Brake to inflation: what is the plan of "shock" proposed by the businessman closest to the Government

Antonio Aracre, the CEO of Syngenta, who a few months ago proposed a “soybean dollar“to speed up the liquidation of foreign currency and allow the Central Bank to rebuild its reserves, it now proposes a shock plan which, he says, would be effective for cut once and for all the inflationary acceleration.

Over time, Aracre has become one of the main backers of the Government from the business sector. Syngenta is one of the most relevant multinationals in the agribusiness sector. It is a company of Swiss origin that was bought by ChemChina, the second largest supplier of inputs and technologies for agriculture in the world.

The businessman never hid his political preference and, in fact, forged a friendly relationship with former minister Martín Guzmán.

The Syngenta executive believes that -after the success of the “soybean dollar”- which until now has allowed the Central Bank to accumulate purchases for some US$2.35 billion so far this month, it will be time to release what he himself defined as the “Step 2“.

Neither more nor less than a stabilization plan that is capable of cutting the process of inflationary acceleration, which seems unstoppable..

Aracre had contacts with different members of the economic cabinet to show them his idea. In the last few hours, in fact, in Sergio Massa’s own team they realized that the question comes spinning in the head of the minister. Although those same sources emphasize that no decision made yet.

Despite the Government’s efforts, inflation remains at worrying levels.

What would the stabilization plan look like?

Syngenta’s CEO says it bluntly: Argentina now needs a “phase two” to take advantage of the increase in the Central Bank’s reserves. A stabilization plan -of shock- that works like a real “anti-indexing tourniquet“.

Aracre assumes that the Government should launch it in the coming weeks, without great delay, to prevent the inflationary wave from continuing to grow.

It would consist, basically, of a total freezing of prices and salaries -including the price of the official dollar- for six months.

Before starting the program, Aracre proposes an “equalization of all relative prices in the economy.” The main points prior to freezing would include:

  • A salary update to prevent the freeze from ending with a crystallization in the loss of the purchasing power of the workers.
  • A additional increase in rates for the higher income sectors.
  • A final acceleration of the “crawling peg” (daily mini-devaluations), with the aim that the official exchange rate withstand a freeze for the next 180 days.

According to Aracre, the idea would be that this scaffolding of measures be taken through a presidential decree that later passes through Congress for approval. “The voluntary agreements did not work; they did not work. Here it has to be a mandatory compliance measure, with penalties for those who do not comply,” he states.

Inflation puts the Government before the need to take measures urgently.

Inflation puts the Government before the need to take measures urgently.

What can happen to the dollar

The sequence of measures should include a reinforcement in the exchange rate split. For the businessman, the Government should stop using reserves to finance Argentine tourism abroad.

And that instead of a “dollar card”, which makes travel more expensive but without scaring away Argentine tourists, a formal dollar is put into practice directly through which expenses are passed and allows the Central Bank to collect the foreign exchange left by the foreigners arriving in the country.

For now, the government is not evaluating an exchange rate split. The argument is that in this way an abnormal situation -an irregularity- would crystallize in the market.

However, in some official dispatches they observe that a total freezefor a very limited period, it would be viable to break the wave of indexing.

The latest Central Bank survey among economic consultants showed a forecast of 95% inflation for this year. The problem is that this expectation worsens month after month. And the last word is not said. In fact, the survey among the main consultants – those that fared best with forecasts – shows that they already estimate that inflation will reach triple digits this year.

In the economic team they are aware that inflation is unleashed. That, at this point, price agreements cannot lower the fever. A substantial improvement in expectations is needed.

Exchange rate splitting and freezing of the official exchange rate, among the possibilities of the Government.

Exchange rate splitting and freezing of the official exchange rate, among the possibilities of the Government.

The dollar factor and inflation

Massa assumed in Economy with the idea that the reinforcement of the reserves of the Central bank would imply a cooling in the inflationary dynamics.

After practically three weeks of operation of the “soybean dollar”, with a BCRA that has managed to buy more than US$2,000 million, that signal was not enough to improve the scenario.

The main economic consultancies, which monitor the inflation week after week, they realize that the beginning of september was very complicatedand that the month will have an inflation -again- above 6%.

It is clear that the economy has lost all its anchors. “The current process does not end with a fiscal surplus,” says Aracre, with a vision that many share at this point, inside and outside the administration.

What path will Massa take in the coming weeks?

Unlike other times, this time there seems to be a consensus that “something has to be done.” And urgent.

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