It has long been said that what we are going through It is not yet a stabilization plan.
There are convincing elements: the lack of definition of the monetary regime and the non-independence of the BCRA; the persistence of much of the rigid exchange control scheme and the absence of anchors. Also the absence of definitions from the official discourse that seek to contain short-term expectations.
The confirmation came from the hand of the sharp decline in nominal rates, which produced the lowering of the BCRA repo rate and the “forced” migration of the bank liquidity placed in these repos, which amounted to over 24 billion pesos, towards the auctions of Treasury securities. This ensured arbitrage between the repo rate and the entire rate curve, which led to a decline in all peso rates. Including indexed debt, whose rising prices have exacerbated negative yields.
This downward movement in nominal rates, in the context of an acceleration of inflation expectations in the short to medium term, was undoubtedly expansionary and fueled the process of dismantling speculative positions in pesos towards transactional positionswhich accelerated the speed of circulation.
It is clear that the objective is not to stabilize nominal levels, but rather to exploit the initial period of government (when levels of popular consensus are highest), the terrible legacy (understood by a large part of the population), a context in which good some economic agents had foreseen a possible “hasty dollarization” and the seasonality of the demand for pesos accelerate the process of liquefying peso-denominated stocks.
This is bad? Not necessarily. Liquefaction can be seen as a form of generate the conditions for a subsequent stabilization plan that is less conditioned and has more favorable initial conditions, without having to resort to explicit breach of contract or make deeper cuts in public spending.
Of course, it’s not without risk. High inflation is itself a volatile phenomenon and the dynamics could change abruptly in the event of a negative political or external shock.
The social question is also fundamental. It’s very difficult to know as much as the liquefaction of income, with the consequent increase in poverty, It is able to digest society without widespread protests and without the loss of levels of popular support.
For this reason, the recent agreement with the International Monetary Fund is also important, which means that the organization itself does not constitute a factor of pressure on reserves during this phase of liquefaction and that the large harvest is well accompanied by the climate issue. It’s best to clarify factors that might contribute to noise or negative surprises.
Why this process? Here There are many options and they are all necessarily speculative. Liquefying preventively means, without a doubt, improving the initial conditions of a stabilization plan, whatever it may be. In a demonetized economy, which thanks to this liquefaction has managed to steadily advance in fiscal consolidation, it is easier to implement any plan.
Not to mention the switching requirements of similar plans exchange of rigid pegs OR dollarization. If this were the case, we would witness a reformulation of the sequence of thedollarization process, more logical than that considered in the campaign.
In a demonetized economy, without fiscal needs putting pressure on the BCRA, it is also easier and faster to stabilize with strictly monetary schemes. If expectations can be anchored to the projected regime, the recovery in demand for pesos will stimulate the reduction of inflation and the recovery of activity. And by not having to resort to monetary tricks to finance the Treasury, the regime is more credible and there is much less room for inconsistencies.
So the question about liquefaction could be answered with political calculation. The Milei administration could bet on shifting much of the responsibility for this phase of liquefaction to the previous government, and then take advantage of the rapid and expansive stabilization in view of the mid-term elections. It looks nice, but It’s one thing to say it; another, let him out.
Source: Clarin
