“The one who bets on the dollar loses” is the headline phrase of the economy ministers whose position is besieged by devaluation pressures. It was enunciated in 1981 by Lorenzo Sigaut, which had to deny the inevitable: a devaluation that precipitated one of the periods of highest inflation in Argentina. The current Deputy Minister of Economy, Gabriel Rubinstein he did not have to cover the sun with his hand, but a document allegedly prepared when he had not been named circulated, in which he listed the measures to get out of the burden that inevitably included an exchange rate correction. In an audio that went viral, Rubinstein spoke that at least on Thursday, September 1, no devaluation was planned. And then?
Taboo. The word devaluation is banished from the official lexicon of the day. The modification of the exchange parity was always preceded by the previous use as an “anchor” of the price policy. And it was not the exception in the management of Martín Guzmán. In the first place, by establishing controls and traps, a fragmentation of the foreign exchange market was generated: the “official” dollar was duly “stepped on” so as not to feed inflation and the other was progressively restricted in its “financial” variants to somehow control demand so that the wave of monetary issuance during the pandemic does not spill over into prices and trigger another hyperinflation. This practice left two real burdens on the economic scenarios: a growing exchange rate gap and a snowball of public debt in pesos.
During the past year, for example, the dollar in the “Single and Free Exchange Market” (MULC, which is neither single nor free), grew half as much as inflation. I mean, nominally there was a devaluation of the peso, but it was much smaller than the consumer price index (CPI) necessary to not continue distorting the market. The compromise solution to get out of this situation was to gradually restrict import payments, either with bureaucratic authorization mechanisms (such as non-automatic licenses), differentiated tariffs or with mandatory payment terms. History indicates that, in these circumstances, two movements inevitably take place: imports are encouraged or anticipated and exports are delayed.
hats. In his previous professional life, Gabriel Rubinstein made projections of economic scenarios for his clients and, in particular, once or twice a year for the News Magazine. The last time was in the hectic month of July, when she was still minister the short-lived Silvina Batakis and showed his critical view of the progress of the economy. At the end of July, then, he said that, if one day had to be put at the beginning of the acceleration of the crisis, the “trigger” date would have been June 9, with the rescue of the Pellegrini funds, which gave rise to a sharp drop in the prices of bonds in pesos, which foreshadowed the impossibility of continuing to renew the state debt that is maturing month after month. “Some will prefer to place the date on June 29, when the Central Bank virtually “closed” payments abroad for imports. For three days there was a kind of “commercial default”, which gave rise to “panic” behavior in producers and traders and, of course, to opportunistic behavior of all kinds (what is usually called “speculative”). All this produced shortages and strong price increases.” That was the explanation that Rubinstein tried for the storm that raged against the battered Argentine economy and that took place a whole gradualist scheme that made water. His delayed presence in the team led by Massa gives him the quota of technical suitability, a key piece in the dialogue with the International Monetary Fund in the talks that will try to get the necessary oxygen that will have two formats: a permit (“waiver”) to not meet part of the agreed goals and/or refinancing of debt payments that continue to drain the few reserves that can be accumulated each month.
According to the report of the IERALwith net reserves in the Central Bank “that barely cover a week of imports and SDRs (the IMF’s currency) that are enough to pay commitments with the organization until the beginning of October, there is little margin of error for the purpose of the economic conduction of approaching the goals of the end of September, committed in the agreement with the IMF”. Precisely, the report insists that, in order to avoid the devaluation jump as a mechanism to recover reserves, the Government aims to “overreact” the efforts aimed at straightening the fiscal course: it is that In the first half of the year, the primary deficit of the public sector moved away, as an annual projection, by 1.2% of GDP from the objective of 2.5% of that established for the entire year.
for the economist Federico Vacalebreprofessor of UCEMA, sustaining a gap above 100% is directly unfeasible. “TAll that is perceived is a conjunction of problems that run through three different paths but that end up connecting: fiscal, exchange and monetary; and require immediate correction”, he warns. In his opinion, the most urgent objective should be to reduce the gap, because it gives rise to a transfer of income from the exporter to the importer that ends up eroding the trade balance. “And that is why, among other issues, that the field does not liquidate: it receives a third of the value of a ton of soybeans than, in neighboring countries, for example,” he explains.
Below zero. The level of net reserves of the Central Bank would seem to put to the test the transparency of the entity’s information, which periodically exposes the figures of the composition of gross reserves, but not those that it has operationally available to intervene in the market. Francis Gismondi, macroeconomic director of Empiria Consultants and former director of central bank, net reserves are almost zero. “This implies that the dollars of the deposits or of their reserves in dollars have not yet been used, but they could be used at any time,” he analyzes. Less liquid items, such as gold or SDRs, but which could still be used. “In any case, the level of reserves is critical: an emerging country needs net reserves for approximately 15% of GDP and Argentina does not even reach 1%”sentence.
Vacalebre estimates that the BCRA’s net reserves (discounting the China swap, deposit reserves in dollars, IMF loans and loans from the Bank of Basel) are at US$2.3 billion. Discounting gold holdings (US$3.4 billion) and SDRs drawn by the IMF (US$4.4 billion), the deficit in available liquid reserves amounts to US$5.5 billion. Faced with so much confusion of figures, one thing seems certain: “a devaluation is going to happen and we don’t know when, to narrow the gap. But it is also going to drag more inflation because there is a great distortion of relative prices”ends.
However, a devaluation does not necessarily magically reverse the situation because, as Gismondi warns, if it is carried out “without a plan without a plan and without confidence it goes to prices very quickly and does not fix anything”. The real reason for so much distortion is the permanent fiscal imbalance. In 2021 there was 2.3% of GDP in subsidies and everything that is being tried now will not even be enough to eliminate them. In less than six months, the pressure to correct them will return and so will the holy war for not doing so.
The orthodox recipe, with which Rubinstein would move more comfortably, would imply devaluing, building reserves and cushioning the inflationary rebound that this would generate. Doesn’t seem to be the menu available. Instead, the chosen one is a narrower path that crosses the minefield, in which the Argentine economy was transformed as distortions were added. The prize will be crossing to the other shore of the next term with the feeling of control by the outgoing government. But the enemy to defeat, above all, is the installed conviction that, in the long run, the dollar always gets away with it.
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