President Javier Milei has been forceful in defining the dollar’s short-term future, given financial operators’ expectations of whether or not the official dollar’s pace of 2% monthly increase will continue or not.
As part of the IEFA Latin Forum, Milei assured this “If the market doesn’t place it elsewhere, why should I arbitrarily change it?”.
Therefore, he defended the price of official dollar and 2% devaluation. monthly which have become one of the pillars on which the Government relies in an attempt to stop inflation.
The presidential calculation is that if I take “the reference exchange rate and multiply it by 1.175 (the national tax) the result would be about $1,060, so I have no gap or I have a negative gap.”
In other words, if the national tax dollar was at $1,060 and the blue at $1,010, the market, in the presidential interpretation, would indicate that no devaluation necessary although the export sector is noticing some loss of competitiveness compared to the $858 wholesale dollar that advanced with the December devaluation, but was then left to deal with the jump in inflation.
Below is one of the most frequently asked questions in the business world, i.e “When will the exchange rate be raised?”according to a report by the consultancy firm ABECEB, despite the improvement of the foreign sector, the recovery of bonds and the decline in the country risk rate, competitiveness is suffering.
He argues that “the benefits of devaluation are being lost rapidly” and adds this “Since December 11, the multilateral real exchange rate has lost 35% of its value.”
These two sides of the dollar are true and contain a key point regarding the discussion on exchange rate policy, but which now appears to be defined.
Milei anticipated that he will not devalue because believe that the exchange rate is appropriate and that it will not advance in market liberalization until it reaches the “quasific” deficit (that of the Central Bank) which “of the 10 points of fiscal deficit, now represents 4 points”.
And he tightened the bet on current dollar policy as “it seems quite comical that we need to change monetary policy.” creeping picket (devaluation at 2% monthly) when the entire futures curve is aligned with monetary policy”, a reflection in which the market believes him.
But a question that the ABECEB asks is at the center of the discussion and it is: what paths should the Government follow to obtain an exit from the recession that does not imply a delay in the exchange rate and a prejudice against the tradable (export) sector?
And he gives an answer: “Eliminate trade restrictions as quickly as possible in order to strongly strengthen the incentives to attract investments in the tradable sector of the economy.
And this leads to the central question: governments fall for delays in exchange rates because it is what allows them to control inflation to improve the purchasing power of wages and, therefore, expand consumption.
The backward dollar provides comfort to rulers, but history shows that this state is temporary and foreign currency shortages quickly return, foreshadowing a difficult future.
President Milei put forward his vision of the future with no fiscal deficit and an external surplus in the heat of a fixed exchange rate that would regain validity thanks to the Central Bank’s ban on issuing a peso intended to finance a red Treasury.
The bet ends with the Argentines, at a certain point, using it the “mattress” dollars.not only, as currently happens for many families, to make ends meet, but also to bet on some investments.
Meanwhile, the government continues to ask for 15 billion dollars from the Monetary Fund or other organizations or foreign investment funds that would allow it to accelerate the rise in stocks in a context of strong and accelerating changes in which the dollar, although with discussion , go back to playing the central role of price anchoring.
Source: Clarin
