For months the Minister of Economy warned that despite the noise generated by a questioned exchange rate, a devaluation without more was a problem rather than a solution. This theory had already been defended by the president of the Central Bank Miguel Pesce in the ephemeral management of Silvina Batakis. But this year’s drought gave the coup de grace to this house of cards and the acute shortage of reserves that it generated motivated the itinerant begging of the minister-candidate with special focus on the International Monetary Fund. The suggested requirements to loosen up the wallet have already seen their fruits this week: there is no more money to finance magical passes and stretch the account more than is prudent.
The numbers. The devaluation of Monday the 14th triggered a well-known race: prices vs. dollar. It not only dragged down the exchange rates linked to the “Single and free exchange market” (MULC) but also those of products more sensitive to foreign trade. Electronics and fuels took less than 72 hours to accommodate. But also the ghost that haunts the CPI since corn was added to the export promotion plans (“agro dollar”): the rise in meat.
Since August 1, the price of the steer rose almost 30%, thus boosting the most relevant sector of the family basket, food. Inflation for July, released only on Tuesday, August 15, showed a peculiar 6.3%. INDEC’s credibility is not at stakebut rather the dynamics of prices already in the middle of the month is showing that only in this fortnight there was more inflation than all of last month. The Orlando Ferreres consultancy calculates it at just over 7% and Eco Go shows a projection of 12.8% for food throughout August.
In the last year-on-year calculation, the general CPI almost tied this item (113.4% vs. 116.3% for non-alcoholic foods). Considering that meat makes up almost 10% of the basic food basket, the impact of this week is only surpassed by the projection for the remainder of the month and next. for the economist roman danteteacher of the School of Agribusiness of the Austral UniversityIt must be taken into account that meat was already behind schedule before the devaluation and even before the implementation of the “corn dollar” and that adds one more question: where will the corn go with the devaluation? “On top of that, there is little offer due to the liquidation that was made due to the drought, and the profitability going forward is very difficult to calculate when you do not know how much the food could be worth “Explain.
The dollar, always ready. The devaluation, although seldom stated (although without specifying when and how much) confirmed the trend of the previous week in which the “crawling peg” was settling at a projected rate of between 12% and 14% monthly, double of inflation prevailing up to that moment. The indications point to the fact that the only concession he had obtained Sergio Massa on the part of the IMF was to be able to postpone the exchange rate jump until after the PASO that had it as the protagonist, although not precisely because of its successful raid. With this concluded, the green light will appear for the Fund to release the promised reimbursements with which the Government may cancel the bridge loans it obtained in the short term (for example, with the Qatar sovereign fund for US$765 million) to honor commitments with the agency.
Paying attention to the ominous forecasts, a devaluation “to comply” with the IMF mandate without an anchor behind it and an ordering plan ended up moving to prices much faster than the accounts that the technicians of his staff estimated. In this weighs the economic memory of many social actors and the fact that, given the impossibility of formally accessing the official exchange rate, many products already incorporated a mix with the alternative exchange rate in their price formation.
Another element that added to the confusion was the exchange rate under which imports of inputs should be computed, which had been fiscally increased in July to contain the demand for foreign currency. The answer that several SME entrepreneurs found was ambiguous and the decision of several who are not price makers was to stop the ball until they found the number that cleared up that unknown.
accounts. Making calculations with past inflation, the run on the blue dollar this August is the record rise for 20 years (42%), it has not yet reached the record level of October 2020 (currently $850) when it had to change the price anchoring strategy with an artificially low dollar, but with an expansive monetary policy. Of course, at that time there were more reserves (today the consulting firm Invecq estimates them at -US$10.5 billion in its “net” version according to the IMF criteria) and activity had not fully recovered after the pandemic. The delay of other prices also chosen as inflationary ballasts, such as public utility rates, whose invoices with the new values began to arrive in June and which also spiralize inflation and other private service prices that, under the umbrella of Because of their sensitive nature on the family budget, they were deliberately delayed. The delay in authorizing increases in prepaid medicine fees over three years is a clear example that ends up introducing distortions in the service.
Finally. Observing the evolution of the CPI of the last four months, year-on-year inflation continued to be maintained between 108% and 113%, good news for the modest ambition of having found a step of that magnitude. As long as the exchange market pressure had been contained. But it was not like that and a lot had to do with the “black swan” of the great drought that emptied the fields of water and dollars from the Central Bank.
In January 2014, the then Minister of Economy Axel Kicillof activated the delayed devaluation (it was 26.5%, the same magnitude of annual inflation at that time) to provide a cushion of expectations and have everything under some control for the race. election the following year. Curiously, today in his role as governor of Buenos Aires, he is trying to renew his term with much less electoral margin and in the midst of trying to refloat the “Plan to arrive” to get the necessary oxygen so that his own possibilities do not shipwreck. for the economist Esteban Domecq He does not hesitate to affirm that the goal of crossing the pond by December 2023 was “an ambitious and risky goal, but at the same time economically stingy and politically irresponsible.” What in 2014 was counted in months, today is measured every week. With such a close horizon and having used all the alternatives in a much more difficult context, the challenge has now changed its sign. It is not only a matter of arriving but of continuing to stand betting that a new government will be able to have the credit to formulate a comprehensive plan that it consumed a while ago.
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