Inflation and dollar, Miguel Kiguel’s warnings

In the midst of exchange volatility and market doubts about the sustainability of the libertarian economic model, the economist Miguel Kiguel He launched a series of warnings to the government of Javier Milei. According to the former official, The obsessive approach in lowering inflation and maintaining fiscal balance can generate more costs than benefits if it is not accompanied with measures that strengthen the real economy.

“The main strategy is to lower inflation, but I do not know if Argentina is so prepared to pay all the costs that implies going so fast to a 1%inflation,” Kiguel said in dialogue with economist Walter Castro. In his opinion, countries like Chile or Israel managed to stabilize their economy with gradual processes, without the need to force such an aggressive adjustment.

Since the beginning of July, the blue dollar rose US $ S95, driven by factors such as the end of the Lefi and a currency settlement less than expected. This dynamic, which in the government attribute to a “normal” flotation scheme, generated concern in the market, especially for the fall in reserves and signals of exchange delay.

Exchange risks, delay in the dollar and negative expectations

For Kiguel, The fear of a exchange rate jump is reasonable. “You can’t only look at the amount of pesos against dollars. People decide for a whole, and when you perceive that there may be a devaluation, find a way to go to the dollar very easy,” he explained.

According to your analysis, the exchange rate can move even without changing the amount of pesos in circulation. Factors such as interest rate or payment balance also play a key role. “One knows that when a central bank cannot put reservations together, the exchange rate is going to depreciate. And the opposite is also true,” he said.

In addition, he pointed out that the current scheme may be leaving the official dollar at a level too low, which generates discouragement for export and incentives to import, aggravating external imbalance.

Criticism of the fiscal course and the social impact of the adjustment

Kiguel also questioned the government’s tax approach. Although he acknowledged that maintaining balanced accounts is necessary, he considered that having a moderate deficit is not necessarily a problem. “A 1% deficit can help lower taxes or finance infrastructure. Today there is almost an obsession with the deficit, as if it were the worst of all, but many countries that succeeded lived together with reasonable deficits,” he said.

The economist expressed concern about the social impact of the libertarian model. “The program is not generating the necessary employment or increasing income as one would like. You have to see how much social tolerance this direction can sustain,” he warned.

On the future of the model, he drew a parallel with the 1990s. “At that time we had an open and competitive economy, with increasing productivity, but failed by an overly rigid exchange policy. I hope that this error is not repeated this time. I am afraid that we go to a dollarization, although today it looks like a fairy tale,” he said.

Balance between orthodoxy and growth

Despite his criticism, Kiguel stressed that the program has positive elements and that it could work if some deviations are corrected. “It is true that there is a problem with reserves and there may be tensions with the exchange rate, but all that is corregible without the scheme from coming,” he said.

Its background message is clear: the macroeconomic adjustment must live with a vision of development, which contemplates the growth of activity, employment and income. “It has been correcting relative prices for years. Sometimes you have to devalue or raise rates so that everything continues. But you can’t do everything at the same time without paying political or economic costs,” he concluded.