The dog that bites its tail: what is the dilemma of the dollar, according to economists

The financial market begins a short week in the midst of a complex exchange rate and inflationary pressure, while the government negotiates with the IMF changes of goals for the advance of disbursements that help you control inflation and appease the dollarization. Market activity will take place this week between Monday and Wednesday, since Thursday is a national holiday and Friday there will be no activity for tourist purposes. In this context, economists speak of the dollar’s dilemma at a time when attention is focused on the Central Bank’s reserves.

The saying “the dog that bites its tail” alludes to the fact that the dog chases its tail, but never catches it, that is, the problem is never solved. Something similar happens with the dollar and the reserves. According to Fundcorp’s Roberto Geretto, “the dynamics of reserves is increasingly complicated. Although last week the BCRA was able to buy an estimated US$300 million net, part of it goes to contain the gap. Thus, on Thursday an increase was allowed in the MEP dollar that was ‘cheap’ compared to other financial dollars. In this sense, containing the gap and caring for reserves are contradictory objectives, although sooner or later more gaps mean fewer reserves.”

“Net international reserves are negative today at 1,670 million dollars and reflect the lowest value recorded since the arrival of the current government,” estimated the EcoGo consultancy.

“In the (previous) week, gross reserves fell by 433 million dollars, despite the fact that the central bank bought 302 million in the official market. To limit foreign currency losses, it did not intervene in the ‘CCL/MEP’ on Thursday returning to the market on Friday with a much reduced role compared to the first days of the week. All eyes are on the negotiations with the IMF, which are likely to last until early June,” Delphos Investment reported.

A complicated economy in an election year

“Argentina is facing several macroeconomic challenges that will clearly require the implementation of a broad, comprehensive and agreed stabilization plan. There are many reforms necessary to put the macro on track towards a path that allows expectations to be restored and resume a virtuous path of economic growth and stability,” said the settlement and compensation agency Invertir en Bolsa (IEB).

“At the moment, in an electoral year and facing the last months of the current government’s management, the only thing that can be expected are patches, restrictions and short-term measures that aim to prevent the lack of control from deepening,” he said. in your weekly report.

One of the great swords of “Damocles” of the current situation is the growth of the remunerated debt of the central bank, initially originated in the need to issue to cover the fiscal deficit by withdrawing circulation from the market so as not to further encourage the inflationary process.. A level of the order of 1.1 trillion pesos per month has already become a big financial problem in itself,” remarked Roberto Drimer, from VaTnet Financial Research.

“Hyperinflation becomes disorderly dollarization at a tremendous cost,” said Aldo Abram of the Libertad y Progreso Foundation. “I think there may be some slowdown in inflation, which until now has been accelerating, but the reality is that the Government is not doing much to make that happen. The Central Bank is not doing it either and that worries us a lot.”

“The ‘pocket economy’ plays a fundamental role -among other determinants- in the trust that society has in a government, and, consequently, in its voting decisions. It should be noted that, when voting, the bulk of the population (look…) the evolution of purchasing power, employment, consumption capacity and living conditions as much more relevant factors when it comes to punishing or rewarding government management,” said Ecolatina.