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Informe Mensual Económico Financiero N° 334 – Diciembre de 2017

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EXECUTIVE SUMMARY

The US economy, which grows at a rate of 2.5% per year, concentrates international

attention because of the following: i) the impact of the reduction of corporate income

tax; ii) the rise, estimated at one percentage point for 2018, of the reference rate of

the Federal Reserve.

Both combined effects can generate a reflux of funds to the United States, a moderate

drop in the price of bonds and a mild revaluation of the dollar. This, notwithstanding

the existence of a structural excess of savings due to demographic issues, the

relatively low investment rate and the effects on the liquidity of the disarmament of

the monetary facilitation programs promoted at the time by the Federal Reserve and

the European Central Bank.

The Bloomberg Index of commodity prices shows a rise of 6% in the last twelve

months, in a context of relative calm. The protectionist turn of the United States under

the Trump administration does not prevent a slight acceleration in the growth of

international trade, which would do so around 4%–5% in 2018, which is a key data

for the construction of the Argentinean scenario of 2018. In any case, it is necessary

to monitor the conditions of the renegotiation of the NAFTA conditions, whose

negative impact for Mexico is around 1.5% of the GDP.

After the government electoral victory in October, the risk Premium for Argentina was

set at 360 basis points, versus 493 in December 2016 and 410 in June 2017; although

it is a significant reduction, it is well above Brazil (245) or Uruguay. This indicates

there is a long way to go down.

The concern of investors based on the government’s capacity in articulating the pace

that the policy imposes on the correction in 2018 of the fiscal deficits (6% of GDP)

and of the Current Account of the Balance of Payments (4.9% of GDP), with the

possibility of financing, in a context with growing debt and with an inflation rate that

resists to fall of 1.5%monthly. This translates into a low participation of Foreign Direct

Investment.

Capitalizing on the electoral result, the Executive Branch sent to Parliament a set of

projects within the framework of a fiscal commitment between Nation and Provinces,

which includes, among other issues: i) the resolution of cross-debts between both

levels of government; ii) the elimination of the Great Buenos Aires Fund; iii) the

change of financing of the retirement system; iv) changes in the pension system

modifying the adjustment index –with an eventual future saving– the instance of the

possibility that the worker chooses not to retire at 65 years (Light formula of the

postponement by law of the age of retirement).