Dollars come from the ones that create wealth, not from the State

Roberto H. Cachanosky

Member of the Academic Council of Libertad y Progreso. Degree in Economics from Universidad Católica Argentina. He is an economic consultant and author of the books "Economía para todos" (Themes, 2002) and "El SindromeArgentino" (Ediciones B, 2006). He serves as a columnist in the newspaper La Nación. Previously, he worked the same task for the newspapers La Prensa (1985-1992), El Cronista Comercial (1992-2001) and La Nueva Provincia de Bahía Blanca (1992-1998). He's the host of the cable TV show "The Economic Report." Lecturer in Applied Economics of the Master of Economics and Administration of ESEADE, senior lecturer in Macroeconomic Theory of the Master of Economics and Administration of CEYCE. President of the Center for Economic and Institutional Studies. He was Economic Adviser to the Argentine Chamber of Commerce (1983-2002) and to the Argentine Chamber of Importers (1992-1993).

INFOBAE – The statements of senior officials fueled the uncertainty of those who have savings possibilities

At the end of last week there were unhappy happy or incoherent statements by government officials. On the one hand, the president said verbatim that “we continue to talk about quarantine without a quarantine in Argentina” and added that industrial activity is above 90%. We will return to this topic later.

The president also affirmed on Saturday morning that they were studying limiting the purchase of the US $ 200 per month that people can acquire monthly, to that was added statements by the official Cecilia Todesca who affirmed, among other things, that “We cannot continue spending dollars on savings that go to the mattress ”and that the dollars are needed to produce. But in the afternoon the Ministry of Economy denied that it was going to limit the purchase of US $ 200 per month that people can make, at least for now. In other words, two diametrically opposed opinions in one day on the exchange market, with the BCRA not giving an opinion.

Regarding the president’s statements on quarantine, it was the following: “We continue to talk about quarantine without a quarantine in Argentina; people circulate, businesses are open and industrial activity is above 90 percent ”. I doubt that the owners of bars, restaurants, hotels, tennis teachers, gyms, shopping centers, etc. agree with the president, however, if it were as the president affirms that industrial activity is above 90%, it is clear that, then, economic policy is failing considering the sharp falls in industrial activity with year-on-year drops that reached exceed 33.4% and in June it was 6.6% annually

Graph 1

If 90% of the industry is working as the president claims, it should explain the phenomenal year-on-year declines that occur under his economic policy. Furthermore, according to INDEC data, the industry is using, on average, 53% of installed capacity. The president’s statement can only be understood by arguing that 90% of the industry is working because there is no quarantine, on the side of a failure of economic policy.

The Monthly Economic Activity Estimator (EMAE), which is a monthly advance on the behavior of GDP, shows that in the first 5 months of the year economic activity fell 13%, construction is in a free tailspin with a 38% fall in the first semester of 2020 compared to the same period of 2019. Taking the February-June period, there are 15,663 fewer private companies that filed affidavits in the AFIP for the settlement of contributions and contributions from their payroll and 19,739 since the beginning of Alberto Fernández’s administration . Ultimately, if the quarantine does not exist, that means that the government’s economic policy is a failure by itself.

Regarding the threats to restrict the sale of dollars to those who want to buy the US $ 200 a month, the argument of Cecilia Todesca, an official of the Ministry of Economy, is truly surprising. She affirmed: “we cannot continue spending dollars in savings that go to the mattress and leave the system, because we need dollars to produce”. Frankly, it is not understood why she speaks in the first person of the plural. The dollars are not from the government, they are the kind that produce something that they then export and receive dollars in exchange for their product. Then the exporter can sell them in the domestic market and someone buy them and put them under the mattress because he is afraid that the state will confiscate them. And the one who is afraid is right because Todesca’s expression already reflects confiscatory intentions. If José exports soybeans and receives dollars and the State forces him to sell the dollars to the BCRA at an artificially low exchange rate in exchange for depreciated pesos, in fact the State is confiscating the dollars that are his property. What Cecilia Todesca intends is for the state to keep the dollars and to give those who generate wealth some printed papers called pesos that have no value.

What happens with the exchange market is very basic. It is introductory to economics.

Graph 2

Graph 1 shows two simple curves. One of supply O and one of demand D. The freely acting market is in equilibrium at price P1 and people make transactions in quantity C1.

The status appears and puts a maximum price for the dollar in P2. At that price, supply contracts to C2 and demand expands to C3. It contracts because no one wants to sell their dollars artificially cheap, and it expands because everyone wants to buy dollars at artificially cheap prices.

The difference between the quantities offered C2 and demanded C3 is covered by the state selling reserves while it has or the market adjusts for price in the black market given the prevailing stock.

What Cecilia Todesca does not seem to understand is something very elementary in economics: there are not enough dollars at the price artificially set by the state. Moreover, it is not that there are dollars lacking, what is left over are pesos that people do not want. Why do people want dollars and don’t want pesos? Because the peso melts like a bar of ice in the desert and, instead, the dollar is a store of value. Furthermore, people trust the US legal, political and economic institutions more to back the dollar than they do to Argentina’s political leadership and legal and economic institutions to back the peso.

How are people not going to demand dollars if since the current government began the monetary issue to finance the treasury represented 66% of tax revenues? Surely people do not follow monetary indicators, but in the supermarket they see how the purchasing power of the peso melts, not because it increases prices, but because the peso is worth less and less given the monetary expansion.

A state with a tradition of confiscation of liquid assets (Bonex plan, corralito, corralón, asymmetric pesification and confiscation of savings in the AFJP) explains why people do not want to save in the financial system and hoard dollars in the mattress as a way to defend the fruit of their labor.

And as the icing on the cake, Todesca stated: “the stocks are not a punishment, it is a condition for macroeconomic stability.” When one reads these statements by a government official, one understands perfectly that it is the same state that fuels the race to flee the peso and take refuge in the dollar, putting those savings as far away from the hands of officials who tend a deep vocation for the state to appropriate honest work.