Miguel Kiguel: I believe that money laundering has a lot to do with, especially with the purchases of dollars by the Central Bank, because what happened is that there was a very significant influx of dollars into the banks and a certain fear that at some point out the window, but that didn’t happen.Money laundering allows a lot of dollars to enter the formal economy. Those dollars couldn’t be used before because it couldn’t be explained where they came from. Now they are used and spent in supermarkets, cars, appliances, apartments, they help reactivate the economy. Furthermore, as long as banks see that dollar deposits are stable, they can increase their lending capacity. In June and August we were worried because the gap was very high and the Central Bank was not buying dollars. Currently, the scenario is different. But Whether this is going to be temporary or permanent, time will tell.we don’t know. It’s something to follow closely.
Q: Where do the laundered dollars come from?
MK: From what I have talked about, many middle class people had 100 thousand dollars, 150 thousand dollars. People who were able to buy dollars in times of cheap dollars and had them in a safe, in their mattress. This is not money that came from abroad, This is money that was in Argentina, almost all of it from the upper-middle class, SME companies. I don’t think the big fortunes have laundered in that way.
Q: And that last thing you mention, is it interpreted as a positive fact?
MK: It is positive because it means that people trust and are encouraged to put money into the official Argentine circuit. At other times it was more difficult because there were taxes, there were restrictions to withdraw it, it is a show of trust on the part of the people that the Government has to value.
Kiguel: “The dollars are going to the real economy”
Q: Where are the banks putting their money? Do you think the economy is entering a productive cycle where money is borrowed to support activity?
MK: I believe that financing avenues are occurring through various channels. The first is by expanding the lending capacity of banks to companies that export. This is the result of seeing that, if they need capital, borrowing in dollars is cheaper than borrowing in pesos. In this way, dollars are going into the real economy. Then There is a second way of financing, which is consumption fees.with a monthly rate of more or less 3%, closer to the current inflation rate. This encourages the purchase of cars, washing machines, appliances, clothes, etc. At the same time, credits in pesos for working capital are also increasingbut we have to understand that they do it from a very small base. We had credits for 20%-25% of GDP in the ’90s. Today, in the best of cases it is 5.5% of GDP.
Q: Could you elaborate on the idea that borrowing in dollars is more convenient than in pesos?
MK: Well, there are two reasons. The first is that there are surplus dollars in the financial market. They are the dollars that were laundered and are in the bank at zero rate, so the individuals who laundered them want to place them. Taxpayers can only place that excess dollar in certain instruments, negotiable obligations, etc., so That mass of silver that was suddenly dormant is now going to be placed in securities and bonds and since there is a lot of supply, the rate tends to be low. The second reason is that today there is an advantage for companies, because there is a kind of negative “carry trade”. In what sense? In that it is cheaper for a company that needs to take money on the market or a bank loan to borrow in dollars than in pesos, at least in expectation, because the devaluation is expected to be below inflation, there is even talk of it going to be another drop in the devaluation rate to 1% per month. If that happens, the rate in dollars will be 12%, which, added to the international interest rate, will reach 15%, while a rate in pesos will be above 30%. Likewise, Only companies that export can do this. Another similar reason is that with the stocks all companies that have pesos can buy very few instruments and among some instruments are securities in dollars, so there is also a lot of demand for these securities, which tends to raise the price and lower the yield, which is also attractive for companies.
Q.: There is consensus among market analysts that the positive changes that the Government achieved in macroeconomic terms occurred faster than estimated. Does it agree?
MK: I believe that the variables that the financial world looks at, such as the exchange rate, inflation, interest rate, are much better than expected.
Q: Why?
MK: This plan is different. Many economists were skeptical, because it is not purely monetarist or fiscal, it had a combination of several elements, such as the negative interest rate, a monetary policy that is not fully understood, because they tell you that the amount of money is fixed but it is not Thus, they tell you that they sterilize the pesos coming from the purchase of dollars and sometimes they do and sometimes they don’t, this plan is clearly going to deserve a special chapter in the studies of stabilization plans. On the other hand, I imagined the country risk at 800 points for the end of the year but more as an expression of wish, inflation showed a slowdown despite the inertia, although it is also true that the recession was stronger than expected and people lost more income than expected. However, the fiscal solidity and the fact that somehow they are doing well changed the expectations of the “Argentine Wall Street”, that is, of those who take part in financial decisions and the real economy.
Q: Do you find risks or weaknesses in the economic plan?
MK: There are always risks in any economic program, because things happen in the world and Argentina is doing very well fiscally, but the issue of the Central Bank’s reserves is still fragile. I think that having relations with the Trump administration will give the Government some breathing space, but we need more time to see that relationship has really been consolidated. the same with other variables that must be followed closely, such as reactivation or poverty. They are essential for the program to be a success not only financially but also for the people, although that takes more timewe cannot expect everything to be seen in eleven months.
“There are not too many dollars, we are fair”
Q.: The PAIS tax ends in December. What should the Government do with the dollar card?
MK: For many people who pay Earnings, the receipt is simply an advance payment of the tax, not a tax in itself. For those of us who already pay it, the dollar will not be $1,300, but approximately $1,100, and there the convenience of paying by card can appear. What alternatives does the Government have? I think that a tax on top of another perception is again very difficult, then a special tourist dollar can be analyzed, just as we have the blend dollar. At a time when so much foreign currency is going to be demanded, it would make sense to think about something like this. If I were in the Central Bank, I would be worried that they would take a lot of dollars from me for tourism and use of cards abroad, there are not enough dollars, we are fair. The situation would be the opposite if they decided to leave the stocks and float, there would be nothing to do.
Q: Is the official exchange rate behind?
MK: It’s a difficult discussion. My feeling is that it will be resolved when the exchange rate is allowed to float. Today it remains in a market where exporters are settling through the blend dollar. Companies have restrictions to operate and buy freely, and the BCRA also intervenes. There is a lot of incentive to do “carry trade”, and that generates supply of dollars as well. It’s hard to tell if this is the real dollar. The true verdict is when the floating exchange rate is left and a current account is managed to finance which today has nothing left over, it is clear that the money to increase reserves does not come from there. The resources to increase reserves today come from the capital account, but that is not the healthiest, in reality we would have to have 1.5% of GDP surplus in the current account to accumulate reserves in a couple of years and get out of this fragile situation.
Source: Ambito
