Zero emissions: leitmotiv for the stands
While some celebrate the requiem of the passive Passes, This scam of passing the remunerated debt of the Central Bank (BCRA) to the Treasury For those who understand the monetary and exchange rate intricacies well, it is irrelevant in terms of the macro, they know that it does not change it at all. In the meetings between ideologically aseptic economists, the richest and most interesting when it comes to debate, they leave the leitmotiv of the “zero emissions” for the stands and the Twitter users because no one in their right mind or intellectually honest knows that there will not be zero emissions, since otherwise the recession that would ensue would be terrifying.
A legendary economist-consultant and former BCRA member commented with colleagues the brief summary of the great teacher Gaba who recently explained that zero emission implies an economy without growth: “The BCRA recently announced a zero emission monetary policy, keeping the nominal stock of money constant. However, this requires that the nominal demand for money also remains constant, which means that the demand for money is not stable. requires a steady state with no increase in the price level and real GDP“. Add water to it to make it clearer.
For now, at the trading tables as well as at breakfasts and meetings with consultants, two concerns seem to predominate, or rather two scenarioswhich according to an economist close to but now somewhat distant from the President, are also the fears of the Government: One is that the exchange rate is broken badly and in that case the dollar scales the Himalayas, or that it takes a long time to break the exchange rate and all possible credibility is lost. It is true that in both scenarios, if fiscal balance is maintained, things can be reorganized later, but the fear is that with a loss of credibility or a dollar that goes to heaven until things start to get organized, maybe even the elections will come and the government will be tempted to spend a little more and fall into an electoral deficit. Therefore, fiscal balance is key because if it is maintained, the risks are limited.
That’s why everyone looks askance at the promise to reduce the PAIS tax. But not only the market men are very active on zoom and in person but also the minister himself Luis Caputo In addition to calling together managers and ALyCs to inject some encouragement, he also met with representatives of the main companies and multinationals under the umbrella of AmCham, where “Toto” shared, on the roof garden of a well-known hotel in Recoleta, the economic and social strategies and policies implemented by the Government and discussed how, from the private sector, they can commit to actively collaborate.
International market pays attention to former employee’s comments
What is still being talked about a lot, especially among people in the international market, are the statements of the former collaborator of “Toto”, Joaquin Cottanion the erroneous approach of the supposed endogenous dollarization advising better the competition of currencies for the Argentine economy. In comments with global tables they paid attention to the fact that Cottani argues that endogenous dollarization is flawed due to several problems: the resulting monetary contraction could hurt economic activity, which could lead to a recession; and unifying the exchange rate downwards does not address the underlying monetary misalignment determined by factors such as taxes and regulations. In addition, lifting exchange controls could raise real interest rates in pesos, which would increase public debt service costs and destabilize banks that are large holders. That is why they rescue Cottani’s suggestions return to currency competition This would involve lifting exchange controls and allowing the dollar to circulate alongside the peso, despite a probable initial rise in inflation, and declaring the dollar legal tender would help to remonetize the economy in both currencies.
Unlike Javier MileiCottani argues that issuing pesos to buy reserves is not inherently inflationary if it responds to increased demand for pesos and advocates a flexible exchange rate to cushion external shocks. Traders understand that Cottani believes that currency competition, despite temporary inflation, would provide long-term benefits. and would allow the government to earn seigniorage without causing inflation and to stabilize the economy by adjusting the exchange rate as necessary. We will see who wins the fight.
A shot in the foot
What is being seen a lot in the conversations between operators, managers and clients is, after the meeting with the ALyCs, that the anabolic announcement of the REPO, a kind of elixir for the markets, especially for bondholders, has been taken with a pinch of salt. This taking out a loan with a guarantee, of a liability (sovereign bonds) can be a shot in the foot, because At any moment, lenders can get scared and rush to liquidate those bonds. In this regard, an influential economic consultant, who has been nominated for the BCRA several times, since he has plenty of experience, recommended in an intimate conversation that the Government should start “working” in international financial organizations such as the IDB, the WB and the CAF, because if bondholders see that Argentina continues to pay them, with reserves, they will fuel their doubts about future payments.
At that meeting there was good news from the inflationary side, although it is no longer a cause for concern, and that is that August is coming with less drag and September may be lower, although they continue to warn that The adjustment of relative prices is not yet complete. There are marginal debates about the exchange rate lag, but there is consensus that the buffer has run out, not to mention the parity with the real, which for some is already a complication. No one is talking about Phase Two anymore, but rather that the economic program is in transition, and if there will be a Phase II it will be when it is negotiated with the International Monetary Fund (IMF)..
taxes afip moratorium money laundering
freepik.es
The European debate
In this sense, There was a debate in Europe about the latest announcements of the Governmentin addition to the issue of money laundering. By the way, according to several market consultants, the moratorium would have a significant support, because it is considered to be so attractive that they cannot let it pass, but with respect to money laundering there are serious doubts about the interest it arouses. It will not be anything like Macri’s, at most the Government hopes that some fresh dollars will come in just because there is no climate to expect an avalanche like the successful and wasted one during the Cambiemos administration. In that European discussion it was highlighted that the success of stabilization was fiscal balance and the accumulation of reserves, and they projected two polar scenarios, one virtuous and another complex with contrasting results, without ruling out a scenario of adjustments to the original plan to recover the virtuous scenario. According to the reading of the European analysts, a possible outcome is that the Government through its actions convinces the market that the current exchange policy is consistent with those two objectives, it would be the virtuous scenario, and thus doubles the bet. Another possible outcome is that the market understands that the current exchange rate path is incompatible with these objectives and that the Government insists on maintaining its exchange rate policy, that is, the complex scenario. In the event that the Government fails to convince the market that these objectives are achievable with the current exchange rate path, then it will opt to adjust the exchange rate path, that is, the scenario with adjustments. Under the prevailing uncertainty, any scenario is possible, but they believe that the scenario with adjustments dominates the complex one.
One of the analysts who brought the issue down to earth for European colleagues warned that it is usual in stabilization plans that the price to pay to win the credibility of the markets is a longer and deeper recession than would be necessary if there were perfect credibility in the Government’s announcements, but in this case it would not be neutral, and advised that One way to mitigate these risks was to reach a new agreement with the IMF that would help protect the program and control expectations. Using the metaphor of the tango, he explained that it would be incomprehensible if, in this scenario, the IMF did not give Argentina a new program.
At another meeting, the visit of the governor of Cordoba was also discussed, Martin Llaryoraand his Minister of Economy, Guillermo Acostawhere they presented to a group of British investors at the Argentine Ambassador’s Residence, Mariana Plazaand Balanz’s people seemed to take the lead. Many of the invited investors then participated in the EMTA zoom on the options and possible paths for the Nicolás Maduro administration, the opposition and the international community following the results of the elections in Venezuela. The discussion included opposition strategy, oil production, the cancellation of oil licenses, prospects for compromise and national unity, and assessments of possible outcomes. Ramiro Blazquez Giomi (BancTrust) next to Anne Milne (BofA Securities), Hans Humes (Greylock Capital Management), David Rolley (Loomis, Sayles) and Graham Stock (RBC BlueBay Asset Management).
Source: Ambito
