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How To Destroy An Economy Using Inflation – Forbes

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In late January, President Alberto Fernández participated in this year’s virtual gathering hosted by the World Economic Forum, normally held in Davos, Switzerland. From his cozy office at the Olivos presidential residence, the Peronist leader boasted about his administration’s response to the one-two punch of a global pandemic and Argentina’s chronic economic decrepitude, worsened by Covid-19’s global impact. The president highlighted how his Peronist brand of social-democracy managed to focus on “the discarded, those most vulnerable,” claiming it is high time to “leave behind this brand of hapless capitalism.” There seemed to be a certain disconnection with reality when Alberto touted the rapid recovery of the Argentine economy, which had seen some five months of sustained and robust economic growth, according to the president.

With one of the world’s highest inflation rates — which is currently on the rise — and almost out of foreign exchange reserves, Argentina’s government is looking at an array of price controls in order to keep a lid on the economy at least until October’s midterm elections. Lay-offs are prohibited by law. To a certain extent it feels as if they are once again covering the sun with their hand, so to speak, repeating failed experiences of the past and only kicking the can down the road. At one point in the president’s speech, he asked global leaders to push an “avant garde agenda, consistent with 21st century [goals],” which seems contradictory with certain pieces of legislation his administration has passed including a “home office law” and a new tax regime for the “knowledge economy” that only penalizes the private sector.

Whatever his intentions may be, it doesn’t feel as if Alberto is pushing a 21st-century agenda. Traversed by a global pandemic, and already two years into a recessionary cycle of stagflation, the government relied on printing copious amounts of pesos to finance emergency payments to individuals and corporations, while freezing public utility bills and using regulation to cap price increases in rentals, food and beverage, and telecommunications, to name a few. Yet, inflation jumped more than 36 percent over the past 12 months — marking a steep decline from 2019’s 54 percent with which Mauricio Macri left office — substantially outpacing wages. They didn’t seem to have a choice but spend being locked out of international debt markets.

While Economy Minister Martín Guzmán has signalled his intention to gradually close the fiscal deficit reducing subsidies in order to normalize energy costs, his government has already backtracked on increases, as it did with retirement and pension payments, putting further stress on the state coffers. Interestingly, these moves were attributed to Vice-President Cristina Fernández de Kirchner, a 21st-century character stuck in the ideological struggles of the 1970s. It was during CFK’s second presidency when the macroeconomic variables got out of whack, as she relied on increasingly stricter capital controls to keep the subsidies flowing, heating up the inflationary forces to the point where she intervened the official statistics bureau, INDEC, in order to try and tame expectations.

In order to imagine an avant garde agenda worthy of the 21st century, Argentina needs to fix its 20th-century problems. According to Federico Sturzenegger, head of the Central Bank

CPF
during the first half of the Macri administration, inflation is a revenue tool used by the government. In a column in Perfil, the use of the “inflation tax” will help the Fernández-Fernández administration rake in 1.1 trillion pesos, which, together with myriad taxes, dollar-denominated bond selling, and the one-time wealth tax, will allow it to cover its financing needs in 2021. “It helps that our society is much more concerned over the costs of lowering inflation than the costs of inflation,” Sturzenegger added. Using inflation to “dilute” or “licuar” costs and savings is the oldest trick in the book, and it hurts those in the bottom of the socio-economic ladder the most, as the former Central Banker points out. “Avoiding an immediate macroeconomic crisis doesn’t avert a credibility crisis that will sink investment rates to their lowest level in years, making growth impossible and pushing many Argentines to leave the country, taking with them their businesses and human capital.”

It must be noted that Alberto’s pan-Peronist Frente de Todos front inherited an imploded economy from Macri and his Cambiemos coalition. Macri promised it would rain dollars in the form of foreign investment and that inflation and poverty would tend to zero. While he received a ticking-time bomb from Cristina, he initially seemed to have disarmed it, only to see the economy blow up in his face at the first instance of financial tension in 2018. It was all downhill from there. And after that we had a global pandemic.

A recent report suggested Alberto is pushing a global statesman agenda, trying to align himself with Germany’s Angela Merkel and France’s Emmanuel Macron, along with Pope Francis. And while that sounds noble, Merkel and Macron defend multilateralism while their European Union is considering banning vaccine exports in the face of shortages and delays. If Alberto’s administration was able to put Argentina on a sustainable path to economic growth with inflation trending downward, he would leave his mark on history. It seems unlikely, though, when their response to inflation is price controls and pointing the finger at “speculators.”

This piece was originally published in the Buenos Aires Times, Argentina’s only English-language newspaper.

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TSX extends gains as gold prices rise, set to rise for third week

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(Reuters) -Canada’s main stock index extended its rise on Friday after hitting a record high a day earlier as gold prices advanced, and was set to gain for a third straight week.

* At 9:40 a.m. ET (13:38 GMT), the Toronto Stock Exchange‘s S&P/TSX composite index was up 24.24 points, or 0.1%, at 19,326.16.

* The Canadian economy is likely to grow at a slower pace in this quarter and the next than previously expected, but tighter lockdown restrictions from another wave of coronavirus were unlikely to derail the economic recovery, a Reuters poll showed.

* The energy sector climbed 0.6% even as U.S. crude prices slipped 0.1% a barrel. Brent crude added 0.1%. [O/R]

* The materials sector, which includes precious and base metals miners and fertilizer companies, added 0.3% as gold futures rose 0.7% to $1,777.9 an ounce. [GOL/] [MET/L]

* The financials sector gained 0.2%. The industrials sector rose 0.1%.

* On the TSX, 117 issues advanced, while 102 issues declined in a 1.15-to-1 ratio favoring gainers, with 14.26 million shares traded.

* The largest percentage gainers on the TSX were Cascades Inc, which jumped 4.2%, and Ballard Power Systems, which rose 2.9%.

* Lghtspeed POS fell 5.6%, the most on the TSX, while the second biggest decliner was goeasy, down 4.9%.

* The most heavily traded shares by volume were Zenabis Global Inc, Bombardier and Royal Bank of Canada.

* The TSX posted 23 new 52-week highs and no new low.

* Across Canadian issues, there were 160 new 52-week highs and 12 new lows, with total volume of 29.68 million shares.

(Reporting by Shashank Nayar in Bengaluru;Editing by Vinay Dwivedi)

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Canadian economy likely to slow, but COVID-19 threat to growth low

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By Indradip Ghosh and Mumal Rathore

BENGALURU (Reuters) – The Canadian economy is likely to grow at a slower pace this quarter and next than previously expected, but tighter lockdown restrictions from another wave of coronavirus were unlikely to derail the economic recovery, a Reuters poll showed.

Restrictions have been renewed in some provinces as they struggle with a rapid spread of the virus, which has already infected over 1 million people in the country.

After an expected 5.6% growth in the first quarter, the economy was forecast to expand 3.6% this quarter, a sharp downgrade from 6.7% predicted in January.

It was then forecast to grow 6.0% in the third quarter and 5.5% in the fourth, compared with 6.8% and 5.0% forecast previously.

But over three-quarters of economists, or 16 of 21, in response to an additional question said tighter curbs from another COVID-19 wave were unlikely to derail the economic recovery, including one respondent who said “very unlikely”.

Canada is undergoing a third wave of the virus and while case loads are accelerating, the resiliency the economy has shown in the face of the second wave suggests it can ride out the third wave as well, without considerable economic consequences,” said Sri Thanabalasingam, senior economist at TD Economics.

The April 12-16 poll of 40 economists forecast the commodity-driven economy would grow on average 5.8% this year, the fastest pace of annual expansion in 13 years and the highest prediction since polling began in April 2019.

For next year, the consensus was upgraded to 4.0% from 3.6% growth predicted in January.

What is likely to help is the promise of a fiscal package by Prime Minister Justin Trudeau late last year, which the Canadian government was expected to outline, at least partly, in its first federal budget in two years, on April 19.

When asked what impact that would have, over half, or 11 of 20 economists, said it would boost the economy significantly. Eight respondents said it would have little impact and one said it would have an adverse impact.

“The economic impact of the federal government’s promised C$100 billion fiscal stimulus will depend most importantly on its make up,” said Tony Stillo, director of Canada economics at Oxford Economics.

“A stimulus package that enhances the economy’s potential could provide a material boost to growth without stoking price pressures.”

All but two of 17 economists expected the Bank of Canada to announce a taper to the amount of its weekly bond purchases at its April 21 meeting. The consensus showed interest rates left unchanged at 0.25% until 2023 at least.

“The BoC is set to cut the pace of its asset purchases next week,” noted Stephen Brown, senior Canada economist at Capital Economics.

“While it will also upgrade its GDP forecasts, we expect it to make an offsetting change to its estimate of the economy’s potential, implying the Bank will not materially alter its assessment of when interest rates need to rise.”

 

 

(Reporting and polling by Indradip Ghosh and Mumal Rathore; editing by Rahul Karunakar, Larry King)

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CANADA STOCKS – TSX rises 0.78% to 19,321.92

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* The Toronto Stock Exchange‘s TSX rises 0.78 percent to 19,321.92

* Leading the index were Martinrea International Inc <MRE.TO​>, up 7.4%, Fortuna Silver Mines Inc​, up 7.1%, and Hudbay Minerals Inc​, higher by 6.7%.

* Lagging shares were AcuityAds Holdings Inc​​, down 6.7%, Ballard Power Systems Inc​, down 6.5%, and Northland Power Inc​, lower by 6.0%.

* On the TSX 165 issues rose and 60 fell as a 2.8-to-1 ratio favored advancers. There were 18 new highs and no new lows, with total volume of 203.0 million shares.

* The most heavily traded shares by volume were Royal Bank Of Canada, Suncor Energy Inc and Air Canada.

* The TSX’s energy group fell 0.59 points, or 0.5%, while the financials sector climbed 0.86 points, or 0.3%.

* West Texas Intermediate crude futures rose 0.27%, or $0.17, to $63.32 a barrel. Brent crude  rose 0.36%, or $0.24, to $66.82 [O/R]

* The TSX is up 10.8% for the year.

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