We still think in terms of a Minister for the Economy when in reality he was a Minister of Finance and Treasury. Every argentine crisis had a fiscal origin and his role was precisely the reorganization of chaotic public finances.
Q: According to this, how do you evaluate his tenure?
A: He had two significant successes: settling with the Holdouts[i] and a program for legalizing undeclared assets. To evaluate what has been done regarding fiscal restructuring we can use the objectives the former minister announced at the end of 2015. He proposed to cut Argentina´s primary deficit by 1% of the GDP. A decrease which, with any luck, will actually be only 0.3%. Even if we take into account extraordinary resources it is likely the deficit for 2016 will end up being higher than that of 2015. He claimed it would be reduced by 1.5% in 2017 but according to the budget it will only decrease by 0.6% That’s why, when people complain about spending cuts I ask which ones. In the public sector there were none. Even the reduction of primary spending in terms of the GDP is mostly due to the end of subsidies for public services, meaning it was not a decrease in the spending of the State but a decrease caused by forced cuts in the private sector. The number of public employees went up. With a projected inflation of 17% primary spending is expected to grow by 22,4%, which is too big of a growth when the primary deficit and the enormous tax pressure have to be lowered.
Q: But Mr. Prat Gay claimed without this increase economic recovery would not be possible.
A: I believe this was a mistake. Where do they think they´ll find the money? An argentine that pays taxes works for the State for most of the month and starts working for their family only after half the month has passed. How can we be surprised when salaries are not enough to get by or consumer spending does not increase, given that we work for politicians to increase public spending? The national budget for 2017, and almost every provincial budget too, shows that the fiscal pressure over the economy will grow in 2017, when Argentina is already one of the countries with a highest burden and the World Bank has announced that it is among the 12 countries with the highest tax pressure for businesses (190 countries were studied). Knowing this it shouldn´t be surprising that our investments are not coming, when there are 178 better alternatives. But even this is not enough for the State, that keeps most of the credit. ¿And we expect interest rates not to be high or the private sector to have financing to invest and produce? As long as we keep sending this signals we might as well forget investments and we run the risk of economic recovery will be, once again, just a bounce back.
Q: Will this change with Mr. Dujovne?
A: Judging for what I know about the ideological preferences of the new Minister of the Treasury, he knows that he can´t expect Argentina to develop if the State continues having so much weight over the productive sector. He has the vocation to reduce these impediments to the creation of wealth and new jobs, and knows they have the additional problem of producing cyclical crisis. However, his actual policies remain unknown. The idea that freezing spending in real terms will reduce spending as a percentage of the GDP may seem nice. The problem is that when it is frozen at a level that is too high for the economy to gain dynamism the recovery is very slow. It is also naive to think the deficit can be lowered by asking the ministries to cut spending, and this implies spending is the biggest problem. This is not so; the State has grown excessively but can´t comply with the needs of citizens. Hence, its role had to be reviewed, and its structure redefined so tasks can be completed more effectively.
Q: Does this imply people will be left out of the structure?
A: Yes, but they won´t be left on the street. They would remain at the State´s disposal, receiving a salary, and incentives should be given for the private sector to absorbe them. For example, is a businessman hires someone in this conditions the State can pay their social benefits. If the former public employee accepts this, it is because he´s better off. The public sector can save part of the cost of said employee’s salary, which is a win for society as a whole because this person that used to be inefficient and a cost to the taxpayer is now productive.
P: Will he be able to do anything in an electoral year?
A: Regrettably, Mr. Dujovne faces a quixotic task. He will have to fight not only most opposition politicians and economists that believe the State should finance politics but many within Cambiemos. His only chance is counting with the president´s support, and ours. As argentines we should start demanding that politicians respect citizens and stop treating us like subjects, emptying our pockets so they have more money to spend. They should manage the State´s finance like we manage those of our families. At the end of the day, we sacrifice so our families don´t suffer hardships and then our family ends up suffering because politicians make bad decisions. We have to raise our voice and demand they stop exploiting us.
[i] The Argentine government had been in a dispute with several Hedge Funds (Elliot Management in particular) over a billion-dollar debt.