This is stated by a report from the International Finance Institute (IIF), made up of financial entities such as Santander, Standard Bank, ICBC, UBS, BNP Paribas, JP Morgan, Wells Fargo, Deutsche Bank, BBVA, Goldman Sachs and Morgan Stanley, among others .
The document entitled “The enigma of the parallel exchange rate: what Argentina can learn from Egypt” He maintains that, after having achieved credibility after a change of course in his economic policyArgentina is in a position to eliminate exchange controls Under an expanded program with the IMF. This measure, according to the IIF, would contribute to restore macroeconomic stability and to boost economic recovery.
The report Egypt’s experience stands out, that in December an extended facilities program agreed with the IMF for US $ 8,000 million after devaluing its currency 30%, reduce the exchange gap and eliminate exchange restrictions and import. In turn, the African country He managed to improve his liquidity through a large foreign investment agreement with the IMF and other strategic partners.
Although Egypt maintains an administered exchange rate, the IIF emphasizes that its comprehensive strategy allowed the confidence of investors and political actors, to strengthen international reserves and reduce the impact of the devaluation on inflation.
In the Argentine case, the report recognizes that the adjustment strategy implemented by the Government stabilized the economy and strengthened the reserves, but warns that crawling PEG, when located below inflation, along with relative prices adjustments (such as the increase in public services rates), It generated an appreciation of the real exchange rate. This, despite the rapid deflation, represents a challenge.
IIF economists, Marcelo Estevao, Martín Castellano and Garbis Iradian, point out that a gradual liberalization of the CEPO could be complex in a Context of high external debt, high dependence on imported supplies, increase in export prices and poor political credibility.
In this sense, the report raises two possible scenarios:
- If the reservations are robust enough, the exchange unification process could occur gradually.
- In more fragile conditions, a more abrupt exchange adjustment would be required.
Dollar: Concerns about the elimination of exchange rate
Among the main concerns about the elimination of the CEPO, the IIF mentions the limited liquidity in dollars to face external shocks and the inflationary impact of an eventual devaluation before the legislative elections of October, where the Government seeks to expand its parliamentary representation to promote more reforms economic.
The report emphasizes that Egypt’s success was based on five pillars:
- Measures to mitigate the inflationary impact of the devaluation.
- A significant political adjustment.
- Increase in external liquidity to allow greater exchange flexibility.
- Coordination between monetary and fiscal policies.
- Political stability.
Under this logic, The IIF estimates that Argentina achieved sufficient credibilitymainly thanks to its fiscal adjustment, to advance the unification of the exchange market without generating instability. According to its calculations, this process would require at least 10,000 million additional dollars in reservations, amount that could be obtained through a new agreement with the IMF.
“The rapid elimination of exchange controls would release the offer of dollars in a context of broad investment opportunities, facilitating access to the market. A unified exchange rate would eliminate distortions, would provide greater transparency and contribute to macroeconomic stability,” concludes the report .
Finally, in the face of the reduction of the Crawling PE scheduled for February, the document warns that, although the continuity of the controls could help reduce inflation in the short term and benefit the government for the electionsit could also generate external imbalances and hinder the future liberalization of the exchange market.
Source: Ambito
