How to "kill" the dollar in the countryside, the dilemma that has already been carried to the Treasury and the IMF – 15/04/2019

Argentinean officials, bankers and economists went through Washington this weekend. Nicolás Dujovne, Minister of Finance, and Guido Sandleris, Head of the Central Bank, participated in the IMF Spring Assembly. Bank representatives and economists attended parallel summit meetings, where they also met with investors, clients and the Washington bureaucracy.

The three main questions The main sources of information on the country were: the high and rising inflation recorded by the economy, the possibility of victory of Cristina Kirchner and the behavior of the dollar in a context of uncertainty about the election result and even, possibly, a secret ballot.

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On the first issue, inflation, economic management officials have argued at meetings in Washington that the CPI in March (will leave on Tuesday) "would yield about 4.3%". About an important official has even been told "closer to 4.5% than 4%". The economic team is worried about the impact of this news. To top it off, according to private data, inflation during the first week of April was 1.5%. That does not mean, says the government, that this month's CPI is higher than March.

If the dollar has risen 3.3% since October and the monetary base has risen slightly, which generates the acceleration of inflation? This is the question that investment banks and investment funds ask for these hours.

One of the explanations is that the behavior of individuals and companies is more governed by their belief that costs will increase in the coming months and not by what Dujovne or Sandleris say. C & # 39; typical of a high and unmoderated inflation regime. "Today, no one turns to the Central Bank to predict a price or a cost," warns Marina Dal Poggetto, director of the consulting firm Eco Go. And he adds: "No one wants to decapitalize."

Some companies prefer not to sell because they do not know if they will win or lose by disposing of their stocks, taking the money and recomposing the stock. They prefer to keep their badets and not have money. The government intends to send a signal in this regard with a price announcement this week. For a macroeconomist, this is just that: an announcement, not a stabilization policy.

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The second question of the weekend went through the figure of Cristina Kirchner. "Will he win?" Was the most heard question, to know maybe ignore the candidacy of the former president. And then, perhaps related to each other, speculation about the behavior of the dollar in the run-up to elections and the chances of Mauricio Macri's reelection will diminish. Or even a CFK-Macri ballot.

Attentive, the economic team took note twice. In the immediate future, try to mitigate the bad inflation data this Tuesday with agreements, bidding and ratification of the plan with the IMF. But for later, near elections, he looks for tools to shield against dollar noise to the images of Macri, Maria Eugenia Vidal and Horacio Rodríguez Larreta.

Economic authorities and the IMF insist that the non-intervention area of ​​the dollar I will not have any changes in the months to come. "We are going to see how it works now that the crop dollars are coming in addition to the start of the auction," we heard in the body this weekend. However, there are interviews and screenings to be given to Central more space to deal with volatility dollar in the countryside. The bank could lower the discount rate in the band's dollars (it started at 3%, then at 2% and now at 1.75%). In government, they do not take into account the evolution that follows, I would go back down. A senior economist who visited Macri a few days ago believes that directly "It should be fixed, at least until the elections."

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The Washington bureaucracy is already aware of these footnotes. Eduardo Levy Yeyati, Miguel Kiguel and Marco Buscaglia have written a paper entitled "Argentina, a case of control of dollar volatility". For example, the Central Bank will auction up to $ 100 million if the dollar price fluctuates 1.5% from the previous day's close: "That would be enough to avoid moves like the 7th of March ".

Work arrived this weekend at the US Treasury economist. it follows the Argentine case, Michael Kaplan, and, in those hours, also at the IMF. "Better to have more flexibility than less", advises Martín Castellano, chief economist for Latin America at the Institute for International Finance, based in Washington.

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