Sergio Massa and Gabriel Rubinstein.
50% devaluation, exchange rate splitting, strong fiscal adjustment and rate hike. Recommendations are in the “stabilization” plan that began to circulate in the last few hours and is attributed to the Deputy Minister of Economy, Gabriel Rubinstein. The goal is to “avoid hyperinflation” with measures that are expected to be implemented starting this Thursday, but the government denies that it will apply it.
The Reserved document” of seven pages dates back to last July 26, when Silvina Batakis was on her first tour in Washington and Buenos Aires, her replacement with Sergio Massa was defined without her knowledge. According to sources familiar with the project, it was a “Theoretical” proposal which was later shelved with Rubinstein’s landing at the Palacio de Hacienda, where he saw that its application was impossible.
They assure the Ministry of Economy that they do not “know” that the document was prepared by the secretary for economic policies. “Forget what happens”, they pointed out in the Massa team. The truth is that his leak from El Cohete a la luna was read by the market as a “grenade” by the same ruling coalition, where both Massa and Cristina Kirchner and Alberto Fernández reject a devaluation.
The chapter on foreign exchange proposes that course: there it is stated that the most appropriate thing would be a unified foreign exchange market and an exchange rate of “managed float”, but that its direct application in a scenario of scarcity of reserves is not recommended, since it could create “high economic instability” and a very high exchange rate gap “would force an official devaluation of the order of 100%”.
In its place, the proposal recommends a first step to split the exchange into one market for commercial operations and another financial market. This, according to this provisional scheme, would allow the accumulation of reserves at the Central Bank e lowers the blue dollar to $ 280 “quickly” – today it is trading at $ 292-even if to reduce the exchange rate gap to 30% “there would be no choice but to devalue”.
“I would propose a devaluation close to 50%, bringing the official dollar to $ 200and leaving it fixed, for example, until March 2023, and indexing it from April 2023, under the managed system “, reads the document. The start date of the plan, clarified in the footnote, is September 1 and, starting this week, it would mean bringing the official exchange rate from the current $ 144 to $ 216.
As regards fiscal policy, the project proposes a “civil” policy to eliminate the deficit immediately, after having advised against “any kind of confiscation” (exchange of reserves of dollar deposits at the BCRA for 10-year dollar bonds, exchange of fixed terms with government bonds and restructuring the debt in pesos) to avoid hyperinflation.
The combo includes zero pesos emissions, increase in gas, electricity and transport tariffs with average increases of 100% at the beginning and only subsidies for the most vulnerable population (1.3% of GDP), elimination of discretionary transfers to the provinces (0.6% of GDP) without preventing them from raising taxes, a 50% cut in public works and a “moderate” increase in taxes.
Finally, an outline of “price and salary contracts” for six months, in line with the expected increase in inflation based on devaluations and tariff increases. And among the conclusions, it is highlighted that it is fundamental “full political support“from the leading figures of the Frente de Todos, an” excellent “technical and implementation plan with a” suitable and authorized “team.
Giovanni Manuel Barca
Source: Clarin
