After Milei’s speech this Sunday, analysts agree that the complete disarmament of the exchange rate is no longer a priority for the new Government.
Javier Milei, since the beginning of his mandate, has marked a clear contrast with past strategies, outlining his own vision of the challenges that lie ahead for the economic and political situation of the country. In his first speech, instead of generating optimistic expectations, he presented a gloomy diagnosis, highlighting the previous mistakes of the management of Mauricio Macri and outlining a different path forward.
Thus, Milei indirectly outlined its strategy for the economic shock that it intends to implement. He pointed out that the first actions will focus on forceful fiscal measures and adjustments in relative prices, postponing the exchange rate correction to a later stage.
Regarding exchange rate policy, he made it clear that rules out an initial float due to risk of hyperinflation, making reference to historical experiences such as the “Rodrigazo” of 1975 and the crisis of 1989 during the government of Raúl Alfonsín. He warned about the excess of money in circulationcomparing it with those crisesand warned of imminent inflationary risks if a similar path were followed.
He exchange rate was defined by Milei as a “social and productive nightmare“, aggravating the situation with a quasi-fiscal deficit which he estimates at 10% of GDP, surpassing the 1989 panorama. His speech loaded with figures, some incorrect, sought to warn about the current inflationary situation and its possible catastrophic consequences.
Despite his initial proposal for dollarization, Milei indicated that this measure will be left for a later stage after solving the problem of liquidity letters (Leliqs), highlighting the need to address this challenge to move towards a more stable economy.
A recent report from Ecolatina projects the possibility of an exit for “sometime in 2024” of the exchange rate. The greater or lesser proximity of this possibility will depend on what result the cut that the new Administration proposes to apply to public spending begins to give. According to this logic, the complete disarmament of the exchange rate It would be ceasing to be a priority for the new government.
Source: Ambito
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