The head of Ieral, Osvaldo Giordan exchange rate flotation between $ 1,000 and $ 1,400 Following the strengthening of reserves of the Central Bank (BCRA) GRacies to the Agreement with the International Monetary Fund (FM) and international organizations. However, he warned of the inevitable inflationary effects.
“The exchange situation had become unsustainable”he began explaining the former Anxes and once Minister of Economy of Córdoba. “The fall in the reserves of the Central Bank is the very illustrative thermometer that this dynamic could not be maintained for much longer. Throughout the year, a constant reduction in the level of reserves was observed, a process that accelerated in recent days,” he said.
The fall in reservations was explained “partly due to continuity in the payment of external debt without the possibility of accessing credit.” However, he stressed that “a determining factor was the change of role of the Central Bank, which as of March 13 became a significant net seller of foreign currency”, a phenomenon fed by internal factors, but also by a International context “much more unfavorable.”
“Given this panorama, It was preferable to take immediate measures instead of trying to wait for the October elections to take place, As surely he contemplated the original government idea based on prioritizing their political strengthening, ”he continued Giordano As he said, the prevailing circumstances “precipitated the events” and forced the Executive to advance the plans to raise the stocks that, a priori, seemed to be provided for after the elections.
“The plan is likely to achieve its goal of reassuring exchange and monetary markets,” he said, due to IMF funds and other sources of financing, which will allow the Central Bank to count “With tools to stabilize the value of the dollar”. In that line, he pointed out that the monetary entity may “defend the ceiling of the exchange band selling dollars if there was demand.”
They warn for the rise in inflation by the leaving of the stocks
Beyond highlighting that “The desirable” is not having to use those fundsthe fundamental “is that the market perceives and assumes that the monetary authority It has enough strength to defend the band I would exchange if the situation required it. ”
“One way to dimension the ability of the Central Bank to defend a certain exchange policy is to compare its liabilities (money held by the public) with dollars (reservations). This is usually called ‘convertibility exchange rate,” Giordano continued.
Prior to ads, the Convertibility exchange rate “had reached a value exceeding $ 1,400”a situation that “implied great difficulty in continuing to defend the official exchange rate set below $ 1,100.” Now, with the increase in the reserves of the Central Bank “the transmission rate of convertibility lows just over $ 900. that is, the margins of action of the Central Bank were expanded considerably.”
BCRA
Among the negative aspects of devaluation After the liberation of the stocks, It will be the price increase. “We will have to support an additional increase in inflation”Giordano said, and added that this “is what encouraged to defer the modification in the exchange regime until after the October elections.” As a consequence, “the recovery that remuneration (salaries and retirements) and the level of economic activity” will be experiencing. “
Anyway, its impact “could be limited and only once” because the treasure is within a tax equilibrium context. “Therefore, it should not represent a significant detour regarding the process of disinflation and recovery of the production and income that has been observed since the middle of last year. If this is fulfilled the damages that the ruling could receive in the October elections could also be limited,” he predicted.
The analysis of the Mediterranean Foundation on the exchange rate flotation
Regarding the evolution of the real exchange rate, that is, with the inflation corrections included, it will depend “on the location of the nominal exchange rate within the new band.” And exemplifies: “If the dollar stabilizes near the roof of said band, it is likely that the real exchange rate experiences an improvement compared to last week. On the contrary, If the trend leads to the dollar to the band’s floor, there could be a deterioration of the real exchange rate. ”
Taking as comparison the average real exchange rate during the Convertibility, If the maximum of the band is reached “the real exchange rate could be approximately 33% above the level of that period.” While it is located in the minimum “could be 5% below the level of convertibility.”
In sum, Giordano indicates that “In no case, a significant leap can be expected in the “exchange competitiveness”similar to those that occurred in the past such as, for example, in December 2023. “If a comparison is made with historical background” will remain relatively low. “For national production” it will be a limited exchange relief “, but the current competitive problems” will not only persist, but will surely be exacerbated in the coming months. “
The Mediterranean Foundation requested “agility” in the application of reforms
Given that, the head of the Mediterranean Foundation He clarified that “the most important point to evaluate does not reside so much in the announcement of the exchange band, but in the disposal of the government to give it more Agility and integrality to the structural reform processso that they allow generating a more favorable environment for production. ”
In that line, Giordano points out that neither the government nor the agreement with the IMP They provide “forceful definitions” on possible reforms to be made in the short term. “The fact that the agreement is not contemplated in the field of Reforms It does not imply that it is not in the government’s mood to do them. However, it is still a reason for concern that these Reforms They have not occupied a prominent place within the ads, neither from the president nor of the officials, ”he said.
In this regard, Giordano stated that in the agreement the Government promised to send a project to Congress a project of pension reform “Only for December 2026”, while mentioning “more ambiguous” to labor reform and distortive provincial taxes. As for a Tax reform, I would be contemplated “only by the end of this year.” “And in fiscal matters, the need to reform the system of Copartitioning of income within Structural tax reforms, but it is not then recorded as a milestone (with specific deadlines and commitments) ”, the economist questions.
For this reason, he argues that National Production “will have to function with an exchange rate not exceeding than in force in convertibility, but in a much more unfavorable environment than at that time” with tax pressure “Significantly higher.”
Source: Ambito
