Three inconsistencies that are being swept under the rug and a bid to reduce the exchange rate gap. This is how the Government will proceed this week, from which the dollar strategy will be derived.
Willing to ignore the latent dangers posed by a defective dynamic of the economic program, the minister Luis Caputo He is willing to play with the few cards he has. It is an escape forward, in the not at all strange hypothesis that there is no short-term aid that can assist the president. Javier Milei, at least on the economic and financial level. Proof of this is the will – ratified by two different sources, one from the Treasury and the other from the BCRA – to go through the next few days without major changes, that is, dragging along the three main inconsistencies that stand out strongly. In the end, it will be concluded that the bet, once again, will be to narrow the exchange gap, bring it to the 25% zone where it used to be located before the last “run” took it to the current 40%, in the effort to achieve an “appropriate” ticket to, eventually, have the chance to unify the exchange rate, although here and now that possibility seems far away.
Nothing new on the front: loading the dollar inks, two inconsistencies
The first, the exchange rate front, has raised alarm bells. The official exchange rate has rapidly lost competitiveness, resulting in a flow of foreign currency from exports that has not managed to build a higher level of reserves. In fact, we are only a few days away from returning to point zero, that is, to the pre-devaluation levels of President Milei. Does this mean that the government will once again abruptly lower the exchange rate? Not necessarily. Strictly speaking, for those surveyed, it implies that “other skills” will have to be developed to “finance” this type of exchange. In Creole, it means that these devaluation pressures will have to be lived with in different ways.
For example, The Government is betting on putting greater intensity into the effort to demonstrate fiscal discipline, the second inconsistency. He thinks that, in this way, the temptations of the establishment with the pressure to devalue will be lessened, since the equation is clear: if the Casa Rosada gives in to a devaluation, the inflationary pressure could significantly delegitimize it and leave Javier Milei without any real chances of making a decent election next year. In any case, It should be noted that this fiscal “anchor” is about to come face to face with a wall of expenditure, a kind of early end to the era of surpluses. This is because the recession – the true goal of the economic program – has eroded tax collection. At the same time, if you think about it in detail, since the BCRA has charged the Treasury with a phenomenal part of the debt that the monetary entity was dragging along, A potential rise in the interest rate due to a resurgence of inflation would result in an increase in debt and, consequently, in an additional effort to maintain the surplus.
Nothing here. More pesos and the commitment to reduce the gap
With all guns pointed at the public accounts, The third inconsistency is that the Government appears to have failed to resolve the BCRA’s liabilities, with the consequent increase in monetary aggregates.
In short, if the government is pointing out its weaknesses on the exchange rate, fiscal and monetary fronts, sources say that one element that could be proven is the reduction of the exchange rate gap.
Even at the cost of living with strong devaluation pressures, with a precarious evolution in the problem of monetary aggregates, gross reserves and different exchange rates, the novelty is that Minister Caputo will go after a new reduction in the exchange gap.which implies adding the supply of dollars in the financial market. This would reduce the collateral damage of a possible end to the exchange rate restriction. In fact, the BCRA believes that only in this way could the restriction be gradually removed. In other words, the Government would seek to narrow the gap in the coming days in order to add decisions in this regard.
IMF, syndicated loan, RIGI and money laundering
Not without magical thinking, ideas linked to the rain of dollars are everywhere. In Milei’s sacred writings, The resources would come from an exceptional negotiation with the IMF, from a syndicated loan with international banks, from a strong commitment to the export sector. Even the possibility that the investments promoted by the RIGI or even the entry of dollars from money laundering have begun to be seen in this ecosystem of fantasies has been added. At this point, today, is where the most bets are being made.
The fact is that the Government told the IMF – and the Fund reflects this in its latest Staff Report – that it estimates the total result of the money laundering to be around US$40 billion. Excessive? Of course, the Government gains time and gets rid of the devaluation pressure imposed by the organization if it says “the dollars that allow me to use this exchange rate will arrive soon.” Testimony of these desires of the Casa Rosada is the enormous flexibility promoted by the regulations, Since the depositor does not pay fines up to US$100,000, many investment options are added and in fact they can be combined if they agree to leave them deposited until December 2025. Strictly speaking, they can withdraw them before the date and pay the penalty, which is 5% (the money laundering of former President Macri, in 2016, was 10%).
Thus, one might think that the money laundering does not seem to have been designed to reduce the gap, since the fine is paid in dollars, but to boost the investments enabled in the Comitente Accounts to boost the activity, the famous endogenous dollarization.
The arrival of the IMF: all hands on deck
The IMF itself will surely issue some kind of diagnosis, as in the next few days it will have to set a date for the mission of bureaucrats from the organization to analyze the fulfillment of the goals for the second quarter of the year. This is the ninth review of the Extended Facilities Agreement signed at the beginning of 2022 by Martín Guzmán, and that over the course of 24 months there have already been modifications in these goals. That is, the Government must state that, in the indicated quarter, it can provide evidence of moving towards a primary fiscal surplus of 2.5% of GDP, having accumulated signs of greater reserves by at least US$ 8,000 million (period 2024) and having ventured into negative territory with the monetary issue. That is, on the margin, the reserves goal must be explained by Luis Caputo. Will whitewashing be enough to conceal the inconsistencies?
Source: Ambito
