The measures recently announced by the Government to fight inflation are more ‘or less the same which has long been failing, with the consequent bottlenecks of the economy and the unfair choice of winners and losers.
People still want to cover the sun with a finger, focusing on the fact that things won’t get worse before the election and blaming all but what is to blame: the country’s fiscal and monetary disaster.
The main focus remains the dollar waiting for the election or a miracle. They announce greater restrictions on the dollar in a context where, of course, the gap between the official dollar and its market value is too high. The official cheap dollar and the interventions imply a loss of reserves which the Central Bank has at a very low level.
This has been happening for a long time and the government’s response is always to put more restrictions. This central bank will continue to use dollars obtained from an organization that lends it or through export liquidation. There will be no positive changes in expectations because the necessary reforms have not been made.
It would be less harmful to narrow the gap, use the official one only for foreign trade and do not intervene in other operations with foreign currency. But it’s not something you’ll do now if you haven’t done it before. The “strategy” will be devalue the official at a rate almost equal to inflation, expecting the market to follow a similar rate of change. AND to cross fingers so that the market doesn’t coordinate into another equilibrium that doesn’t leave another outlet for a discrete jump. Even if sometimes it seems that there is always some quantitative restriction that prevents it, obviously at any cost.
On the other is the fixed-term rate hike which was supposed to keep the marginal investor in that instrument and reduce the pressure on the dollar. But it is likely that, having credibility issuesthe announcement of patches as these measures reveal information, if anything remains to be disclosed, and end up having the opposite effect to that sought.
Until savers perceive this as a sign of bigger problems, such as the forced exchange of a bond, the equilibrium will be as we are today, with some lag in the market exchange rate sought through interventions and an increase in the interest rate. However, if there is a cumshot scene —which is not improbable—, the Government’s response could cause savers to lose (at least in the short term, remember the Bonex experience).
The current inflationary dynamics do not converge: fiscal deficit, emission, quasi-fiscal deficit, inflation, rate hike, more emissions, more quasi-fiscal deficit… People perceive that the peso is losing purchasing power and, of course, they use that currency for transactions Almost exclusively.
Clearly, in this period of government it will not be possible to build a nominal anchorage which causes prices to converge. Hopefully, the next one will understand that inflation is not a matter of blaming international organizations, price makers, etc. AND? The root of Argentina’s economic problem is the government’s chronic fiscal deficit. This leads to a realistic perception of insolvency and monetary financing and consequent inflation.
The solution to inflation requires a tax reform— lowering the pressure and simplifying the tax tangle — and a reduction in spending that is credible. It’s not insensitive to recognize that you can’t always spend more than you earn. Doña Rosa has always known that.
These reforms are a necessary condition for the others that the economy needs to function and with which they must be accompanied a reform that modernizes the Central Bank, to do what a modern and efficient central bank should do. also with ato labor and trade reform which makes it possible to increase productivity —which is the way to increase real wages— and to obtain the necessary investments to stabilize the economy and make it grow.
Hopefully, the next government will do what needs to be done to have credibility and we will stop discussing things for which the answer is known, such as the causes of inflation, and the issues that would bring about positive change, such as productivity take on relevance.
Source: Clarin
