Dollar: what conditions must be met to get out of the trap, according to Javier Milei

President Javier Milei He promised this Monday that once his Government “stabilizes the economy, cleans up the monetary surplus and cleans up the Central Bank,” he will “release the exchange market fully”. In statements to Rock and Pop radio, Milei noted in this regard that his management proposes “real solutions” and that “there is no magic.”

The accumulation of reserves, In addition to being essential to be able to abandon the exchange control scheme known as “traps”, it is one of the objectives set in the agreement with the International Monetary Fund (IMF).

The new understanding that the Government and IMF authorities ratified days ago stipulates an increase in net reserves of US$10 billion by the end of the year.

A report from the consultant Balance frame four requirements what they must give to be able to meet that goal: that the real exchange rate does not lag; that the inflow of capital exceeds the outflow -if the stocks are lifted-; that outstanding import payments (and dividends) be handled cautiously; and that the public sector obtain fresh funds from international organizations.

Dollar and gap: what the market expects

Analysts weigh in on Argentina’s economic future amid renewed fears of a pnext devaluation of the peso, that maintains an exchange gap 50% regarding alternative markets, after knowing the inflation data for 2023, which exceeded 211%.

Operators doubt that the controlled peso depreciation (“crawling peg”) of the 2% monthly set by the central bank (BCRA) can be sustained, since inflation for the coming months is estimated between 15% and 20%.

“The quotes of the financial dollars “They seem to be more in line with an economic plan that promotes negative interest rates and the accumulation of reserves as a short-term sanitation tool for the BCRA, leaving the demand for financial dollars as a ‘free’ variable that is very dependent on the ups and downs of the situation.” said Delphos Investment.

“Likewise, the plan is betting on an expected inflation moderation due to a drop in domestic demand, partially offset by an increase in regulated and seasonal prices,” he added. “At these levels of nominal changes, the financial market volatility will be important, very suitable for speculation but not so much for production. If the official strategy eventually fails, the progressive liberalization of all markets would in fact be imposed,” estimated VatNet Financial Research.

“Despite parliamentary negotiationsthe ‘gap’ remains sustained and so it is that the recent realignment extends – at levels already close to ~60% – hand in hand with greater dollarization, given that it continues to be challenged by very negative real rates, a slow ‘crawling-peg’ of only 2% and an upcoming drop in the demand for money, so improving expectations It is crucial as a bridge to harvest“explained economist Gustavo Ber.

“The exchange gap increased to 59% in recent days, moving away from the 14% floor reached after the devaluation of the official exchange rate. This movement distances the idea of ​​abandoning access to the MULC (single and free exchange market) for many companies, which remain in dispute with the parent companies and with suppliers for the adoption of the bond (Boperal), while they continue betting that the government give some more benefit so that it is transacted in the secondary market and provides liquidity, which establishes a price in the secondary market,” Inveq estimated in a report.

“If the government takes the correct measures, the exchange gap should decrease, therefore, the dollar bill would lose its appeal, and its evolution would be lower than the evolution of inflation-adjusted bonds, dual bonds and linked or wholesale dollars,” said analyst Salvador Di Stefano.