Economy
Argentina’s new government gets to grips with the economy – The Economist
IT IS A MONTH now since Alberto Fernández took over from Mauricio Macri as Argentina’s president and, contrary to some forecasts, the sky over the Pampas has not yet fallen in. Having inherited a dire economic situation, including what Mr Fernández, a Peronist, called a “virtual default” on the country’s debts, his government has begun by doing more or less what he said it would. Adopting almost the opposite approach to its predecessor, it has laid out a tough fiscal policy and a loose monetary policy and has yet to say much about how it will handle the debt. Exchange and price controls, and the southern summer lull, have combined to buy the new team time. But will they use it wisely?
It was trying to buy time to reform a sick economy that got Mr Macri into trouble. A free-market conservative, he ran up debt to finance a gradual fiscal adjustment until investors took fright, prompting a run on the peso and forcing the government into the arms of the IMF. The economy slumped into recession, inflation surged to 54% last year and Mr Macri lost the presidential election. The new team’s first objective, according to Martin Guzmán, the economy minister, is “to halt the fall”.
They have swiftly pushed through an emergency package of mainly fiscal measures. These include tax increases on farm exports and travel abroad, and a six-month freeze of many prices, salaries and pensions. The impact on poorer Argentines has been softened with extra payments to them. According to Fundación Capital, a consultancy in Buenos Aires, the measures add up to a fiscal squeeze of around 1.5% of GDP. If fully implemented, they would balance the books before debt payments this year.
This has been offset by an opaque monetary policy. The central bank has said its intention is to maintain positive real interest rates and avoid “excessive” lending to the government. In practice the bank is driving interest rates towards negative territory and is “the printing press of the government”, as an economist who worked for a previous Peronist administration puts it. Officials think this monetary expansion will revive consumption and thus the economy. They are relying on price controls to blunt its inflationary impact. Critics reckon it will simply widen the gap between the official exchange rate of 60 pesos to the dollar and the free-market rate (at 77 this week). This will push up inflation.
Both Mr Fernández and his officials insist that Argentina wants to pay its debts (unlike in 2001, when Peronists cheered default) but that it needs more time to do so. That is broadly accepted by its creditors. An IMF mission is expected to visit Buenos Aires in the next few weeks. Mr Guzmán, a scholar of debt crises with no financial-market or government experience, says he wants a deal with the holders of $100bn of bonds by the end of March.
Time is of the essence. If the government moves quickly, the bonds will still be in the hands of institutional investors rather than litigious vulture funds, points out Héctor Torres, who was Argentina’s director on the IMF’s board. With the IMF itself, the government will probably seek a new standby agreement to stretch out the $43bn it is due to repay in 2022-23. It has eschewed drawing down $11bn outstanding from Mr Macri’s IMF loan. That is a mistake, argues Mr Torres, since the money might make it easier to reach a deal with the bondholders. It would be throwing good money after bad, reckons the new government team.
“We are navigating through a narrow passage,” according to Mr Guzmán. Missing is a chart for the other side of the corridor. Unless they are strictly temporary, the controls will create big distortions of the kind that built up under Cristina Fernández de Kirchner, the powerful vice-president, who held the top job from 2007 to 2015. The government has yet to link its emergency measures to a macroeconomic plan. That may be because Mr Fernández, a pragmatic moderate, must negotiate not just with creditors but also with his vice-president, a leftist populist.
His stance is thus ambiguous. On the one hand, he has rightly stressed that Argentina needs to boost its exports, and he has called for a national consensus on a long-term plan. On the other, in a reference to the IMF, he has lashed out at “recipes that have always failed”. In fact, they have always failed only in Argentina, which has long wanted to play by its own rules. “The world, unfortunately, is real,” as the writer Jorge Luis Borges put it. It is Mr Fernández’s task to persuade Argentines of that.
This article appeared in the The Americas section of the print edition under the headline “Argentina’s new government gets to grips with the economy”
How does Canada come back from its massive pandemic deficit? Depends who you tax.
With its seemingly unending pandemic spending, the federal government is heading toward a major deficit. Finance Minister Chrystia Freeland hasn’t announced any fiscal targets, but estimates put the shortfall as high as $343 billion. Canadians have, understandably, been growing worried. An October poll by Maru/Blue found that while most Canadians don’t think it’s time to rein in spending, over two-thirds still think the government should focus on reducing the deficit.
Like most countries, Canada has also experienced significant economic decline this year. “We expect that the fallout from the pandemic will have some long-lasting effects on future economic growth,” said Governor of the Bank of Canada Tiff Macklem during a press conference in late October. And while the bank doesn’t expect shutdowns as widespread as the spring, they don’t expect recovery to be quick. “When we add it up, the Governing Council projects that the economy will still be operating below its potential into 2023.”
READ: Charts to watch in 2021: The most important Canadian economic graphs for the year ahead
So what does this dire financial predicament mean for Canadians going into 2021? It means governments may have to get creative to raise revenues, though increasing income taxes isn’t necessarily a fait accompli. Many argue that Canada’s current tax system skews toward benefitting society’s wealthiest—and increasing taxes on wealthy individuals and corporations and closing tax loopholes would not only be more politically palatable to an electorate experiencing financial unease, it would also make the tax system more fair.
“During times of crisis, there can be a lot of pandemic profiteering,” says Toby Sanger, executive director of Canadians for Tax Fairness. He notes that Amazon, owned by the world’s wealthiest person, tripled its profit during the pandemic, and Thomson Reuters, owned by the wealthiest family in Canada, was up 20 per cent. Sanger supports an annual wealth tax on assets owned by people whose wealth is above a certain threshold (he proposes $20 million). “Most Canadians . . . that own houses pay close to one per cent tax on the value of their house, so arguably we do have a wealth tax, but it’s focused on the middle class,” Sanger adds. This is because the richest Canadians hold a greater proportion of their wealth in financial assets. There is considerable public support for taxing these assets; an Abacus Data survey commissioned by the Broadbent Institute found that 75 per cent of Canadians say they support a one to two per cent wealth tax on the country’s richest, including almost 70 per cent of Conservative voters. And yet, an NDP motion for just such a wealth tax was voted down in mid-November.
More than anything else, the pandemic has shown that in times of crisis there are clear winners and losers. But nowhere has the financial future seemed so uncertain as in Canada’s cities. “Municipalities are on the front line when it comes to responding to this virus, and it’s had an impact on their bottom lines,” says Enid Slack, director of the Institute on Municipal Finance and Governance at the University of Toronto. Slack explains that municipalities have been hit by both an increase in expenditures—including public health, shelters, child care and IT costs—and a decrease in revenues from deferred property taxes without penalties and a decline in user fees. Complicating the situation is the fact that municipalities aren’t allowed to budget for operating deficits.
This uncertainty means provinces and cities will have to come up with a new funding agreement that is more sustainable. “In the longer term . . . we have to consider who does what and how we pay for it,” says Slack. A major problem she highlights is that the federal government has the most ability to raise revenue, but provinces and municipalities have the most spending responsibilities. “If we’re delivering . . . social services and social housing, is the property tax the best way to pay for that? Most people would say no,” Slack insists. “They would say, if you’re redistributing income, the income tax is a better way to do that.” To solve this problem, Slack posits two alternatives: maintaining these services at the municipal level and giving municipalities access to income tax revenues, or moving those services up to the provincial level where there are income taxes.
The pandemic has shown just how fragile the Canadian economy is to major shocks—and the cascading impacts on our governments’ revenues. “There are cracks in our fiscal system in Canada,” says Slack. If governments across the country have any hope of being re-elected after a treacherous pandemic second wave, they will have to take bold steps to act on them.
This article appears in print in the January 2021 ‘Year Ahead’ issue of Maclean’s magazine with the headline, “What recovery might look like.” Subscribe to the monthly print magazine here.
Economy
SEAN FRASER: Government has plan to protect health, support economy through second wave of COVID-19 – TheChronicleHerald.ca
By Sean Fraser
SPECIAL TO THE NEWS
This has been a long year.
The COVID-19 pandemic poses the greatest public health and economic threat to Canadians in a generation. In order to keep one another safe, we have collectively changed everything about the way we live and work. These changes have been difficult, but they are saving lives.
The federal government has developed a plan to help protect Canadians during this public health emergency and to address its extraordinary economic consequences. Since the onset of this pandemic, the federal government has invested more than eight out of every $10 spent in response to COVID-19.
The first and most important pillar in our economic strategy is to maintain a world-class public health response. The faster we defeat the virus, the faster our economy will recover.
We know this pandemic ends with a vaccine. That’s why we have secured access to the most diverse supply of vaccine candidates of any country in the world. Four of those vaccines are currently undergoing approval processes now, and the first doses are expected to arrive shortly. We have been working with the provinces for months, as well as the Canadian Armed Forces, to plan the logistics of distributing the vaccines as they arrive. When a vaccine is ready, Canada will be ready to receive it.
We have invested more than $20 billion to help keep Canadians safe by making substantial investments in testing and contract tracing, procurement of PPE for health-care professionals, and other measures to support a safe restart of the economy in each of the Provinces. This includes $2 billion in measures that are helping provincial governments provide a safe return to class for our kids, and measures to protect seniors living in long-term care.
The second pillar of our response has been to implement financial supports for Canadian households and businesses until the economy has stabilized.
When the economic consequences of the pandemic revealed themselves, we quickly implemented CERB, which helped almost nine million Canadians who lost income to keep food on the table and a roof over their heads. We have since put new income support measures in place by enhancing EI and establishing the new Canada Recovery Benefit for Canadians who lost income as a result of COVID-19.
To support businesses, we advanced the Canada Emergency Business Account, which provides $60,000 interest free supports to businesses, $20,000 of which is forgivable. To date, approximately 800,000 small and medium sized businesses have taken advantage of this program. We advanced the Canada Emergency Wage Subsidy, which pays up to 75 per cent of workers’ salaries and is helping keep nearly four million workers on payroll. We also created a new program that will help cover up to 65 per cent of rent for businesses that have lost revenue as a result of COVID-19, and up to 90 per cent when closures were made pursuant to a public health order.
Many of these programs were designed in the early days of the emergency, but we plan to continue various support measures through to at least next summer so Canadians will know their government will be there for them during this time of unprecedented economic uncertainty.
The final phase of our plan is to make significant investments that will kickstart the economy once it is safe to do so, with a view to setting the course for long term growth that is robust, sustainable, and inclusive.
The path forward will include investments to create a National Early Learning and Child Care System, universal broadband connectivity, major reform in long-term care, and transformational investments in the green economy. Initial steps for each of these measures have recently been announced and are rolling out already, with the remaining details to be included in the upcoming federal budget.
2020 is almost over. The outlook for 2021 is in our hands. So, as we head into the holiday season, let’s continue our focus on keeping each other safe so next year is better than the last.
In the meantime, our government will do whatever it takes, as long as it takes, to help keep our communities safe and to see us through to better days.
TAGLINE: Sean Fraser is MP for Central Nova.
Economy
SEAN FRASER: Government has plan to protect health, support economy through second wave of COVID-19 – TheChronicleHerald.ca
By Sean Fraser
SPECIAL TO THE NEWS
This has been a long year.
The COVID-19 pandemic poses the greatest public health and economic threat to Canadians in a generation. In order to keep one another safe, we have collectively changed everything about the way we live and work. These changes have been difficult, but they are saving lives.
The federal government has developed a plan to help protect Canadians during this public health emergency and to address its extraordinary economic consequences. Since the onset of this pandemic, the federal government has invested more than eight out of every $10 spent in response to COVID-19.
The first and most important pillar in our economic strategy is to maintain a world-class public health response. The faster we defeat the virus, the faster our economy will recover.
We know this pandemic ends with a vaccine. That’s why we have secured access to the most diverse supply of vaccine candidates of any country in the world. Four of those vaccines are currently undergoing approval processes now, and the first doses are expected to arrive shortly. We have been working with the provinces for months, as well as the Canadian Armed Forces, to plan the logistics of distributing the vaccines as they arrive. When a vaccine is ready, Canada will be ready to receive it.
We have invested more than $20 billion to help keep Canadians safe by making substantial investments in testing and contract tracing, procurement of PPE for health-care professionals, and other measures to support a safe restart of the economy in each of the Provinces. This includes $2 billion in measures that are helping provincial governments provide a safe return to class for our kids, and measures to protect seniors living in long-term care.
The second pillar of our response has been to implement financial supports for Canadian households and businesses until the economy has stabilized.
When the economic consequences of the pandemic revealed themselves, we quickly implemented CERB, which helped almost nine million Canadians who lost income to keep food on the table and a roof over their heads. We have since put new income support measures in place by enhancing EI and establishing the new Canada Recovery Benefit for Canadians who lost income as a result of COVID-19.
To support businesses, we advanced the Canada Emergency Business Account, which provides $60,000 interest free supports to businesses, $20,000 of which is forgivable. To date, approximately 800,000 small and medium sized businesses have taken advantage of this program. We advanced the Canada Emergency Wage Subsidy, which pays up to 75 per cent of workers’ salaries and is helping keep nearly four million workers on payroll. We also created a new program that will help cover up to 65 per cent of rent for businesses that have lost revenue as a result of COVID-19, and up to 90 per cent when closures were made pursuant to a public health order.
Many of these programs were designed in the early days of the emergency, but we plan to continue various support measures through to at least next summer so Canadians will know their government will be there for them during this time of unprecedented economic uncertainty.
The final phase of our plan is to make significant investments that will kickstart the economy once it is safe to do so, with a view to setting the course for long term growth that is robust, sustainable, and inclusive.
The path forward will include investments to create a National Early Learning and Child Care System, universal broadband connectivity, major reform in long-term care, and transformational investments in the green economy. Initial steps for each of these measures have recently been announced and are rolling out already, with the remaining details to be included in the upcoming federal budget.
2020 is almost over. The outlook for 2021 is in our hands. So, as we head into the holiday season, let’s continue our focus on keeping each other safe so next year is better than the last.
In the meantime, our government will do whatever it takes, as long as it takes, to help keep our communities safe and to see us through to better days.
TAGLINE: Sean Fraser is MP for Central Nova.
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