Economists are concerned about the situation that will be experienced in the coming months, due to the data reflected in high inflation and the small amount of Dollars that the Central Bank has been able to buy at the height of the thick harvest liquidation period.
In this sense, iProfesional spoke with Eugenio Mari, chief economist of the Fundación Libertad y Progreso, who believes that he is not optimistic that inflation will moderate significantly in the rest of the year. In fact, estimates that 2022 may be the year with the highest inflation since 1990.
This expert, who was an adviser in the National Congress and in the Secretary of Foreign Trade of the Nation, also predicts what can happen with the dollar and the Central Bank reserves.
-What is your opinion about the economic moment?
Let’s start by stating the obvious: economic situation is bad. But not only because of how we are, but also because there are no expectations that there will be changes in the near future. And I am not only talking about the fiscal and monetary imbalances, which are very important, but about the entire framework of economic incentives that the Argentine economy has today.
go to the fiscal surplus it is something necessary, but not sufficient, for Argentina to begin to grow. Hence, although there was an agreement with the IMF, there was no substantive drop in country risk and the exchange rate gap, although it had a summer, quickly settled back above 80%.
The Government manages to tame the price of the dollar at the height of the high liquidation of the harvest
-In this sense, what can happen with the price of the dollar in the coming weeks when the liquidation of the thick harvest ends?
-The first question would be, with which of all? This situation that we have become accustomed to exchange rates multiple is something very unstable: hence, no country in the world aims to make this type of unfolding.
Let’s talk about official dollar. For the Central Bank, sustaining an exchange rate level that is out of balance, as we are today, implies losing, or in the best of cases not accumulating, Bookings international. Or, on the other hand, regulate demand more and more, that is, harden the trap.
-What problems generate these imbalances?
–The problem is that there are fewer and fewer players left to prevent access to the official market. We have already included hoarding, tourism, transfer of dividends, and now we have included importers.
The way out of this scheme, assuming that there is no help from the fiscal side, has always been with a setting in type official change decompress the market. Read, a devaluation; as we saw in 2014.
-What can happen with the exchange gap with the free dollars whose prices are relatively stable today?
-Broadly speaking, the currency gap reflects movements in the demand for pesos in the local market. And the demand for pesos is, to a great extent, affected by the expectations generated by the Government’s measures and announcements.
The exchange gap due to the difference between the prices of the official dollar and the free dollar generates imbalances
It is true that the gap can be modified by other movements, such as the appreciation or depreciation of other coinsthe short-term supply of dollars or other events, but these are marginal when it comes to explaining a gap of 80%.
Given the current situation, it is most likely that there will be no recovery in the weight demandso it would not be surprising if the gap increases from the second semester, when the situation of the Central Bank worsens, given that the settlement of dollars for the harvest will have already passed.
-In this regard, how do you see this situation with the price of the dollar after June and the high liquidation season are over?
-By that time of the year, in 2021 the Central Bank had accumulated foreign currency purchases for US$3.9 billion. This year it is about US$360 million, less than 10%. It is true that there is still most of May and June, but not accumulating reserves is now equivalent to having less firepower in the second semesterwhen there is less supply of dollars for exports.
This means that the BCRA will have less room to intervene in the exchange market.
The exchange control scheme will require, then, more trap, or more acceleration of the crawl peg. Once again, it will depend on what happens on the fiscal front, but if everything continues as it is now, it will surely mean an acceleration in inflation.
Although it is the high season for the sale of dollars from the field, the Central cannot accumulate a large volume of reserves
-What are the problems that not accumulating reserves can bring in the middle of an exchange trap?
-Let’s start from something basic, an exchange rate it is not a scheme under which reserves are accumulated. Exactly, it is the opposite. The Central Bank must sell reserves to support a price that, in reality, is not equilibrium. We have already seen between 2011 and 2015 the bleeding of reserves, which was practically continuous. And the same thing happens since 2019.
not even the record international prices of raw materials can break this trend. Hence, the BCRA can accumulate reserves for some months, but what it accumulates in one part of the year it loses in the other. That is why the IMF demands monetary and fiscal commitments. Without that, adding reserves in a sustainable way is a utopia.
-Inflation returned to show alarming data, what can happen with the march of prices in the coming months?
-In the short term it is difficult to think of a slowdown. Several prices in the economy, with a significant impact on the measurement of the CPI, are still behind. This is the case with the exchange rate, utility rates, fuel, among others.
In addition, in April the National Treasury was unable to renew the total amount of maturities, which forced the intervention of the Central Bank via transitory advances, that is, issuance.
this landscape does not make us optimistic on the price level for this year, which aims to be the highest inflation since 1990.
-Can there be hyperinflation?
-With things as they are, it is unlikely. However, we are far from having a sound currency and yes there are risks that the inflation keep going up. The Central Bank’s policy, dominated by the financing requirements of fiscal spending, has been degrading the peso.
Perhaps most worrying is that in recent months Argentina seems to have transitioned to a new regime of inflation greater than 50%. At those levels are the expectations for the next two years, as well as reflected in the salary parities.
Official inflation for April was 6%, and this high price trend sets off alarm bells among economists.
So, if monetary policy does not change the underlying trend, we could reach a critical situation in the coming years.
-What can the Government do to control this complex situation until the end of its mandate?
-The closest thing to a consistent economic program that the government has today is the agreement with the IMF. Anchoring in this deal, one would have to aim to reduce uncertainty and, at the same time, increase the probability of meeting goals.
This would imply putting an end to internal conflicts around economic policy and aligning efforts to, at least, get as close as possible to the goals.
-And if Argentina does not comply with the IMF?
-It most likely the IMF grant waivers if Argentina fails to comply, but what must be taken care of are the expectations and confidence of the Argentines. Basically, building a bridge, with the greatest economic rationality possible until 2023, when a government with renewed political power has the opportunity to make in-depth reforms to return to growth.
-Under this scenario, what do you think can finally happen in the coming months in the economy?
-For the macro as a whole, in the coming months we will see the end of the gross harvest and a rise in international rates with a strengthening of the main global currencies. This will further complicate the debt financingand the risk that the emission moves quickly to inflation will be higher.
In short, there will not be much more room to delay the tax adjustment. And this will surely lead to greater political conflict. Unfortunately, with economic activity finding a ceiling, inflation will erode the income of Argentines and we will once again see an increase in poverty.