For Cavallo, import restrictions were seen by the market as “absurd”. EFE: Juan Ignacio Roncoroni
For former Economy Minister Domingo Cavallo, the new head of the Palacio de Hacienda Sergio Massa has tools he could immediately use in an attempt to contain the crisis in which Argentina has plunged. His approach contemplates two aspects: on the one hand, go to a dollar split and, on the other, sell the shares of the Sustainability Guarantee Fund to support the reserves.
The father of convertibility has long argued that if the market opens, not many dollars will be sold. And in numerical terms, he assures that if the government sells those shares in the FGS it could be around $ 5,000 million.
For Cavallo, if Sergio Massa begins by recognizing that it will be necessary to make a fiscal adjustment to reduce public spending, “even greater than that engaged in negotiations with the IMF”and directs monetary policy aimed at closing the exchange rate gap and accumulating reserves, “It is possible that it will be able to limit inflation in the rest of the presidential term at 6% per month or 100% per year without there being a violent decline in the level of economic activity “. “It’s the best result I could get”.
“In my opinion, the soaring currency gap throughout the month of July is due to the loss of reserves which has strongly installed the expectation of a jump in devaluation in the official foreign exchange market,” he said. And I add: “The reaction of the Central Bank and the Ministry of Economy to this problem has exacerbated this expectation”.
In his blog Domingo Cavallo warns that initially the increase in the gap was attributed to the difficulties encountered by the government in continuing to place debt securities in pesos. “This led the Central Bank to raise the intervention interest rate from 4% to 5% per month, but this decision had no significant effectat least until the appointment of Sergio Massa as Minister of the Economy “, he said.
In this sense, for him, one could have tried to stop the loss of reserves “introducing a smart split of the foreign exchange market” which allows all foreign currency transactions related to dollar hoarding, travel and tourism expenses and financial transfers not related to deferred payment for imports to be diverted to a free market, at the same time this free market allows the entry of capital and external financing for the private sector.
But according to Cavallo, “instead of doing so, the government and the central bank paid attention to the vice president complaint of the import party and added the argument of the delay of agricultural producers in liquidating the soy they hold in storage”.
In this sense, he noticed it “those restrictions on imports and attacks on the agricultural sector” they were seen by the markets as “absurd”. “There has been a virtually general opinion that the government will be forced to produce a devaluation jump in the official market sooner rather than later,” she said.
Therefore, “If Sergio Massa fails to overturn this expectation, it will be impossible for him to reach even the ambitious goal of 6% per month of inflation that I described in the introduction to this report.
Ideas for accumulating reserves
An extremely important element for Cavallo is the recovery of reserves. And in this context, the Minister of Economy has warned that by inducing a more accelerated liquidation of the soy that producers have in storage by offering them a higher exchange rate for a limited period of time. “It won’t work because of how unclear the advantage is.” Along the same lines, he clarified that, even if the measure were perfected, the only thing that would be obtained would be that “export revenues move over time, without the total changing over the course of the year”.
“In the best case scenario, a few more coins will enter in August and September at the cost of fewer dollars that will enter in the following months,” he added.
Another idea, which Sergio Massa was probably approached by the group of businessmen who work alongside him “is to sell the shares of the private companies that make up the Sustainability Guarantee Fund (FGS)”
If these shares were sold, the government could get more than $ 5,000 million, which is the value of this set of shares. FGS which in December 2017 was worth 12,905 million dollars.
“It is likely that if FGS decides to offer those shares to shareholders who control those companies, it could get an income closer to double the current market valuation of 5.688 million which, according to the market, are currently worth “, he clarified. And added:” This is likely because those who have control of the companies will get rid of the state as shareholder. “
However, regardless of his willingness to do so, Cavallo says that “to do this, Massa would have to get a law authorizing it.”
YN
Source: Clarin
