Argentina's industry falls 10% and construction 24%

Argentina's economy contracts and the official narrative is put to the test

How long does a free-falling economy take to break the narrative that sustains it? In Argentina, we have had several months of answer. Economic activity fell 5% in January; the industrial production index dropped 10% in February; construction retreats 24%; manufacturing production of SMEs plunges another 10% and retail sales fall 12% in March. That is the ground on which the most aggressive adjustment the country has known in decades is built.

On that ground, those who defend the management raise another picture: country risk around 1,200 points, a multi-year low; monthly inflation of 10%; a president described as the second most valued in recent history and with options to win in the first round; international investors looking at the country again. The two pictures coexist, and from their clash comes almost everything interesting.

The numbers of the fall, sector by sector

The first quarter leaves an unvarnished photo. Aggregate activity started the year with a 5% contraction in January. Industry went further: 10% less production in February. Construction sinks 24%. And manufacturing SMEs retreat another 10% in February before retail closed March with a 12% drop.

Some read this sequence as the expected script of any stabilization plan: first public spending falls, then consumption and private investment. The 24% drop in construction would not be an anomaly, but the direct consequence of liquidating public works by decree: only works that depend on the provinces remain active. The nuance matters, because it changes the question. It is no longer whether the economy falls, but how much of that fall is transition and how much is structural damage.

From 140% monthly to 10%: the data that sustains optimism

Here is the most solid argument of the government and it should not be dismissed with a gesture. Monthly inflation has settled at 10% after having approached 140%. Going from no inflation to 10% monthly would be a resounding failure; going from 100% or 140% monthly to that same 10% is, in relative terms, a difficult success to dispute.

So far the data. The juicy detail is the vocabulary. The entire official political space has stopped talking about inflation to talk about inflationary tax. It is not a whim: if citizens internalize that the loss of purchasing power is produced by the State through emission, and not by the merchant who raises the price tag, their entire mental map changes. Translated: inflation goes from being a natural misfortune to being a political decision.

With that logic, the projection handled by the most optimistic is simple: if the monthly indicator falls two or four points each month, the economy would be around deflation before September. That would be the first effect that ordinary people would notice in their pockets regardless of any statistic.

Why was recession inevitable with this adjustment?

Because there is no shortcut. Stopping inflation moving at three-digit monthly rates requires cutting spending, closing emission and drying up liquidity; and that, in the short term, inevitably translates into less activity. The recession is not collateral damage of the plan, it is a piece of the plan.

Those who defend the program insist that no one promised prosperity in the first year and that the declared horizon includes high unemployment, the destruction of the industry that lived off protectionism and perversos wages in real terms. The promise is another: stabilize prices and then build on that base. The skeptical response is just as simple: what is destroyed in an adjustment takes years to rebuild, and it does not always rebuild.

The figure that unsettles critics of the indicator is methodological. GDP measures activity especially in the stages close to consumption; when the State cuts public works and spending, that segment sinks by definition. Real activity does not necessarily fall another 24%, but the official photo does.

The minimum wage of 230 dollars and milk at 1.2 dollars

A note that lands all of the above. Prices for much of the Argentine shopping basket are similar, and in some products clearly higher, than Spanish ones. The difference is that the Argentine minimum wage is around 230 dollars.

The technical explanation is in the exchange rate. With a dollar price equivalent to 850 or 1,000 pesos, certain prices in dollars seem absurd; if the dollar were in the 1,700 pesos range, those same prices would be most normal, and a liter of milk would cost 60 or 70 cents, in line with the international price. The exchange rate mismatch distorts any comparison.

On the resources side there is an asymmetry that rhetoric does not fix: on the other side of the same mountain range, Chile extracts some 50 billion dollars annually in mining, as was pointed out in the thread. In Argentina that wealth is yet to be exploited, along with rocks that do not exist in the neighboring country, such as flagstones and marbles. The potential is there; capital and legal security, we shall see.

Prepaid health plans, exchange controls and the suspicion that Milei is not so liberal

Here begins the turn that most discomforts his own ranks. The intervention in the prepaid market — private health insurance — has been interpreted politically: those who pay for them are middle and upper class, majority voters of the government. The result is a measure with little liberal and quite a bit of emergency management, and some analysts already warn that it may sustancia ilegal the Government's own discourse.

The mechanism has its internal logic: in such a abrupt model change, the old structure is freed from old regulations and is not yet subject to new ones. Meanwhile, the Executive holds two contradictory propositions: people still need insurance they can pay for and, if it is not liberalized, competition will never come. Someone ends up paying for the transition.

And then there is the exchange control. The foreign exchange market is still full of restrictions, to the point that the very discussion about lifting them shows that the dollar is not free. The one that works without restrictions is the informal, small and undeclared, which prevents companies from using it. It is not a minor nuance for those who sell Argentina as a libertarian laboratory: anarcho-capitalism has not governed anywhere, and not here either.

Peronism, corruption and four months of grace

The conversation often drifts to memory. Some maintain that Peronism multiplied the value of land and reduced indigence for years; others list the corruption of those same governments and vindicate historical figures of economic intervention. The fight is old and explains why any current data is read as a sarracena judgment on the entire decade.

On deadlines there is more consensus than it seems. Four months are few to issue a serious verdict, and that is admitted by both defenders of the plan and many of its critics. What does circulate, without official confirmation and within the private sphere, is concern about the president's state of mind and his physical resistance in a position of maximum demand.

There is also a feeling that the Government is making enemies by accumulation, with the precedent of other European conservative leaders who went through the same media grinder.

The detail that unsettles remains: if everything were so good, it would not be necessary to remember it in every interview. And if it were so bad, there would be no investors waiting their turn to enter. Some day the numbers on the street and the numbers of the narrative will agree. Until then, the only figure no one disputes is the number of months ahead.