The maximum target the Economic Committee is currently considering for 2023 is no overshooting of inflation 150 percent And GDP will not fall much 3 points. A combination of a disruptive event such as DroughtIt took $20 billion from an economy already suffering from foreign exchange shortages. Election uncertainty In the third scenario, two of them directly anticipate a sharp devaluation or dollarization, which puts the government on the ropes.
The accumulation of challenges has an impact on the expectations of economic agents, who tend to shelter or speculate with the dollar, which feeds back tensions. The same goes for prices. Inflation in May will range from 8.5 to 9.0 percent, according to the Economic Council’s latest projections. Officials agree less. IPC has a new floor with 8 monthly points They see a continuation of the upward trend for next semester. His calculations were more pessimistic than the market’s, which estimated annual inflation at 126 percent in a central bank ( REM ) survey earlier in the month.
A major reason for this process is, again, the relative scarcity of dollars to meet growing demand. He Agricultural Dollar It had issued $3,050 million as of this Friday and could bring in about $1,000 million by the end of the month, so that would be below the initial request to add $5,000 million through May. The problem is From June and till PASO, the flow of exports to be cleared will decrease Due to seasonal reasons and as activities will be withdrawn pending election results.
This situation is affecting currency gap Between official price and finance. The Minister of Economy, Sergio Massa, ordered to intervene in the currency exchange market with the devaluation and the MEP, so that the gap does not increase, but this led to the creation of arbitrage speculations between different bonds. To close this “loop”, the central bank went off the board on Thursday and hiked the MEP dollar by 30 paise in one day. That was news to speculators, who would also lose, but at the cost of widening the gap and increasing pressure for devaluation of the official dollar.
Until July last yearWhen Martin Guzmán resigned as economy minister in disgrace, the government’s strategy to deal with the legacy of debt and crisis left by Mauricio Macri, the devastating effects of the pandemic and the inflationary impact of the war was not easy. There was a showdown between Russia and Ukraine Gradual macroeconomic regulationHand in hand with debt renegotiations with private lenders and an agreement with the IMF.
The main objective was to maintain exchange rate expectations. In other words, keep the dollar in check, add reserves, narrow the gap and encourage growth in the economy with unconventional measures to stimulate and protect productive activity, especially industry. The project, which presented achievements and failures, was contested by a substantial sector of the Frente de Todos.Led by Cristina and Máximo Kirchner, to understand that growth was left to four lives and that the government had a passive approach to the effort between capital and labor.
Political infighting within the ruling party intensified after the agreement with the IMF, escalating to the point of prompting the resignation of Guzmán and Madias Gulfas, two of Alberto Fernández’s key economic advisers. Since then, the lean system has collapsed, and when the government tried to rise from the ruins with a new alliance between Kirchnerism and the Renewal Front, with a more conservative profile due to exchange rate tensions, a drought came and destroyed everything. Inflation soared 64 percent From June 2022 onwards 108.8 percent April 2023, the same time the parallel dollar rose 238 to do 488 weights, respectively.
The deal with the IMF stopped short of being advertised as a road mapReserve, monetary and fiscal targets were not met due to the drought, and the process orientation of the same agreement by demanding restraints on public expenditure, interest rates and tariff hikes.
China, IMF, Brazil
The government’s new strategy is to close the hole in dollars in as many different ways as possible. As mentioned above, the agricultural dollar will contribute about 4,000 million – Massa’s group is making every effort to add something more-. The Central Bank, AFIP, CNV and UIF work with Foreign Trade, CCL and MEP to cover cracks to avoid speculative and fraudulent maneuvers to extract foreign currency, while encouraging exporters and industries with dollars. Financing their use abroad or paying for their imports.
Other sources are external. At this time The greatest potential for strengthening reserves is provided by the expansion of trade with China. Masa will carry out this task by the end of the month, with between $5,000 and $10,000 million available for free. Officials said there has been progress in the talks.
On the contrary, Discussions with IMF staff have been suspended. The organization’s technical managers are inflexible in meeting targets and fulfill the responsibility of relaxing the treaty’s demands on the fund’s political powers. In the government, they believe that the efforts made by Masa before President Joe Biden and Kristalina Georgieva will be favorable to unlock the supply of 10,000 million dollars. coming months and There would be no authorization to add them to the essential arsenal to intervene in the market and stop deflationary pressures..
If so, the arrangement would be a kind of waiver for unmet targets that would refinance the debt with the IMF and keep it afloat, but it would not provide the firepower to neutralize the run against the peso.
Regarding conversations with Brazil, from the national government, Lula da Silva’s political willingness to support the country with a program similar to the one negotiated with China clashes with the position of central bank officials identified with Bolsonaro, as opposed to taking that step. So, they assume Help from that side is rarely forthcoming.
In this scenario of currency suffocation, Exacerbating the situation is the fact that Patricia Bullrich and Horacio Rodríguez Larreta expect strong demonetization when they become presidents.Because it increases the purchase of foreign currency by companies and individuals. Javier Mili’s attitude is even worseWho wants to get rid of the national currency directly and adopt the dollar instead.
If Milei enters the ballot, there is a risk that investors and savers will largely cancel fixed terms or funds in the peso to run against the dollar. As the interest rate is as high as the current interest rate, the scope for action to curb the delinquency is limited. “One flow can rotate in a week, exposing us to a de facto dollarization situation“, they warn in the Economic Cabinet.
PASO is less than three months away. It is time for the government to master this very complex situation.
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