In a recent post on his personal blog, the former Minister of Economy, domingo horsedelved into the debate related to the economic plans presented by the different forces that seek to dispute power with the ruling party.
In his reflections, he emphasized the importance of avoiding a abrupt devaluation as a starting point for any of the options proposed: dollarization (Javier Milei) or bimonetarism (Patricia Bullrich).
horse stressed that both the adoption of dollarization as the implementation of a bi-currency system require of a gradual approach rather than an initial shock.
The analysis begins with the consideration of the recent “exchange rate jump“which was executed, following the recommendations of the International Monetary Fund (IMF) and under the direction of Sergio Massa, Minister of Economy and presidential candidate.
Under his gaze, this action revealed two things of great importance: firstly, the speed with which the modifications in the exchange rate affect prices and, secondly, the persistent gap between the official exchange rate and the free exchange rate.
Cavallo argues that these observations discredit the notion that most prices have already converged with the free exchange ratea relevant perspective for the proposed alternatives, be it a bi-monetary system or the complete dollarization of the economy.
From Cavallo’s perspective, the cornerstone of success of any economic stabilization program lies in avoiding a sharp devaluation as starting point.
In both cases, both for the Bullrich scheme and for the Milei plan, Cavallo advocates a gradual process instead of a sudden devaluation, considering that this path would be essential to establish a solid base in the search for economic stability in Argentina.
Economic stabilization: what Cavallo would do
Cavallo emphasizes that the recent experience of the “devaluation jump” makes it clear that, before fully adopting any of these alternatives, it is essential to take steps towards the unification and gradual opening of the exchange marketthus avoiding a traumatic process.
It emphasizes that an immediate unification and opening ofwould trigger a sudden initial devaluation, undermining confidence in the governmentwhatever, and generating social tensions that would end up damaging the path to structural reforms proposals by the opposition.
Cavallo stresses that this gradual approach provides the opportunity for a smoother transition and controlled towards a more solid monetary system. Furthermore, he argues that during this transition period, work must be done to reduce public spending to eliminate the fiscal deficit and reduce the need for monetary issuewhich would contribute to close the gap between the official and free exchange rates more effectively.
Following this perspective, the ex-minister states that the transition towards a unification and liberalization of the exchange market it would take at least a year.
Source: Ambito
