In the government the idea of keeping the exchange rate tied to fight inflation prevails. A repeated history. Who drives it?
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The freezing of electricity, gas and transportation rates for prolonged periods is a classic of the Kirchner economy and especially in electoral years.
This guiding idea for odd-numbered years, and which traditionally discourages investments in the sector, responds to improving the pockets of sectors with lower purchasing power, which thus find themselves with greater relative purchasing power.
But the jump in inflation in the last three months (4%, 4% and 3.6%) lit the red light on the economy’s control board and made it leave behind one of the main arguments in exchange matters that had Minister Martín Guzmán developed until the beginning of the year.
Guzmán had promised to keep the exchange rate indexed to avoid an exchange delay that could lead to a devaluation jump.
This “music” sounded good to sweeten the ears of agricultural producers who, in those days, did not even imagine the jump in the price of soybeans that would come from the start of September. At that time, a ton of soybeans cost US $ 355 and now it is around US $ 520. Because of that 46% rise, among other things, is that economists like Carlos Melconian say that the Government won a lottery (more dollars and collection) and there are several officials who recognize it.
Soybeans at US $ 520, plus export liquidations and more dollars that came in to pay the tax to the rich, laid the foundations for the new exchange policy underway.
Guzmán no longer indexes the dollar, but fixes it arbitrarily (it will rise 25% in the year and will be at $ 102.40 on December 31, he said) and, shortly afterwards, he made it clear that it will grow below inflation.
The wholesale dollar grew at a rate of 2.5% in February while inflation was 3.6%. The policy of delaying the dollar in odd-numbered years that Miguel Bein defined at the beginning of the 2000s is back and from the conviction of two key senior officials: Vice President Cristina Kirchner and Buenos Aires Governor Axel Kicillof.
The former minister has long been convinced that the essential determinant of inflation in Argentina is neither the fiscal deficit nor the issuance of free-hand pesos, but what happens to the dollar.
And Cristina Kirchner explained it in her letter of October 27, 2020, saying that Argentine bimonetarism (trading in pesos, but saving in dollars) is the “most serious” problem the country has.
It was from this diagnosis that Guzmán created the “dollar-Guzmán” of $ 102.40 and gritted his teeth to continue with his goal of 29% inflation after, according to the first two months, the cost of living points to rise by around 45% this year.
Just to reach 45% annual inflation this year, the increase in the index should be 29% at a rate of 2.9% per month since April.
Against this background, the official strategy to delay the dollar is decided except for one limitation that is not minor: the shortage of dollars.
The government has cut external credit, bond prices fall to levels close to default and the country risk is at 1620 points, so the strategy of establishing a “semi-exchange rate” will depend a lot on soy dollars and the restrictions on imports that, according to the businessmen’s complaint, are coming at a redoubled pace.
Obturating imports with prior authorizations or with direct agreements with the Central Bank or with the Secretary of Commerce appears in the panorama of the year with much more intensity.
If Guzmán sits on the official wholesale dollar, the data to follow will be the exchange gap, that is, the distance between the official and the “cash with settlement” or the blue. Why? Because if it is very broad, foreign trade maneuvers (under and over-invoicing) will rise and the market can intuit that the devaluation after the October elections would be great.
The exchange “gap” is at 65% and history tells that with 30% or less, exporters liquidate almost without reluctance.
The moment is particular: the Government announces that the exchange rate delay may come back hand in hand with the fact that a lottery was drawn and that it does not plan to reach an agreement with the IMF to aspire to obtain financing. Obviously the quiet dollar is a great sedative for the economic tension to the point that it also banks the imbalances of the policy.
Daniel Fernandez Canedo
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