The Negotiations with the IMF are for now bogged down In a fund that requests exchange and free flotation of weight and a government that would only take that step with a mega credit that allows you to recompose reserves and face the demand for dollars without restrictions. For now it seems unlikely that the IMF lends more than US $ 11 billion (remaining credit of 2018), which would serve to refinance debt maturitiesbut leaving little room for exchange intervention. Another key variable is that credit disbursements are immediate and not gradual.
Exchange delay: Javier Milei’s arguments
In this context andl President Milei published an opinion column on Friday 7denying the exchange delay and trying to explain why even partially admitting that the dollar is cheap, the economic situation will not end as it happened in 1982, 2001 and 2018, in the crisis of the three most recent experiences of economic openness and exchange retardation .
Milei says that there is no monetary stimulus that can generate dollarization. While it is true that the government is not issuing to finance the fiscal deficit, in convertibility there was no monetary financing of the deficit, but that was not a brake on the exit of the weights and devaluation. There are numerous international experience of external sector crisis that lead to a devaluation even in countries with fiscal balance such as in various countries in Asia in 1997-1998.
The president also refers to a Theoretical calculation of the internal gross product (GDP) To purchasing power parity made by the World Bank, a value of US $ 30,000 per inhabitant in relation to current US $ 15,000 to demonstrate that the exchange rate is not low. In recent decades the current value of GDP in dollars was more a roof than a floor.
Another argument is that although it admits the strong current account deficit (Contracara of the exchange delay) for the growth of imports, tourism and payment of interests of the debt, Milei states that the country is world net creditor. The truth is that although the assets of the Argentines abroad SThey uperate to external debt there is no evidence that citizens decide to repatriate significantly his funds- except for the bleached- To finance that external deficit.
While there was something of dreolarization, There was a lot of indebtedness with strong growth of Billing with dollar cards. The truth is that the ongoing economic policy stimulates a higher current account deficit, something dangerous in countries without external financing and low local financing in national currency.
Out of the episodes mentioned in dictatorship, the 90s and the management of Macri (which Milei himself points) in the convertibility itself, Argentina suffered a speculative attack in 1994-1995 during the so-called so-called “Tequila effect” that generated a exchange and bank run that was the “spoiler” of what happened 6 years later in 2001.
The president recognizes another way of seeing the exchange delay: The strong growth of the prices of non -tradable goods and services, that is, those not subject to international competition which makes them very expensive compared to other countries. The argument for To deny the severity of the issue is that you should not intervene to avoid “greater competition” with entry of new signatures in these sectors that will be produced, prices will be lowered.
It is difficult that in the case of oligopolies or natural or regulated monopolies (although regulation is reduced) competition appears in various activities (public services, for example). Clearly limit the monopolistic gain margins is not on the agenda. It is also very complex that due to the growing costs in dollars (energy, rentals, raw materials, fees and taxes) lower the prices of certain personal services that even with relative competition, raised prices to subsist.
The strongest argument that the government has is that A “structural change” can be produced in the external sector If the production and export of energy and minerals increases significantly. This could differentiate this stage from the three preceding neoliberal experiences. Thus, with CEPO and a financial bridge, it would be possible to reach “El Dorado” in the coming years.
This possible “investment rain” course did not yet started despite the validity of the stimulus regime to large investments (Rigi) Approved in mid -2024, it depends crucially on the prices of primary products, the greatest energy production in the United States with Trump and the OPEC strategy, in addition to the evolution of the growth of the world economy. The potential investments depend on high prices of “commodities” in an uncertain global and local economy.
In case of “success” the eventual “Dutch disease” that would cause exchange appreciation would generate a dualistic economy, with an extractivist export concentrate sector of high profitability and a productive sector that could not resist the commercial opening combination in a protectionist world and a low dollar. There would be no external crisis, but a high unemployment, and low wages that would deepen greater poverty and inequality.
Exchange backwardness: “reality”
The truth is that for now “the photo”, registered in the projections of the analysts according to the Survey of market expectations (REM) of the Central Bank and the futures of the dollar provide exchange stability and maintenance of the “damn stock” in 2025. A part of the population “chooses to believe” but surely as in each election year, it will be more dollarized to a greater extent “for doubts” this year this year this year , and the “Carry Trade” (speculate at the rate with an ironed dollar) It will move to the compass of the surveys and the evolution of the reserves, therefore, which happens with the IMF.
There is no doubt that the exchange rate is late and there are expectations of a future devaluationthat the government must obviously deny. For something the Government maintains the stock because it knows that without restrictions the exchange rate will be closer to $ 1400-1500 than of the current levels. If the implicit dollars (MEP and CCL) are looked, they are very influenced by the intervention (bond sale and the Blend dollar). In the absence of intervention The gap would be larger and the free exchange rate would rise.
The actual multilateral exchange rate is already at lower levels than in August 2023 (when the IMF forced the country to devalue 22%) and at the end of the previous government. If the current government and economic team indicated the exchange delay and decided to devalue and the IMF pressed for a rise in the price of the dollar, why will this time be different?
Besides, The exchange rate is today similar to January 1999when the devaluation of the Brazilian real, began to kill convertibility. Various global indicators including the popular “Big Mac Index” that points out that only in Switzerland the popular hamburger is more expensive in dollars, reflecting an obvious phenomenon. For something the Argentines (who can do it) massively venrane in Brazil or make “tours” of purchases to Chile. This in the long run is corrected or with a long and deep fall in prices and salaries as in 1995 and 2000 or with a devaluation.
What can happen in 2025?
The government resists this strategy, except as we mentioned that financial support is substantial, for the devaluatory and inflationary risks that could affect its electoral performance. Even in the most optimistic local scenario, we will have to see if the government will risk in a global context so uncertain by the commercial war and its possible impact. A worldwide superdollar, drop in the price of exportable, turbulence in emerging markets and in neighboring countries, will have local impact on the exchange rate.
If one observes the agreement signed Egypt with the IMF in 2024it is evident that the sending of funds from the organism was tied to an exchange unification and a devaluation. According to the Institute of International Finance -Think Tank of the great international banks – that analyzed the Egyptian case, a devaluation to be “successful” requires limiting the impact of the exchange rate on the prices “Pass Through”, political stability, sufficient reserves and reserves high interest rates.
A devaluation without adequate reservations, compensatory policies and an integral anti -inflationary scheme, is inflationary, recessive and ends up “eating” devaluation as happened in 2023 and 2024. The IMF has been with a program in Egypt for almost 9 years with a languishing economy and three external crises. The credits have operated as the mummification developed in a country that was civilizational lighthouse of humanity is not noticed putrefaction but the “dead” is not revived.
The IMF agreement: Pre or post elections?
The government is difficult to compensate with retentions, raise the rates because it would stop the reactivation in an electoral year. Much risk and scarce reserves. The Government lowered the devaluation rate to 1% monthly to try to lower inflation, with the risk that the exchange rate is appreciated more, inviting investors to continue betting on the financial bicycle. A medium -term risky bet if the dollar can be seen even more because inflation does not converge at the devaluation rate. Thing that did not happen in La Tablaita de Martínez de Hoz or in the second half of the Macri government.
This is most likely that the government willThe IMF make a short agreement until October, To refinance maturity, without major disbursements, maintaining the government the stocks and the exchange anchor until October.
The agreement Long with “structural reforms”, disbursements, rates and devaluation, will come after October. “Financial, exchange and tariff populism” to sustain the illusion. After the elections the “bad news” will come. As in 2017 with the pension reform after the electoral triumph.
“Nothing new under the sun.” Will the end of the film be different? It can be if all global variables play in favor and the “structural change” is given if Argentines do an exercise in memory and reasoning may not estimate the exact duration or the development of the plot, but if the end of the “movie” . Coming Soon?
Source: Ambito
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