The former Minister of the Economy, Domingo Cavallo, warned that if the next government decides to eliminate the exchange rate quickly without first applying a fiscal adjustment with a cut in monetary emission, the result will be “a hyperinflationary explosion, very costly from the social point of view and devastating from a political point of view.
The economist published on his blog a text titled “The opposition has to be cautious with its promises. In the best of cases, a good stabilization plan can only be launched at the beginning of 2025”.
“It may seem paradoxical, but if in order to avoid the inflationary inertia created by the exchange rate, the new government decides to eliminate it immediately for all types of transactions, without there having been time to implement a fiscal adjustment and the economy has digested all the excessive issuance previous monetary, The result can be a hyperinflationary explosion, extremely costly from a social point of view and devastating from a political point of view.Cavallo warned.
The former head of the Palacio de Hacienda maintained that with the de facto dollarization What does the local economy have? it is not possible to think of a significant reduction in inflation without a liberalization of the current restrictions in the exchange market that allows stabilizing the price of the official dollar.
“The political strategy that Cristina Kirchner has in mind, surely based on Kicillof’s economic reasoning, consists of avoid at all costs the unleashing of hyperinflation before the handover of power but make it unavoidable in the course of the next term. This is the only way to understand why he supports Massa’s management as Economy Minister while reiterating his adherence to Chavista-inspired 21st century socialism. Surely she knows from the governor that, If the Minister of Economy does not obtain sufficient external support, extreme inflationary uncontrol may occur in the coming months. But, at the same time, he does not want fiscal adjustments and relative prices to be implemented that could facilitate the economic management of the new government”, he points out.
“In this economic and political context, the opposition candidates have to be very cautious with their proposals and initial actions to avoid the trap that will be activated, above all, by the existence of the exchange trap,” he warned.
Cavallo also commented that if the current government ends its term without a traumatic episode, The new administration will be able to avoid hyperinflation “destroying political power” only if it carries out a series of initiatives. Some of them are: “Adjust fiscal accounts through state reform, privatizations, and the opening of the economy to eliminate the exchange rate trap from the commercial market, only when those decisions have led to a strong appreciation of the exchange rate in the market.” free.”