In a study carried out by Personal Investment Portfolio (PPI) 4 potential scenarios are established:
Scenario 1: Milei wins in the first round
The libertarian’s speech this Sunday night will be key regarding his proposal for dollarization. If you insist on it, the Cash With Settlement (CCL) It would have no ceiling, since the market disbelieves in La Libertad Avanza’s ability to obtain funds abroad to dollarize at an exchange rate similar to the current one (which is already very high in historical terms).
Consequently, the only alternative to dollarization will be a strong erosion of real wagess so that dollarization is feasible with “few dollars.” For more details on the possible conversion exchange rates, a dollarization would be unleashed not of portfolios, but of transactional balanceswhich would push the CCL to multiply several times the current one, which would leave a floor for the exchange gap of 300%.
Scenario 2: Milei comes out first and goes to the runoff with Massa
In this case, the incentives of the candidates will be divergent for the macroeconomy. For Milei it will be functional to continue insisting with the dollarizing speech, since it puts upward pressure on the CCL and the gap for the reasons mentioned above and this will damage the perception of the ruling party in the four weeks that separate the general election from the second round (11/19).
The CCL would continue to climb, although not at the levels of scenario 1) with Milei insisting on dollarizing, since there would still be chances of aborting the proposal with a victory for Massa. The exchange gap would climb well above 200% and would make it difficult to maintain exchange rate set at $350 as has been announced.
We see the ruling party trying to avoid the discreet jump with a restart of the crawling peg and greater regulations and obstacles on both the MULC and financial dollars.
Scenario 3: Milei comes out first and goes to the runoff with Bullrich
This would be the second best scenario, since it would guarantee some stability. The distance between Milei (whom we discounted in the first place) and Patricia Bullrich will be key to determine if Juntos Por El Cambio can win the victory in November.
If the distance is considered irreversible, the results will tend to those of scenario 1) with Milei ratifying dollarization. Since it is her campaign banner, we understand that the libertarian candidate cannot abandon the proposal until we are certain that he will occupy Rivadavia’s chair. In the event that the distance between Milei and Bullrich is perceived as reversible with a view to the runoff, andl CCL could be contained at current levels and even experiment some decline if the polls begin to show the former Minister of Security as the winner.
Scenario 4: Bullrich and Massa go to the runoff
This would be the best stage for transition, given that it would outright rule out both dollarization and a Government with poor governability. Since the incipient surveys that investigate a eventual runoff between these candidates, give Bullrich as the favorite, the results could be even more auspicious than those of scenario 3) with the prospect of Bullrich winning over Milei in the second round, due to the fact that Massa would set a “floor” without disruptive proposals.
Source: Ambito
