Next, the full interview with Fernando Marengo In the field.
Journalist: How do you analyze the government strategy to buy dollars in bilateral block without going through the Mulc?
Fernando Marengo: Whenever you buy dollars is issuing a debt. Now there is this reservations are rented, but When the Central Bank (BCRA) buys dollars, issues pesos. There is another liabilities that emits the BCRA. The only way to accumulate reserves that are genuine is with fiscal surplus. If not, the accumulation of dollars is always against a liability, against a debt.
I believe that the government goes out to buy in block is good news, from the point of view, first, that the government has dollars and shows power to repain the debt to help lower the country risk; And the second, not to let the exchange rate look too much. Because if the exchange rate approaches the lower band, let’s say, you turn more expensive in dollars and the band’s roof is 40% up. In an economy like Argentina, which uses the dollar as an account unit, it is an important risk.
Q.: Does it warn a dynamic of voltage in the exchange rate from July or do you think it is administrable?
FM: Clearly, Argentina is in dollars much more expensive than a year ago. Now, the flexibility of capital controls and the appreciation of the real exchange rate, measured in cash, evidenced once again that what happens with this does not depend on anyone’s will but on the macroeconomic situation of the country. Countries that experienced successful stabilization processes are increasing in terms of dollars. Argentina was not even the exception.
To the extent that the country manages to exploit the production of those sectors in which there are comparative advantages, the process of appreciation of the exchange rate would deepen. Therefore, it is necessary to make quick and deep advance in structural reforms to minimize the Argentine cost and reduce transition costs.
Q.: Do you record exchange delay or, as the government says, the dollar is in market balance?
FM: What happens with the exchange rate does not depend on anyone’s will but on the macroeconomic situation of the country. Argentina is much more expensive in dollars than a year ago. Meanwhile, the economy advances on sectors with comparative advantages, the process of appreciation could be sustained. But that demands progress with structural reforms.
Q.: In May, human people bought US $ 1,954 million, according to the BCRA. Can that rhythm in June have increased? Is that rhythm sustainable?
FM: The purchase of dollars for treasury of the month of May was very high for two reasons. One, for the flexibility of the stocks. Surely there are people who had unsatisfied demand and decided to do it at that time. The second thing that shows is that the dollar is an account unit in Argentina. So, I think you have to be careful with abrupt exchange movements in Argentina. Regarding tourism deficit and the demand for dollars for treasury: the figures show that the deficit caused by the strong demand for trips abroad was largely financed with its own dollars (“dollars of the mattress”), which does not impact reserves.
On the other hand, the great growth in the treasurement, possible from the flexibility of capital controls, demonstrates how the American currency continues to fulfill the account unit function in the country.
Q.: Is there room to continue the slowdown in inflation? As far as?
FM: Margin to keep going down inflation? Yes, there is definitely margin. Let’s say, here there are two things that are different. First: Argentine costs, which Argentina is expensiveand for that you have to do the structural reforms. Now, inflation is price variation. And if one sees, for example, what is happening with inflation wholesalers – which is a basket other than the retailer, does not anticipate the retailer -, In the last month there was prices deflation, a strong drop in imported prices.
I think that much of inflation and the appreciation of the real exchange rate is for the adjustment of the relative price of the rates that were delayed and have to be adjusted. As far as? Inflation has to go to reasonable levels for an economy like any of our neighbors.
Q.: Do you see that deceleration is reflected in the improvement of purchasing power? What do you notice?
FM: Let’s see, the real salary indicators, both private and registered and not registered, retirement, social plans, all show that they have been growing above the inflation rate. Inflation is a tax that is applied to employees and peso holders. Then, with the reduction of the inflation rate that tax is being reduced. So, clearly the decrease in inflation is noted in the improvement of purchasing power.
In addition, there is a second component: when the inflation rate lowers, interest rates also lower. And when interest rates lower, there is more possibility of accessing credit. Keep in mind that every time someone is going to take a loan, the cost of the fee against the entry of the person is compared. The cost of the quota is the combination of the price of good for the interest rate. When inflation is lower, the interest rate is lower, which lowers the average cost of the quota, and there are more people who can take credit.
Q.: Does a greater expense of the private sector that derive in external imbalance is necessarily negative for the economy?
FM: We should immediately ask ourselves if an external imbalance, product of the highest level of private spending, is bad. The answer is not necessarily. It depends fundamentally on two issues: what is being spent and how the imbalance is financed.
The highest expense may be explained for greater demand for consumer or investment goods. It is clearly not the same, and investment is necessary in Argentina. Canada had current account deficit almost all the nineteenth century. Australia and New Zealand are in deficit 70 years ago, product of investment to increase and efficient their economies.
Source: Ambito
