Soy, Qatar, Coldplay, Techno, SME…all names to refer to the same thing: the dollar and values that go from the “basic” of $145 to $315. Almost 70 years later, the rhetorical question of Juan Domingo Peron in front of the crowd gathered on Labor Day: “who saw a dollar?” and seven decades of constant inflation, no one is unaware of the format of the North American ticket and even many local prices were nominated in that currency (properties, high-end cars, regional and local tourism, etc.).
Plurality. However, the question now is not whether or not a dollar was seen, but to which of all it refers. It is that when the foreign exchange market was fragmented at the beginning of the pandemic with exchange controls, a gap was naturalized between the value in the “official” market (euphemistically called the Single and Free Exchange Market -which is neither unique nor free-) and the range of alternatives offered by the financial market (MEP or “stock”, cash with liquidation, “blue”, etc.).
The difference between the different “exchange rates” that have been announced (sometimes, even, it remains in a press conference, but without correlation with relevant regulations) is that the dollar continues to be a single reference value, but it is add taxes (in this case, for imports of goods or services), they play with export withholdings or an export quota is released to be negotiated in the financial market.
The well-known difficulties in the foreign exchange market can be made visible through three key variables: the backwardness of the official dollar rate, the exchange rate gap with the others, and the level of net reserves. A monitoring that would be simplified if the market were unified, something repeatedly requested by the economists of the International Monetary Fund but that it is resisted by the majority wing of the ruling coalition and not because of an ideological whim. A recognition of the exchange rate would almost instantly alleviate the tensions generated as a result of the shortage of foreign currency and the successive patches to limit its demand, both to import and to operate in the financial market.. Two old acquaintances: stocks and change control.
Extension. There are many economists who, like Federico Pablo Vacalabreteacher of the UCEMA, sees the correction of the official exchange rate as inevitable. “These types of differential dollars and unfolding came out, which was logical for them to appear after the rise of the soybean dollar. All the exporting sectors ask for ‘their’ dollar and in order not to devalue it is ceded, but demand is also being restricted by putting more taxes on the formation of ‘another’ import exchange rate”, he details. To this observation, he adds that as the dollar in the world is depreciating and the Federal Reserve (FED, a kind of Central Bank of the United States) raised the interest rate and announced that it will continue with that policy until September 2023, the dollar will continue to appreciate in the world. “That puts much more pressure to force a devaluation, but in the event of a refusal, a necessary correction of relative prices cannot be made either and even more confusion and distortion is generated with the different exchange rates,” he concludes.
Functioning. Sebastian Menescaldiassociate director of the consultancy Echo Go, sees in this attempt a risk. “We are putting many multiple prices: demand is thus restricted, but supply is not expanded or credit is increased to relieve pressure on the foreign exchange market. But soon these market segments will begin to filter out: the one that does not liquidate because it considers that the price can be improved or the one that asks for more, anticipating a subsequent increase in price. More and more sophisticated things are being invented to arbitrate between one market sector and another”, he explains.
For Francis Gismondi, director of Empiria Consultants, multiple exchange rates end up generating more restrictions and more variants. “It’s something that never worked in Argentina or in the world. But it is what the Government has left until the end of his mandate. With more restrictions, the freer exchange rates will increase and thus the gap will not go down. With restrictions like these, a precarious balance can be maintained for a long time, but with stocks the economy will not be able to start”, Explain. In addition, he points out that, as a good part of the soybean dollar was in advance of exports that were going to be liquidated in October, November or December, difficult months will now come for reserves, with the relief of remittances from international organizations.
In the report of the IERALthe two key variables to follow between now and the end of the year are the net buying and selling of foreign currency by the Central Bank in the foreign exchange market, “due to the risk of a persistent deterioration in the level of reserves after the peak in mid-October” and the degree of supply recorded in the various goods markets (given the imported stocks), “both because of the effect that this may have on the level of activity and on the evolution of prices”.
next stage. Accumulating reserves seems to be the watchword, but it is not easy to execute the order. For Vacalebre, if the Government cannot achieve it in some way, it will have to carry out a more orderly devaluation. “I think they are waiting for the first half of 2023 to accumulate more reserves to have a stronger position when the currencies of the thick harvest enter and there make the exchange rate correction. Until the end of the year, they just have to hold on and wait”, he ends.
Almost a month before the start of the World Cup in Qatar, the economic team bets on the focus of attention on the evolution of the “Scaloneta” in the tournament to continue gaining time. But with or without goals from Messi’s team, the Fund’s analysts and auditors will be monitoring the fate of all these pirouettes to avoid what seems inevitable: a devaluation. In Menescaldi’s opinion, the key variables to follow will be:
–Central Bank net reserves (That they do not fall much, but in 2023 there is a lot of demand for dollars (starting with the account at -US$ 8,000 million and the need to accumulate US$ 4,500 million as committed to the IMF.
–Debt in pesos: comes from the side of the refinancing of letters and interest-bearing liabilities; that could generate more gap and more inflation.
It is what economists call the “transition risk” and that it could get out of control if there begin to be renewal problems with maturities and the Government has to set an interest rate that is too positive, thus generating a snowball that is very difficult to stop without drastic measures or a major crisis. Or with what the economist insists Charles Melconian: The Minister of Economy cannot and does not want to be Pep Guardiola (the former coach of the legendary Barcelona team) but Carusso Lombardi (a DT specialized in saving teams from relegation). “But to play Carusso you have to work to get the points -achievements- otherwise the task is useless”he warns.
Meanwhile, to each need a right and to each demand, a dollar. The enumeration may be infinite but reality, as the General recalled, is the only truth: there is only one dollar and the rest are clothes to cover up their identity.
