Government implements economic policy that leads to disaster

In this regard, two considerations can be made. In the first place, it is alarming that the government is bothering him at this stage of the $ 42 dollar game, a level he had reached more than six months ago. In the last quarter, cumulative inflation is around 10%. Does the government intend to tackle a wild exchange rate delay? Will the whole country be sacrificed so that the dollar does not like at all? To what extent can the scenario be stable in the event that the dollar is pegged at $ 40 with a desired inflation of the order of 30% per annum? Is this a magic number? How are indebted people at the rate of 7%, 8%, 9% per month, if the dollar does not rise to a peak? These are all questions that have terrible answers. However, the government is tied to this real bad, the $ 40 dollar. It is only found in the economic history of Argentina when convertibility has been made as far as possible, with the sole interest of keeping the peso 1 to 1 with the dollar. This story has ended badly and we just have to wait – we do not think – that the IMF does not allow the government to sell off dollars at a much lower price than the top slice in order to repay its peso debts. this is coming to an end, when in reality we are trying something very far: keeping the dollar around $ 40 around the election. And then what? After the abyss, and this can no longer arise, great doubts: the external sector remains in marked imbalance and abort the automatic trend that was to rebalance through a violent sale of dollars on the market can only lead to a increase in the external imbalance, but in the current context of very virulent recession, the rebalancing of the external accounts can no longer be done with the simple way to reduce imports, which would be sufficiently reduced by 2017 to 2017 The IMF will he allow the government to do the enormous irresponsibility of the $ 8,000 or $ 10,000 million draw to keep the dollar on the upside of "soft fire" for a few months? And the question that follows is this: Should a technical body such as the IMF try to "force the hand" by decisively influencing the policy of a member country? In such a case, can the IMF then claim that Argentina will continue to pay the debt if it is the body itself that is now exacerbating it in order to influence the elections with bad art? With what face would they come and say you have to pay them? The case where IMF dollars would be sold on the financial market to pay the outstanding peso bonds would be clearly indicated: the peso-denominated debt would be transferred to dollar denominated debt. The BCRA issues pesos, but not dollars, with which we would point to a default. The logic would indicate that in the event of impossibility to renew the debt in pesos, the government cancels it directly in case of monetary problem while increasing the reserves, that these are remunerated in the form of Leliq. (There is currently a band for all types of deposits). or are they in the form of unpaid laces. The supply and demand of pesos would increase at the same time, so there should not be too many side effects, even if maturing peso bonds were replaced by Leliq, as it would happen a change public sector debt. pesos for other public sector debts in pesos. And while the Leliqs are short-term, the truth is that the BCRA can force entities to have some of the funds deposited in banks in these badets, as it already does.

The second consideration that can be made is that the government does not want to admit that it was wrong – and seriously – when it set up the swap band mechanism: put the band in which the BCRA must buy foreign currency in a place too low. So much so that, in six months of validity, these bands bought only $ 1 billion, while interest rates were at very high levels. It is very clear that the current system closes in the medium term if and only if the BCRA buys a substantial amount of dollars while interest rates are substantially low. Otherwise, with this level of interest rates, the dollars that would be converted into pesos would no longer be "swallowed capital" but "vulture capital" at interest rates of 61% nominal per year, or 80% in cash , figure close to triple the expected inflation for the entire year. The truth is that there is no need to fool ourselves: in a context where IMF funds are running out at the end of this year and voluntary credit to the country does not reappear, the only file that can be used to guarantee The payment of the public debt is made with authentic dollars that must be bought on the market. But here, the devaluation was not enough for the country to achieve an unbalanced trade surplus in order to offset at least the interest to pay the public debt, and even, if possible, an additional margin to have sufficient funds to do so. in the face of expenses. the magnitude of the capital flight that there would be. What dollar would have been enough for this to happen? You can not know. The only thing that one can know, is that a dollar of 42 dollars is not enough. It is clearly insufficient. The only way to continue to encourage it in the future is to do it as has been done so far: with the stratospheric interest rates. But this mechanism limits its effectiveness over the weeks and comes at a time when it does not reach its goal because it now seems obvious that this has happened. And to top it off, the BCRA buys dollars it will need as water to pay the public debt since 2020.

In short: the monetary, monetary and financial policy chosen by the government since last August is disastrous. The worst this same government has faced. It 's not yet been perceived in all its magnitude, it' s because "anesthesia" of the interest rate on the currency still lasts. And if the IMF allows the government to sell dollars lent by this agency, it's much worse. You can calm the market for a few months, then … But that's another problem.

Walter Graziano and badociates

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