Dark clouds on the exchange horizon

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 excess of controls leads to an increase in the gap between the different prices of the dollar and generates tensions in the outlook for the prices of the economy

The Deputy Chief of Staff, Cecilia Todesca, stated that: “If we generate a strong devaluation, what will happen is that prices will increase, real wages will fall and the economy will contract even more.” To this phrase must be added that of President Alberto Fernández: “dollars are to produce, not to save.” As the hand comes, these statements will be added to the famous ones: whoever bets on the dollar loses, I spoke to them from the heart and they answered me with their pocket or whoever deposited dollars, will receive dollars. There are too many failed statements regarding the dollar for not understanding the economic process.

Perhaps this is one of the many more announced devaluations that we have ahead. Why should a devaluation be expected? It is true that, as Todesca says, the balance of trade balance is positive, what the official does not clarify is that the balance of trade balance occurs with a phenomenal fall in exports and imports. In the first 8 months of the year, exports fell every month compared to the same period in 2019 and, in addition, accumulated a drop of 11.8% in the mentioned period. On the import side, they also fall every month and the accumulated drop is 24%.

It is also true that the current account of the balance of payments is positive, which makes it more unusual that the BCRA is running out of reserves.

The first problem that arises due to the shortage of dollars is that the state confiscates part of the income of exporters, particularly from the agri-food complex.

Indeed, if a person produces soybeans, it is obvious that that soybeans are his property. If you sell that soy to another person abroad and they give you dollars in exchange for the soy you sold, those dollars should be from the producer, however the state appears and says: no, those dollars they give you in exchange for your soy I keep them and I give you these pesos that melt like a bar of ice in the desert. But also, I do not even give you the official exchange rate of $ 82, but I give you a dollar at $ 57.4 against a free market that trades at $ 167. So there is a 190% exchange gap between the value of the dollar market and the exchange rate that the BCRA recognizes to the producer. A true confiscation of the fruit of the producer’s work that discourages all investment and production. Above Heller proposes to charge producers, among others, a tax on wealth, establishing a double taxation.

What is the exchange horizon for continuing this exchange rate policy? They will not enter dollars for tourism given the absurd restrictions that the government established with the quarantine. Quarantine that the WHO has just said does not have to be that long because it generates poverty (at the end they realized in the WHO of the disaster they were making in the world).

Nor are they going to enter dollars for direct investments to set up a factory or business of any kind because the government has lost all credibility and does not generate trust.

We are not going to have income of dollars from the credit side because nobody wants to lend to a country that is a serial defaulter and, above all, insolvent.

The only thing that remains as dollar income is exports, but the government punishes them with a lower artificial exchange rate and, above all, the most competitive sector of the economy punishes them even more for exporting.

We know that dollars will be lacking at the official exchange rate and, therefore, there will be no dollars to be able to import inputs. As soon as the economy threatens to have a minimum of reactivation, the Ministry of Production will not authorize more imports of inputs because there will not be enough “cheap” dollars to import. Without inputs, the scarce activity that could be recovered will slow down and the social crisis derived from unemployment will continue. The fiscal deficit will remain high and the BCRA will continue to issue currency to finance it, with which there will be more inflation and an exchange rate that will fall in real terms, aggravating the external sector.

The options that the government will have will be:

Free the exchange market and let the quote be free. Something that has a low chance of happening in a government with tendencies to control everything.
Unfold the exchange market, leaving a free market for people to buy and sell dollars at the exchange rate set by the market or another commercial exchange rate to pay for imports and exports. This would not be a solution because the problem of an artificially low exchange rate would continue to cause a shortage of foreign exchange.
Simply devalue the official exchange rate. This measure would imply that a public official, by finger, decides how much the new official exchange rate has to be. In other words, you would be choosing a number that you like the same as when you buy a bet on a number in roulette. Bet on that number because you just like it. There is no scientific backing for a person to say what the price of the dollar should be.
What we do know is that people have not believed in weight as a store of value for a long time and are desperately fleeing weight. In this context of absolute lack of confidence in the peso, the question is: what are reserves for?

Formerly, when there was a currency board, the Caja issued pesos against the gold that was backed by a certain parity. When the gold standard was abandoned in 1922 and from 1972, when Nixon declared the dollar inconvertibility to gold, all the currencies of the world are simple papers in which people believe or do not believe. As simple as that.

And what do people believe to accept that currency? In the prestige of its rulers, in legal security, in respect for property rights, in whether there is a fiscal deficit and the BCRA issues a lot of money to finance the deficit or issues little. In short, he believes in a currency because of the seriousness of the legal, political and economic institutions of a country.

As in Argentina these institutions are not reliable, people do not believe in the peso as a store of value. What’s more, he lives it day by day when he goes to the supermarket and notices that he has to deliver more bills for the same amount of goods he buys.

The only way a government could try to dominate this rejection of the local currency would be by showing that it has enough reserves to support the artificial exchange rate established by the BCRA. As today the BCRA does not have these reserves, the run towards the free dollar seems inevitable and it also seems inevitable that the BCRA will run out of reserves and finally have to devalue.

Ultimately, what we see in the free or blue exchange market is a preview of what is going to happen with the official exchange rate. Sooner or later the government will have to choose between paralyzing production and creating greater social and economic chaos by stopping the importation of inputs or, within the interventionist logic of this government, devaluing the peso by taking the dollar to a higher level . There, a devaluation race of the peso will begin that we do not know how far it can go as long as the BCRA continues to issue currency to finance the fiscal deficit, because it will not be that the dollar rises, but that the peso will continue to lose value.

In summary, the exchange rate problem cannot be solved with isolated measures, it requires a consistent economic plan and with authorities that generate trust. The problem is that the current government lacks both, in particular the second, particularly when all economic measures have to go through the Instituto Patria beforehand to be approved.

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