Inflation at 100% per year, a mountain of pesos in the Central Bank to stabilize the dollar and moderate price increases, a rush to wage inflation and more reserves in the Central Bank to withstand the crisis are some components of the picture for the first two months. from Serge Massa as Minister of Economy.
The soybean dollar (paying $ 200 instead of $ 140 to producers and exporters to go ahead with the liquidation of exports) allowed the government to get out of the currency confinement it was in, and Massa has begun to define a path that is now facing increasing criticism from of Kirchnerism.
With that sector devaluation net reserves of the Central Bank increased by US $ 3,107 million and, due to the fact that the dollar rules the Argentine economy, Kirchnerism has maintained a more than low profile in the face of the ratification of the adjustment established in the agreement with the International Monetary Fund.
Raise the dollar in favor clearing of grain and the increase in reserves managed to alleviate the short-term exchange rate front, as well as an exchange of debts that made it possible to postpone important maturities to the first quarter of next year. Thus, the Treasury managed to go to the market for pesos without forcing the Central Bank to issue to fill the fiscal hole.
The relief is considerable, the cost of this easing is not less, but for the whole government it turns out economical after meeting the cliff edge due to the crisis that broke out on 2 July with the resignation of Martin Guzman, the soaring of the dollar and prices and the slide Alberto Fernandez on the tripod of official power.
Massa took over by making sure he would not devalue, and a few days later he started with a partial devaluation, ensuring that it would have no inflationary effects, even if the move had an impact in two months with cost of living increases of the order of 7% per month. .
For the Treasury, this bad news showed its positive face as it represented the soybean dollar an additional withholding tax of $ 330,000 million which allowed him to get closer to the fiscal goal of the agreement with the IMF.
Until then, the regime was manual: devaluation, foreign exchange receipts, increased collection and an impact that was not complete but had an impact on inflation based on two facts: the restriction on imports which had already been established and the expectation that imports would be discouraged export deals to the official dollar. Who will sell dollars for $ 149?
The cost of foreign exchange relief is henceforth borne by increased controls and restrictions on imports (i “Non” automatic licenses went from 1,900 to 4,600 positions) approving Cristina Kirchner’s criticism that there is an “import festival” in Argentina and leaving aside Sergio Massa’s threat to tire industry workers to open imports to overcome the shortage and rising tire prices. What will prevail?
Restricting imports with a Central Bank, taking as many pesos off the market as possible so they don’t go to the dollar, or to validate the inflationary jump, are presented as two of the visible legs (another will be an acceleration of the official dollar rise to a range close to 7% monthly) of what comes from the background of the soybean dollar.
In September, according to the latest report by economist Miguel Angel Broda, “the interest-bearing debt of the central bank grew by 20%. This is 8.6 trillion dollars generated. $ 550 billion a month interest equivalent to the $ 6.6 trillion annualized it would represent three times the primary budget deficit“.
That avalanche of debt in pesos that the government relativizes, to avoid talking about accelerated debt, was also fueled by the soybean dollar, the measure star with respect to Mass taken in an attempt to supplant a true stabilization plan.
Meanwhile, with the 75% annual rate paid by Liquidity Letters (Leliq) to banks, the state absorbs more and more funds that are diverted from the private sector.
At the beginning of the year, private credit represented 40% of the total deposits in the financial system. Currently, “only 9% of the increase in deposits”, says Broda, he gets credit from the private sector.
Massa devalues and dollars enter, Miguel Pesce it’s about buying those dollars, but it has to pay higher rates to get those pesos out of the market so they don’t go to the dollar and fuel inflation.
And all in the middle of a 100% annual price increase. A relief has come but, as is the case with Chinese acrobats, it will take a lot of belief and action to keep all the discs moving so they don’t fall out.
Source: Clarin
