Argentine economy: Capital flight and inflation

This article was originally published at El Liberal on September 26th, 2021

The rise in the price of alternative exchange rates we saw this week, such as with the prices of the financial dollar and Senebi, which reached $ 190, are signs of concern for different analysts, who claim that “capital flight is bad because it means de-financed bleeding the economy ”.

In dialogue with El Liberal, economist Aldo Abram, director of the Fundación Libertad y Progreso, explained that “the fact that the free exchange rate rises is always a worrying sign, because that indicates two things: one is that the peso is depreciating, and when that happens the first place where we note its value change is in free exchange rates ”. However, the reality is that this peso is depreciating and this will be reflected in increases in goods and services, which is more inflation.”

On the other hand, “if the exchange rate is rising, it is reflecting a capital flight, an outflow of savings from Argentines and foreigners. This is bad because it leaves the country underfunded, bleeding the economy dry, which means that the economy is going to be worse off because of this lack of financing, and therefore all of us are going to be worse off ”.

Meanwhile, according to the economist Jorge Colina, director of IDESA (Institute for Social Development) “when the financial dollar goes up it is because money is leaving legally, which means that people are covering themselves by buying dollars before the elections. People are protecting themselves because the economy is not doing well ”. When asked about the influence of money issuance, he said that “in August and September it has increased and even more pesos will be issued over the last quarter, because spending will increase and, thus, we will see more inflation.”

“With the level of monetary issuing Argentina has, it is impossible to lower inflation”

Fausto Spotorno

Economist Fausto Spotorno warned that with the level of monetary issuing Argentina has “it is almost impossible to lower inflation“. He estimated that there will be a floor of 50% inflation “for several years.”

The most worrying aspect is monetary issuing, which has an uncontrolled dynamic. For example, between now and the end of the year, 1.6 trillion pesos must be issued to finance the National State, he warned.

Spotorno believes that, by 2022, the Government “will have space to be more rational, but I doubt that this will be sufficient to, for example, avoid an inflationary process greater than the current one.”

On the other hand, the economist indicated that until the legislative elections in November, “some additional expenses will be announced, which will not have much economic impact.”

“Additional expenses are going to be announced, like retirement bonuses and maybe a new IFE. Not much more. The economic impact of these measures will be low, because there is no time to get things done, ” Spotorno added.