Economic conundrums

The ongoing debate surrounding a fiscal surplus's sufficiency for economic growth has taken a concerning turn, questioning its sustainability due to the methods employed to achieve it. In an effort to curb inflation, tight monetary policies have resulted in economic stagnation throughout the year, causing a significant reduction in state revenues. Javier Milei's libertarian administration is yet to find a balance between inflation control and recession avoidance.

Despite a potential export-led growth offsetting a contracting consumer-led growth, the latter is negatively impacting a revenue system heavily reliant on indirect levies like IVA value-added tax. In a bid to achieve substantial fiscal surpluses, public service subsidies have been slashed, but their increased billing has put immense pressure on citizens to choose between paying for utilities and purchasing consumer goods, particularly as the IVA now fails to provide relief.

Consumer spending figures appear worse than they are when based solely on supermarket sales due to the surge in online purchases, which cost the state a significant sum without being as straightforward as illegal imports from remote areas. Alongside the focus on fiscal surpluses, infrastructure maintenance has been neglected, with Economy Minister Luis Caputo diverting nearly three-quarters of the fiduciary fund for road repairs and construction to bolster the Treasury surplus.

The Milei government's monetary policy seems more critical than economic strategies, reverting to the finance minister he held during the Mauricio Macri Presidency. However, this approach presents its own challenges. The government's obsession with preventing the dollar from exceeding the 1,500-peso barrier while also encouraging its use has led to record deposits, which could potentially lower interest rates and stimulate the economy.

Nonetheless, the Central Bank hesitates to act, fearing potential inflationary consequences and without considering devaluation to address peso appreciation.

The year's economic stagnation has been compounded by political mismanagement and social discontent. The government's handling of the private property bill has been criticized for its lack of coherence, mixing unrelated deregulatory reforms without providing clear benefits for public opinion or Congress allies. Public approval has plummeted, with nearly two-thirds disapproving of current economic policies, and this disapproval rises to near three-quarters in the western mountain provinces, which are pivotal to the mining boom.

Additionally, disapproval among the youth, a significant factor in Milei's 2023 election victory, has surpassed three-quarters.