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The government is seeking to put a limit on financial lack of confidence
Clarin
August 21, 2008

By Daniel Fernandez Canedo

With one hand, the leadership seeks the willing so that the re-nationalization of Aerolineas Argentinas is approved in the lower house. With the other, it buys public bonds to make it clear that Argentina is not thinking of declaring any kind of default as Wall Street has been speculating.

In recent days, the government went out to recover leadership so that some bankers and businessmen believe they're seeing the possibility, in embryonic form, the emergence of an economic team.

Cabinet Chief Sergio Massa; Minister Carlos Fernandez; Central Bank President Martin Redrado, and Finance Secretary Hernan Lorenzino, were presented as a team. They are charged with mounting a response to the drop in bond prices set off by the sale of bonds by Venezuelan banks and not they're following the issue attentively.

However, the President calls the shots and the word of ex-President Kirchner remains as weighty as ever on economic issues.

What has changed? Some financial needs are pressing. What hasn't changed? The government continues to be pawned by not running Guillermo Moreno out of INDEC nor taking steps to make the inflation figures reliable.

The manipulation of the indices was justified officially in that, this way, they avoided speculative rises in prices to push up indexed bonds and thus oblige the Treasury to pay more debt.

The now led to, in recent weeks, the Treasury having to put US$500 million towards buying bonds to avoid a spike in interest rates and making credit even scarcer.

In economic terms they can do much, but they cannot avoid any costs.

The government came out to deal with the lack of financial confidence by guaranteeing that every week, through the end of the year, the State will buy public bonds to make it clear they intend to honor the public debt.

Since then the figures are incomparable and the theoretical "savings" was high, but the elevated interest rate that Argentina pays and the closing of international markets are not small costs.

Argentina pays a lot for lack of confidence and, paradoxically, at a time when it is showing a high fiscal surplus.

The State has cash, but part of the business world has its doubts about what they'll do with it.

The 4.022 billion pesos of July's fiscal surplus reflects that there are some risks the government prefers not to take.

It lowered the pace of the rise in public spending and gave a signal that it wants to balance the books.

Also, the President took pains to point out that with the July results, the fiscal surplus is projected to be 3.5% of GDP, a level higher than predicted at the beginning of the year.

Evidently, the government took note of Hugo Ch vez as a lender of last resort that could not be the only avenue of financing and was ready to save a little more.

Next year it will have to go in search of some US$4.5 billion and without being able to turn to the international markets it will be difficult.

But in recent days, while the issue of possible changes at INDEC remains absent on the public agenda, there are signs of change:

There is less demand for dollars on the part of the private sector, and the Central Bank went back to being a buyer to avoid a drop in the price of the currency.

Public spending rose 27% per year and not 38 as in the beginning of the year.

The government committed to buy bonds to put a floor down on the cost of financial lack of confidence.

Some changes are noted; others, like the lack of a plan to renegotiate the debt with the Paris Club, which would allow the beginnings of opening doors of financing which are now closed, appear postponed.

While still, to this day, inside and outside the government circles there are requests for changes at INDEC and that has gotten no response. It's a very severe deficit.