ARGENTINA ECONOMY: CURRENT SITUATION AND OUTLOOK DANTE E. SICA - - PowerPoint PPT Presentation

04/23/2015

ARGENTINA ECONOMY: CURRENT SITUATION AND OUTLOOK

DANTE E. SICA abeceb.com Director

Stage 1: 2003-2007 Stage 2: 2008-2011 HIGH GROWTH + LOW INFLATION DECELERATION + DOUBLE DIGIT INFLATION LOW GROWTH + DOUBLE DIGIT INFLATION

GDP

8.8 % 9.7 % 4.6 % 20.2 % 0.5 % 29.4 %

Average 2012-2014

Stage 3: 2012 – 2015

DURING THE PAST 12 YEARS, THE ARGENTINA ECONOMY EXPERIENCED THE CYCLE OF GROWTH LONGER AND STRONGER OF ITS RECENT HISTORY. BUT GROWTH WAS NOT LINEAR.

Inflation 2 INTERNAL AND EXTERNAL SAVINGS HIGH DECREASING DEFICIT WITHOUT FUNDING

WHAT COMES NEXT? WHAT IS THE POLITICAL AND ECONOMIC SCENARIO WHICH WE ARE GOING TO FACE? Inflection point or continuity?

3,7%

• 0,3%
• 0,9%
• 4,5%
• 6,0%
• 4,0%
• 2,0%

0,0% 2,0% 4,0% 6,0%

Net Primary Balance

THE ECONOMY OF THE TWIN SURPLUSES THE ECONOMY OF THE SHRINKING SURPLUSES THE ECONOMY OF THE TWIN DEFICITS

FINANCING:

ISSUING+ RESERVES

IN 2011 THE ECONOMY SHOWS AN ENERGY DEFICIT Hoarding of

RESERVES

THREE DIFFERENT STAGES THE NUMBERS SPEAK FOR THEMSELVES…

AS % of GDP

Stage 1: 2003-2007 Stage 2: 2008-2011 Stage 3: 2012 – 2015

2,1% 3,7% 0,0%

• 1,2%
• 2,0%

0,0% 2,0% 4,0% 6,0% 8,0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015f

Current Account Balance

Current Account Balance

AS % of GDP

4 THREE DIFFERENT STAGES BEHIND THE TRANSFER OF A STEP TO THE OTHER, IS PRESENTED AN ENERGY POLICY WRONG FROZEN TARIFFS = LACK OF INVESTMENT = SUBSIDIES = FISCAL DEFICIT + ENERGY DEFICIT

MONETARY EXPANSION TO FINANCE THE TREASURY VS ENERGY SUBSIDIES. AS % OF GDP. ENERGY DEFICIT. USD BILLIONS As % of GDP As % of GDP USD billions

• 0,9%
• 0,7%

0,0% 1,7% 0,4% 1,6% 4,2% 6,0 3,8

• 2,8
• 6,2
• 8,0
• 6,0
• 4,0
• 2,0

0,0 2,0 4,0 6,0 8,0

• 2,0%
• 1,0%

0,0% 1,0% 2,0% 3,0% 4,0% 5,0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Monetary Expansion To Finance The Treasury Energy Subisidies Energy Deficit (right axis)

5

2015: A YEAR RULED BY POLITICS

DAY-OVER-DAY ADMINISTRATION

In order to avoid turmoil, the current administration spins over two axis: Stock of Reserves and Activity Level... it will remain doing so.

What will happen this year?

6

VERSUS

ACTIVITY=

SOCIAL CLIMATE

RESERVES=

NOMINAL STABILITY

VERSUS

GOVERNMENT: DAY-OVER-DAY ADMINISTRATION. AVOIDING TURMOIL. KEEPING AN EYE ON RESERVES AND SOCIAL CLIMATE. THE LINK? THE LEVEL OF ACTIVITY Interest rate Exchange rate Imports Employment Offer Social unrest Interest rate Exchange rate Imports Social announcements Pressure on exchange Pressure on inflation take care take care

F I S C A L P O L I C Y E X C H A N G E R A T E P O L I C Y

To contain the inflation, the government will use the exchange rate as anchor

Devaluation= Fall of real salaries= drop of consumption

TC a nov15 = 9,84

Already abound social announcements

• Will not cut of subsidies for transport and

energy in an election year

• Will continue advancing public works to

get to the PASO with the inaugurations

Public spending will grow

• ver revenues

!

NET PRIMARY DEFICIT = 4.5 % OF GDP

TAKE CARE OF ACTIVITY

1

GOVERNMENT WILL ATTEMPT TO BOOST DEMAND

Mainly through two channels:

0% 10% 20% 30% 40% 50% 60% 70% Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 30 35 40 45 50 55

Confianza del Consumidor(eje izq) Devaluación anual (eje der) Devaluation January ‘14

Consumer Confidence (left axis) Annual devaluation (right axis)

8

KEEP AN EYE ON RESERVES

2

THE OTHER GOAL IS THE LEVEL OF RESERVES WHAT WILL BE DONE ?

The government needs reserves in order to SUSTAINING THE EXPECTATIONS

Gives stability, and thus to keep under control the exchange market

NOT RESTRICT THE OFFER

It need to release imports

What will be done ?

The trade balance will fall again (-8.3%)

A) B)

To finance tourism and the "savings" dollars, two trade surplus are needed.

C)

Maturities in dollars are over double in 2014. Issue: the panorama does not look simple.

9

WHAT WILL BE DONE?

THE BOTTOM LINE OF THE WIDOW'S CRUSE USD13.300 M IN RESERVES RENEGOTIATION OF BODEN 2015?

Bonden 2015 renegotiation cannot be ruled out. A 50% acceptance could mean a USD 2.500 M

FURTHER AGREEMENTS WITH CHINA & RUSSIA

Swap: USD 3.100 have already entered. An additional USD4.500M net are expected Funding of public works: some dollars have already entered. The estimate for the rest of the year USD3.000

• M. NOWADAYS IT IS ADVANCING WITH RUSSIA

ANY ADDITIONAL PLACEMENT + GRIESA

YPF, CABA and national government (USD 1.400 millions) have already achieved placements. It is expected that the provinces and YPF will seek to raise funds. In the net, the contribution would be

USD 6.000 M

Thus, apart from keeping restrictions on imports,

10

SO, WHAT WILL HAPPEN WITH THE LEVEL OF RESERVES? 2 scenarios are likely: renegotiation and without renegotiation. But in both cases without arrangement with holdouts.

31.443 25.499 28.774

Con canje del boden 2014 2015p 2015p

Reserves to December 31 USD M

With BODEN renogotiation

11 BUT THERE ARE RISKS IN THE GOVERNMENT'S STRATEGY

Fall in competitiveness

I II

If the Central Bank is unable to absorb all the pesos that issued to finance the Treasury, the

transfer to prices can be quick.

The nominal exchange rate used as anchor + higher dollar appreciation worldwide + daunting inflationary risk = COMPETITIVENESS LOSS

Escenario internacional

III

Brazil in recession and devaluation. Lower commodity prices. US normalize monetary policy, while Europe expands.

Ability of BCRA to absorb “pesos”

THE FUNDING OF THE TREASURE WILL STAND AT ALMOST 5 POINTS OF THE GDP THROUGH MONEY ISSUANCE

I Ability of BCRA to absorb “pesos”

THE CENTRAL BANK ASSISTANCE TO THE GOVERNMENT’S BUDGET NOW IS THE 3RD MOST IMPORTANT “TAX

REVENUE”

The policy of encouraging demand requires funding

4.5% of GDP

FINANCED BY THE BCRA

Iva; 29,4% Ganancias; 23,7% Asistencia del BCRA al Tesoro; 22,5%

Retenciones; 7,5% Resto de imp; 16,9%

13

• Inflation. Accumulated in the year.

11,9% 6,4%

Ene mar 14 Ene mar 15

THUS, THE CAPACITY OF THE CENTRAL BANK ABSORB PESOS AND THUS PREVENT EXPANDING THE EXCHANGE GAP MUST BE CLOSELY MONITORED.

Currency gap

Nowadays the inflation slows and y the parallel dollar remains relatively stable … ... but risk remain

WILL LET AN INFLATION OF 25% OR 30%?

75,6% 31,1% 47,4% 86,6% 61,1% 42,8%

25% 35% 45% 55% 65% 75% 85% dic-13 ene-14 feb-14 mar-14 abr-14 may-14 jun-14 jul-14 ago-14 sep-14

• ct-14

nov-14 dic-14 ene-15 feb-15 mar-15 abr-15

Ability of BCRA to absorb “pesos”

I

TO FLATTEN THE EXCHANGE RATE WITH THE INFLATIONARY INERTIA COULD LEAD TO EXCHANGE APPPRECIATION AGAIN . Fall in competitiveness

II

1,15 1,12 1,07 0,94 1,00 1,20 1,13 0,88

0,80 0,85 0,90 0,95 1,00 1,05 1,10 1,15 1,20 1,25 dic-13 feb-14 abr-14 jun-14 ago-14

• ct-14

dic-14 feb-15

TCR Mul Brasil

Real Exchange Rate

8,7% 35,7% 73,7% 77,1% 24,2% 35,3% 55,8% 61,3%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% dic-13 feb-14 abr-14 jun-14 ago-14

• ct-14

dic-14 feb-15 abr-15 jun-15 ago-15

• ct-15

dic-15 Inflación Tipo de Cambio

Devaluation vs Inflation

Accumulated

The high dollar price worldwide does not help.

potential risk: soaring?

15 REAL EXCHANGE RATE IN THE LONG RUN: WHERE SHOULD WE GO TO?

5,72 1,68 0,59 1,70 5,16 3,89 1,81 2,82 9,08 5,01 1,55 0,84 0,87 0,93 2,97 2,07 1,47 1,53 1,14

0,5 1,5 2,5 3,5 4,5 5,5 6,5 7,5 8,5 9,5

75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Fall in competitiveness

II

TCR AR$ x US$

TCN required so as to have the same TCRM in the period TCN IPC IPIM average IPC IPIM average

vs historical average 1,52 1,15 1,24 $ 11,79 $ 9,41 $ 9,92 vs 75-83 1,52 1,09 1,11 $ 11,92 $ 9,08 $ 8,98 vs 83-88 2,45 1,44 1,74 $ 19,22 $ 11,93 $ 14,08 vs 91-00 0,91 0,92 0,91 $ 7,12 $ 7,59 $ 7,34 vs 03-11 1,74 1,23 1,43 $ 13,64 $ 10,18 $ 11,59 vs 2008-2014 1,32 1,08 1,18 $ 10,38 $ 8,96 $ 9,55 vs 2014 1,23 1,12 1,16 $ 9,64 $ 9,31 $ 9,44 Currently 8,70 1,11 1,05 1,07

Real AR X USD Exchange Rate

(DEFLACTED BY IPC ABECEB AND CPI)

16 International Scenario

III

POLICY DIFFERENCES WITH THE MAIN CENTRAL BANKS AROUND THE GLOBE

RESULT APPRECIATION OF THE CURRENCY OF OUR TRADE PARTNERS COMMODITIES PRICES SIGNIFICANTLY LOWER THAN 2014

CHINA 'S SLOWDOWN AND HUGE HARVEST

IT WILL BE FOLLOW CLOSELY THAT WILL HAPPEN IN THE WORLD

Added to this weakness LATAM…led by Brasil

IN FACT, THE BIGGEST CONCERN FROM THE EXTERNAL THE

FRONT IS PASSED TO BRAZIL ….

Not only because of the depreciation of the Real, but also expectations for the activity continue adjusting downward (-1.2%), amid a complex political scene

17

GDP yearly Var %

• 2,5

9,4 6,8 0,9 3,0

• 1,5
• 0,5

2009 2010 2011 2012 2013 2014 2015e

THE RESULT HAS BEEN THE STAGNATION OF THE ACTIVITY LEVEL

¿What’s next? INTERNATIONAL SCENARIO: CYCLE CHANGE….GROWTH AND OPPORTUNITIES AWAITING FOR ARGENTINA

But TO BE ABLE TO CAPITALIZE THE OPPORTUNITIES THE NEXT

ADMINISTRATION WILL HAVE TO INCLUDE THE CHALLENGES IN THE AGENDA

MACRO IMBALANCES & STRUCTURAL DEFICIENCIES

0,0 20,0 40,0 60,0 80,0 100,0 120,0 140,0 160,0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015e 2016 e 2017 e 2018 e 2019 e 2020 e Petroleo (Brent) Agricultura Minerales

• Met. Preciosos

Commodity prices

Índices Base 100=‘10.

END OF COMMODITY PRICES UPWARD TREND

!

QE End + interest rates cannot be 0% forever

China’s slowdown is here to say

WE ARE WITNESSING THE END OF THE GAINS OF THE BENEFITIAL TERMS OF TRADE Everything indicates that a new global cycle is starting

4,0% 2,4% 5,1%

Mundo Economías avanzadas Economías emergentes y

• p. en desarrollo

THE REALITY IS THAT THE WORLD WILL CONTINUE GROWING AND ALONG WITH THAT, THE MIDDLE CLASS POPULATION WILL GROW AS WELL Worldwide middle class. Total population

• GDP. Average growth rate

2016-2023

The forecasted consumption growth of the middle class is 161,5% (As the demanda goods with high value added, and better

quality overall)

IN THIS GLOBAL CONTEXT, ARGENTINA HAS A HUGE POTENCIAL BECAUSE OF THE ”DOUBLE BONUS” ARGENTINA SHOULD BE EXPLOITING THIS OPPORTUNITIES

THE INMINENT NEW POLITICAL CYCLE

Argentina can establish itself as one of the leading suppliers of these goods globally since the natural conditions set

• utstanding advantages regarding:
• FOOD
• UNCONVENTIONAL ENERGY

RESOURCES (SHALE OIL Y SHALES GAS)

• MINING

RESOURCES BONUS

The new century opened a "window of demographic opportunity" to Argentina and it will be open until mid-2030’s. During this period the country will have a greater number of people of working age in relation to the number of people who do not work

DEMOGRAPHIC BONUS

1) 1) 2) 4) 4) 3)

ACCUMULATION OF ASSETS ABROAD/ LOW EXTERNAL DEBT

AND ALSO

AND IN THIS WAY, ARGENTINA FACING GLOBAL SCENARIO WITH A "DOUBLE BONUS": RESOURCES AND DEMOGRAPHIC

IN THIS NEW MAP OF GLOBAL CONSUMER ARGENTINA IS LOCATED IN A STRATEGIC REGION.

LA ARGENTINA IS THE FIRST EXPORTER OF DERIVATIVES OF SOY. IT IS THIRD IN MAIZE AND SUNFLOWER BUT ALSO POSITIONS IN INTERNATIONAL MARKET AS PROCESSED MILK POWDER, CHEESE OR WINE.

1 1 1 3 3 3 3 3 6 7 9 10 68% 48% 50% 13% 13% 17% 9% 12% 4% 3% 3% 3%

0% 10% 20% 30% 40% 50% 60% 70% 80% 2 4 6 8 10 12

Biodiesel Harina de Soja Aceite de Soja Maíz Harina Girasol Aceite Girasol Poroto de Soja Leche en Polvo Quesos Girasol Trigo Vino

Posición Part % (eje der)

Share of Argentina in exports of food and biofuels in the international market.

Position in global ranking and% of total.

+

BIOTECHNOLOGY

• GENETICS
• ANIMAL

> SEEDS

AGRICULTURAL/ CHEMICALS MACHINERY SOFTWARE

IN THIS NEW MAP OF GLOBAL CONSUMER ARGENTINA IS LOCATED IN A STRATEGIC REGION.

Status of global resources: Shale Gas

ABOUT OIL, THE GEOLOGY GAVE THE OPPORTUNITY TO ARGENTINA THROUGH FIELD UNCONVENTIONAL

Share in global mineral reserves.

Posición en ranking global y % del total. 2012.

ARGENTINA IS IN THE TOP FIVE WORLD OF LITHIUM AND COPPER RESERVES AND THE TOP TEN IN POTASSIUM, GOLD AND SILVER

ARGENTINA HAS A POPULATION ADVANTAGE. MID 2030 TO BE GREATER NUMBER OF PEOPLE WORKING AGE THAN THE NUMBER OF PEOPLE THAT DO NOT WORK

This is an opportunity because:

• With fewer children per worker, it

is possible to invest more in each child, giving better education and better health

• The workers are the ones who can

save-money, having more people working increases savings and hence the ability to accumulate capital to invest, grow and increase productivity. DEMOGRAPHIC WINDOW Until mid-2030 the country will have a greater number of people

• f working age in relation to the

number of people who do not work (children and seniors). Participation age and inverse dependency ratio (population active / inactive)

1,5 1,6 1,6 1,7 1,7 1,8 1,8 1,9 1,9 0% 10% 20% 30% 40% 50% 60% 70% 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 Población 0-14 años/ población total (izq Población 15-64 años/ población total (izq Población mayor a 65 años/ población total (izq Inversa tasa de dependencia =población activa/ inectiva

BUT TO BE ABLE TO CAPITALIZE THE OPPORTUNITIES THE NEXT ADMINISTRATION WILL HAVE TO INCLUDE THE CHALLENGES IN THE AGENDA

MACROECONOMIC STABILITY INSTITUTIONS

In the short term, relative prices correction >> RER & Tariffs

> Legal Stability > Check regulatory frameworks > Define a new strategy regarding international relations > Less discretionary foreign trade policy > Reduce the high level of burocracy

> Reduce inflation > Real exchange rate > Fiscal and monetary policy

!

OVERALL COMPETITIVENESS

> Transport infrastructure > Education access > Fiscal pressure reduction > Financial markets development > Energy security

R E L A T I V E P R I C E S D I S T O R S I O N

+894.3%

• Var. %

2003-2014

Registered wage CPI Official dollar Interest rate Electric Tariff

+578.8% +22.9% +10 p,p +154.3%

Parallel dollar

+289.5%

All of which resulted in fiscal and external imbalance

RELATIVE PRICES HAVE TO BE RECONSIDERED

Fiscal Correction

This must be the first step. Without it no exit is feasible.

FISCAL CORRECTION IS A NECESSARY CONDITION. IN 2014 IT BECAME APPARENT. THE ADJUSTMENT AT THE BEGINNING OF THE YEAR WAS SOON RULED OUT

1°

ADJUSTMENT ON TAXES SUBSIDIES TO THE ENERGY SECTOR =

3,8 POINTS OF THE GDP

0,3

• 0,3
• 0,9
• 1,3
• 2,7
• 4,1
• 4,5

1,4 1,8 2,3 2,4 3,1 4,2 3,8

• 5,0
• 4,0
• 3,0
• 2,0
• 1,0

0,0 1,0 2,0 3,0 4,0 5,0 2009 2010 2011 2012 2013 2014 2015e

Resultado Primario Neto ANSES y BCRA Subisidos Energía

Energy Subsidies and Net Primary Bottom line

GDP %

In 2011 consumers paid the 20% of the actual cost of energy. In 2014, 10%

Natural Gas

DEMAND PAYS >>> U$S /MMBTU

2.3 TO 3.7

AVERAGE COST OF ADQUISITION

6 APROX

62%

floor

67 292 405 395 148 313 577 665 665 404

900,1 1.265,7 1.272,5 1.240,4 984,1

AMBA Buenos Aires Córdoba Santa Fe Mendoza

c/ subsidio c/subsidio parcial c/ sinceramiento precio mayorista

two-month electricity bill in $

for a household with 600 KWh/Bi average consumption

GAS AND ELECTRICITY BILLS ADJUSTMENT NECESSARY TO ACHIEVE E/2% AND 2,4% OF THE GDP FISCAL SAVING

959 931 1.412 1.564 1.883 3.552 3.183 4.230 4.495 253 1.344 1.316 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Remittances of profits to the world. USD M

with restrictions there are no incentives to enter capital

TO SOLVE THE HOLDOUTS ISSUE IS IMPORTANT BUT NOT ENOUGH. IT IS KEY TO ADDRESS RESTRICTIONS.

UTILITY REMITTANCE RESTRICTIONS

SYSTEMIC COMPETITIVENESS

PROGRESS HAS TO BE MADE IN SECTORS THAT INVOLVE SYSTEMIC COMPETITIVENESS

TRANSPORT DEFICIT

Between 2006 and 2014

Road n etwork g rowth was on ly 6,0% W h ile SORROUNDING PARK grew

MORE THAN 40%

EXHAUSTION OF ROAD NETWORK CAPACITY

84 % goods are transported in trucks ,

wh ich is 75% more expensive than rail

transport

UNDER INVESTMENT IN RAILWAYS AND MARITIME NETWORK

WHAT TO DO ON TRANSPORT INFRASTRUCTURE?

TRANSPORT NETWORK

Incorporate private capital for port management Adapt current structure Modernize customs rules Increase utilization and participation of rail freight transport mode Improve network security Include network expansion Adapt the network to its level of use Transform routes and roads in highways Differentiate urban transport and cargo

LEVEL Of INVESTMENT NEEDED

USD 1.700 M annually

(priority investments, ie core and those with the higher AADT - average annual daily traffic)

USD 700 M annually USD 400 M annually USD 2.800 M annually

ROAD NETWORK

MARITIME NETWORK RAILROAD NETWORK

ITS REQUIRED TO REVERSE THE ENERGY DEFICIT IN ORDER TO AVOID LIMITING THE USE OF FOREIGN CURRENCY

Energy account balance. US$ millions

REVERSING THE ENERGY DEFICIT IS NOT AN IMPOSSIBLE TASK, BUT IT WILL TAKE TIME

!

• 6.608
• 5.968
• 3.773
• 5.140
• 4.643
• 5.100 -4.761
• 2.949
• 1.468
• 266

1.185 1.750

• 8.000
• 7.000
• 6.000
• 5.000
• 4.000
• 3.000
• 2.000
• 1.000

1.000 2.000 3.000 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

A SIGNIFICANT PRODUCTION LEAP IS REQUIRED 2015-2025  +49% OIL  +29% NATURAL GAS  +47% FUEL

33 IT WILL BE CRUCIAL TO GIVE SIGNS IN THE DIRECTION OF A RELATIVE PRICES CORRECTION AND THE REGULATARY FRAMEWORK

• 1. PRICES SIGNALS
• 3. GENERATE A FRIENDLY ENVIRONMENT TO ATTRACT INVESTMENT

 OIL & GAS PRICES THAT BOOST PRODUCTION  CONVERGENCE TO THE INTERNATIONAL PRICES  FULL-SUBSIDIES CUT IN PUBLIC TARIFFS (2-3 YEARS) + PERIODIC UPDATE  EXPORTS RIGHTS MODIFICATIONS. MAXIMUM PRICES SUPRESSION  SUPRESSION OF DISTORTIVE CHARGES ON FUEL  ALIQUOT LIMITS REGARDING INCOME TAX AND ROYALTIES  PROJECTS PROMOTION WHEN TECHNICAL CONDITIONS REQUIRE SO  GUARANTEE NATURAL GAS TRADE AND CONTRACTS

• 2. INSTITUTIONAL REORDERING

 ENERGY MINISTERY CREATION. COMPETENCIES SUPERPOSITION SUPRESSION  REDEFINE THE ROLE OF REGULATORY INSTITUTIONS

34

WHOEVER WINS THE ELECTIONS, FUNDAMENTAL CORRECTIONS REGARDING DISTORTIONS OF RELATIVE PRICES AND MACRO ECONOMIC IMBALANCES ARE EXPECTED TO BE CARRIED OUT. Such task is not

• simple. There are differences among candidates.

:

THE DIFFERENCES AMONG CANDIDATES WILL BE THE TERM SUCH CORRECTIONS ARE APPLIED. Without shying away from gradualism, reforms could be carried

• ut sooner to foster favorable

expectations for the new cycle. Such policy could have a stronger reccessive effect in the short term but the expectations on the future will be

• positive. Further investment would

ease the path. The intention: to lift restrictions immediately. Every necessary adjustment will be carried

• ut as gradually as possible. The

achievements of the current administration will remain. There is no room for blaming the previous administration . Expenditure will resist dwindling, in particular: Subsidies The risk of this strategy: the expectations coupling a new administration might vanish fast, speeding up the need of mayor corrections. Gradual adjustment. No need to be cautious -at least in the political speech

• about the achievements
• f the previous

administration. In this sense, as for politics, reforms -sensitive to certain "cloaks"- will be easier to be carried out.

MACRI SCIOLI MASSA

35

THE TASK IS NOT EASY, BUT THE GOOD NEWS ARE THAT WE HAVE THE FUNDAMENTALS THAT WOULD GIVE ENOUGH MARGIN TO DO THE CORRECTIONS. THE REQUIRED CHANGES ARE CONSIDERABLY SMALLER IN COMPARISON TO THE ONES THAT HAVE BEEN DONE IN 2001-2002

Public debt on private sector’s hands GDP % Unemployment % PEA 24,0 7,3

5,0 10,0 15,0 20,0 25,0

2001 2015e

Fiscal pressure % PBI  SOLID LOCAL MARKET + CERTAIN MARKETS ARE PROTECTED 21% 37%

0% 10% 20% 30% 40%

2001 2015e

• 3,4
• 4,7
• 5
• 4
• 3
• 2
• 1

2001 2015e

Fiscal deficit % PBI  REMARKABLE FISCAL DEFICIT BUT MAINLY DRIVEN BY SUBSIDIES, WHILST IN 2001 DEBT INTERESTS WERE THE DRIVER  LOW DEBT LEVEL WITH THE PRIVATE SECTOR AND NOMINATED IN US DOLLARS Salaries USD Middle Class Total population %  BIGGER FISCAL INCOME 99 11

2001 2015e

Measured in foreign currency = 8% of GDP

887 1638

500 1000 1500 2000

2001 2015e

35 49

20 25 30 35 40 45 50 55

2001 2015e