Finally, an economic plan that makes sense!

[rickulivi]

Macri's government, along with the IMF, have agreed on an economic program that should succeed in bringing solid economic, and sustainable. growth to the country, far less inflation, and hopefully as a result, more social justice. There are only two impediments that may cause the program to fail. Let's review the main parts of the program, its pain and benefits, and finally then the potential impediments to it.
Basically, the program calls for a dollar at $44 (or less if dollars flow into the country), and to adjust upwardly on a daily basis around 3% per month; no government or central bank selling dollars, which means if you want dollars, you will only be able to buy them from someone willing to sell them, and that does not include the central bank or government. No primary government deficit (that is, a balanced budget not counting interest payments) and lastly, no new printing of money until June of next year. Wow. A plain and simple program that any financially successful family lives by; that is, no more spending of what you don't earn.

What's the pain of this program? In the short run, it could be huge. An initially severe recession, lots of new unemployment, and large drop in the standard of living of the general population, because inflation will have increased far more than salaries, and lots of people will be out of work.

What's the benefit of this tough medicine? In the near term, you will have far less inflation, and strong economic growth that is sustainable. The growth will come thru exports. You will sell in valuable dollars, and pay your costs in shitty pesos! Likely winners are the agricultural sector, the oil and gas industry, minerals, tourism, and all others that can export.

What are the main impediments to this makes sense program? Sticking to it! Will the government really be able to avoid printing new money? Will social unrest topple the government? Liquid medicine usually taste terrible, but the results can be super positive. The key, of course, is to swallow the medicine. Will Argentine's do it? Based on history, the answer seems to be no. This is the society of the "quiero flan!". However, I have hope that Argentines will finally understand that you cannot spend more than you generate over the long run.

 

[sergio]

I don't know if it would work but I can't see Macri having the character to stick to such a plan.

 

[nikad]

The IMF plan is an orthodox recipe and nothing new. Macri should have gone for zero deficit, zero money printing and drastically reducing inflation on his first week in office. Three years later, with an economy that wasn't exactly booming, it is ridiculous. He has almost no chance of being reelected to actually continue with this plan. His administration has been a disgrace, as well as that of he K's of course. He really didn't need to wait for the IMF to come up with the recipe, which is known and has been tried and used. He should have done it and with private loans while he was still getting them. He just sold out the country. It is pathetic to see him relaunching his campaign from the US and letting the IMF choose the Central bank's president, and this is just the tip of the iceberg.

 

[Rich One]

Another IMF Plan?? Hope this time works..!

 

[rickulivi]

Nikad: I suspect you have never lent money because the first rule of lending is make sure you’ll get repaid. If you want me to lend you money, sorry, but I dictate terms. Don’t like my terms? Don’t borrow from me. Furthermore, if you had a record of not honoring your debts, of filing for bankruptcy, of continually over spending, of accumulating huge debts that we all suspect you cannot re pay, and still you had the desire to borrow even more from me, what would I demand from you? Your word means nothing, you have a husband that pressures you all the time to not pay, and your kids demand flan.
Your post exemplifies what terrifies lenders of more lending. You should be thanking the imf, praising them, and showing support to Macri, even though you may not like him.
Your post is the tip of the iceberg. It reflects the complete financial ignorance of too many of the inhabitants of this country.
I hope you understand my reply is not an attack on you as a person, but rather a critique of your financial intelligence.

 

[Stantucker]

The IMF plan is an orthodox recipe and nothing new. Macri should have gone for zero deficit, zero money printing and drastically reducing inflation on his first week in office. Three years later, with an economy that wasn't exactly booming, it is ridiculous. He has almost no chance of being reelected to actually continue with this plan. His administration has been a disgrace, as well as that of he K's of course. He really didn't need to wait for the IMF to come up with the recipe, which is known and has been tried and used. He should have done it and with private loans while he was still getting them. He just sold out the country. It is pathetic to see him relaunching his campaign from the US and letting the IMF choose the Central bank's president, and this is just the tip of the iceberg.

Do you really think all the powerful mafias and special interest groups here would have ever allowed Macri to carry out the kind of "ajuste" creating reforms you mentioned, given that there was not a crisis at the time? There would have been chaos in the streets. Until there is a major crisis most of those groups will not budge an inch because they have too big of a piece of the pie to protect. I do wish Macri had at least tried.

 

[Stantucker]

Nkad: I suspect you have never lent money because the first rule of lending is make sure you’ll get repaid. If you want me to lend you money, sorry, but I dictate terms. Don’t like my terms? Don’t borrow from me. Furthermore, if you had a record of not honoring your debts, of filing for bankruptcy, of continually over spending, of accumulating huge debts that we all suspect you cannot re pay, and still you had the desire to borrow even more from me, what would I demand from you? Your word means nothing, you have a husband that pressures you all the time to not pay, and your kids demand flan.
Your post exemplifies what terrifies lenders of more lending. You should be thanking the imf, praising them, and showing support to Macri, even though you may not like him.
Your post is the tip of the iceberg. It reflects the complete financial ignorance of too many of the inhabitants of this country.
I hope you understand my reply is not an attack on you as a person, but rather a critique of your financial intelligence.

Help me understand: are you saying that Macri could not have done this at the beginning of his term because, even though he did have private loans, he did not have enough of those, enough financial backing, the kind he is getting now from the IMF?

 

[nikad]

Nikad: I suspect you have never lent money because the first rule of lending is make sure you’ll get repaid. If you want me to lend you money, sorry, but I dictate terms. Don’t like my terms? Don’t borrow from me. Furthermore, if you had a record of not honoring your debts, of filing for bankruptcy, of continually over spending, of accumulating huge debts that we all suspect you cannot re pay, and still you had the desire to borrow even more from me, what would I demand from you? Your word means nothing, you have a husband that pressures you all the time to not pay, and your kids demand flan.
Your post exemplifies what terrifies lenders of more lending. You should be thanking the imf, praising them, and showing support to Macri, even though you may not like him.
Your post is the tip of the iceberg. It reflects the complete financial ignorance of too many of the inhabitants of this country.
I hope you understand my reply is not an attack on you as a person, but rather a critique of your financial intelligence.

You are totally missing my point. I do not blame the IMF for the crisis or think it is some kind of devil for ensuring that Argentina will pay them back. I am absolutely blaming Macri for going to them, etc.

 

[rickulivi]

Help me understand: are you saying that Macri could not have done this at the beginning of his term because, even though he did have private loans, he did not have enough of those, enough financial backing, the kind he is getting now from the IMF?

When solving problems, you often pick the solution that offers least resistance. Three years ago it is likely that Macri thought that borrowing money to finance his deficits was an easier approach than the cutting spending, and less traumatic. He may have also believed that doing so would give him the time to come up with other measures that would make the economy grow fast enough, such that tax revenues would increase enough to reduce the deficit significantly. Regardless of what he thought, it did not work, and he's now where he is. I do think that his new plan, and the IMF's approval of it, it the right one.

Keep in mind too that Macri may have looked at the events experienced by De la Rua's government and he may have wanted to avoid their experience. As I recall, initially the cut spending, and the were forced out quickly.

 

[rickulivi]

You are totally missing my point. I do not blame the IMF for the crisis or think it is some kind of devil for ensuring that Argentina will pay them back. I am absolutely blaming Macri for going to them, etc.

I apologize if I have missed your point, but I was not sure what it was. Was it that Macri should have cut spending from day one, or that he should have not gone to the IMF? I will address both.

Point 1: Macri should have gotten tough on spending from the first day in office. It's easy now to say what he should have done; it's a whole different ball game when you are faced with tough choices, and you need to make a decision. He may have made the wrong decision, but he is certainly correcting that now. Haven't you ever made a decision based on the information you had on hand, only to realize later that you made the wrong one? Should you get blamed for that?

Point 2: You are blaming Macri for going to the IMF. I don't know how financially astute you are, so excuse me if I assume the worst. Do you understand the difference between income, expenses and cash flow? Your income can be equal to your expenses (no deficit) but you can still go broke because you don't have the cash to pay your maturing debts (liabilities). That's why it's so important to not only watch your income and expenses, but your cash flow too.

Here's an example: Assume Macri balances the primary budget next year, as promised, but he will still run a deficit equal to the interest expense the government needs to pay on its dollar debt. Let's assume that's a few billion dollars. Where does he get the money to pay for that, when no one wants to lend him? We should all thank the lender of last resort: the IMF. There's more. Debt matures; for example, next year the Bonar 24 has to pay the 15% of their maturity value (not interest, just return of principal). That's a few more billion dollars. Where does he get the money to pay for that?

Unless you propose another default, you should be saying "Thank you IMF for bailing us out, again!"