The dollar control and an instinctive question

Lic. in Business Administration. Master in Applied Economics of the UCA. PhD in Economics from the UCA.

ÁMBITO FINANCIERO – The only “advantage” that a stocks can bring is to buy some time so that in the meantime an economic plan can be developed that provides confidence.

Months pass and Argentina continues to coexist with the stocks, a measure that damages the economy. The argument in favor of the stocks is usually that, without stocks, the flight of capital is very great. While there is some truth, the stocks are far from the solution. Furthermore, the stocks generate other economic consequences, of which we will highlight three.

1) limits the entry of dollars via exports and Foreign Direct Investment (FDI).

2) threatens the growth of the economy.

3) deepen trust issues.

The stock is usually thought to limit the dollars that leave the country, but the truth is that it also locks the dollars that could enter the country either through exports or FDI. In the latter case, the situation was already serious before the existence of the stocks because there was no confidence in the economy. The stocks generate even more mistrust when making investments. It is an instinctive question, nobody enters where they cannot leave.

For example, if a fan of a soccer team knows that the rival barrabrava will wait for him at the start of the game, it is most likely that he will not go to the field. Similarly, they will never enter dollars if they cannot later come out of a stocks.

However, it is worth clarifying that removing the stocks in Argentina today does not guarantee that investments will come. Eliminating the stocks is a necessary but not sufficient condition for investments to come to the country. What happens is that the institutional damage done in recent decades was so great that most of the countries in the region are more attractive than Argentina when it comes to investing. Exports are also affected and this is a lesson that we did not learn from the stocks implemented in 2011. From the moment these types of measures are taken, exports begin to decline precisely in a country where the inflow of foreign currency is scarce. Specifically, the government seems to be very concerned about the dollars that go away, but not about the few that come in.

On the other hand, it was also learned from the previous stocks that in the medium term the level of activity is affected. Due to the first stocks installed in Argentina, the country has been stagnant since 2012 and GDP per capita has been falling. Interventions in the foreign exchange market tend to have negative effects on the real economy.

The only “advantage” that a stocks can bring is to buy some time so that in the meantime an economic plan can be developed that provides confidence. However, more than a year has passed since this measure was reinstated and Argentina continues without having an economic plan and, therefore, in a crisis of confidence. Proof of this is the very high level of country risk that is around 1400 basis points.

In conclusion, the existence of the stocks is only one of the many “patches” that the last governments of the day have been using, which are characterized by being measures that buy time, but that never solve the underlying problems. However, Argentina once again has an opportunity in the framework of the renegotiation with the IMF. If the government presents an economic plan that provides confidence, it would be a great first step in making up for lost ground. In any case, it must be taken into account that the crisis is political and that it will not be enough just to have a consistent economic plan.