Argentina is in practice a bi-monetary country that in the last three years deepened the dollarization of its economy. Fuels were tied to the price of the international barrel; electricity and gas rates were dollarized directly; The entire wheat chain is dollarized and without any type of break or decoupling with the price in the international market. When the dollar goes up, prices go up. When the dollar goes down, prices don’t go down, because that drop is only occasional.
The Government is not concerned about the damage that this destructive recurrence generates in the daily lives of families., because he is more concerned with meeting a deficit target that liquefies when the dollar rises. It is worth remembering that in times of crisis, resorting to the deficit is an instrument of the economy that countries use. Yes ok Canada, to mention just one example, has a deficit reduction goal similar to ours, it is for the year 2040 and at times of the international crisis, its deficit reached almost 5 points of GDP.
The story of the dollar and inflation, like the dog that wants to bite its own tail, is an old story that repeats itself in Argentina, and as the empirical data of these three years have shown, the solution is not to restrict the circulating pesos either with the artifice of the high interest rate or with the fall of the salary mass. Both the high interest rates and the fall in consumption destroy the productive and social matrix and also reduce the fiscal space, generating the loss in public collection that is observed both nationally and in the province of Buenos Aires. Not a minor issue is that each devaluation requires more pesos from the provincial budgets that have debts in foreign currency. The debt in dollars of the province of Buenos Aires, issued by this government (At that time, in 2019, María Eugenia Vidal ruled)further violates the families of Buenos Aires. The province collects in pesos and receives funds from the national government in pesos, but issued in dollars, even with the national public sector.
Unfortunately, a model very similar to that of exchange rate bands is an old acquaintance in the region. During our Convertibility plan, Brazil imposed a model of exchange rate bands, sustained with high interest rates. The result was that the stabilization plan stoned thousands of companies they had to close their shutters and unemployment increased. Two predictable consequences today we are seeing them and living them with dramatic forcefulness. Concern is the most frequent word in the street, in the citizens, in the people. An economy that does not create jobs is not a stable economy.
*Silvina Batakis, Minister of Economy.
by Silvina Batakis*