In recent days, the theoretical debate between economists about the existence of a exchange rate backwardness gained relevance. The economist Emmanuel Álvarez Agis He was the first to address this issue through a report in which he compared various local products with those in Brazil, Uruguay and Chile. In his analysis, he concluded that Argentina became incurred in dollars with respect to these countries, which would indicate an exchange backwardness and evidence an imbalance in the current economic policy led by the president Javier Milei.
The president quickly picked up the glove and rejected the existence of an exchange backwardness by listing his position on the issue and arguing that the fall of the dollar does not necessarily imply a mismatch in competitiveness. And what Álvarez Agis replied?
The points that Agis debate:
Therefore, according to agis, The delay of the dollar could only be an effect of optimistic expectations and not necessarily a reflection of a recovery economy. Even so, it states that there is the possibility that the current economic scheme is successful and the backwardness of the dollar is sustainable over time.
- The president argues that no one can determine with certainty if the exchange rate is late, since this would require knowing present and future economic variables at local and international level. However, Agis Rebate that, if this were true, could not be affirmed that the exchange rate is adequate.
This problem has been historically approached in the economy under the concept of omniscient planner, who questions if prices can be fixed efficiently in a free market without state intervention. This debate, which faced capitalism and socialism, is still in force today.
The author argues that, Although capitalism is the best resource allocation system, markets are not infallible and can generate distortions. Not all exchange rate appreciation is a reflection of a successful economic policy, since markets can also act irrationally, driven by speculation and the search for rapid profits.
The president argues that economists resort to historical averages as if there is an automatic reversal to the average, which considers incorrect. The author agrees that history should not be used as a definitive argument, but only as a reference.
However, He points out that his concerns about current economic policy are not based on the past, but on the future. In this way, Agis criticizes the president’s interpretation on the empirical evidence of Rafael Di Tella, who argues that, in cases of successful stabilization, the real exchange rate (TCR) tends to fall. For the author, This argument is wrong, since not every fall of the TCR implies economic success. As an example, he mentions the period 2003-2014, which under this logic should be considered successful, something that the president himself would reject.
AGIS’s warning: the need for sustained flow of dollars
Successful exchange appreciations in the past are They owed factors such as foreign investment and privatizations In the case of Menem, the high prices of the commodities and the repatriation of capital with Kirchner, and the lifting of the stocking together with contractive monetary policies with Macri. In all cases, currency entry allowed to sustain exchange stability.
In contrast, The current low scheme is affected by changes control, initial devaluation and tax adjustment, which prevents a sustained income of capital. Inflationary inertia has eroded the profit of competitiveness and the stocks blocks the reversal of capital flows.
To achieve stability and growth, from its point of view the government should make controls more flexible with an exchange rate that Restore excess currency demand. If instead it maintains the current scheme without correcting it in time, there is a high risk of entering a financial crisis, especially if decisions are postponed for electoral reasons.
Finally, Álvarez Agis states that market stability is not a sign that the government has “tamed” the market, but that the stocks limits its free operation. However, he recognized the huge challenges to achieve sustainable development and requested a constructive debate, without falling into destructive attacks.
Source: Ambito
