Production: Javier Lewkowicz
The ceiling is set by the macro
By Leandro Ziccarelli*
Today, above 300 pesos, the blue dollar (or its legal versions on the stock market) is expensive. Expensive because not even converting all pesos to dollars did we reach that value, but mainly because at that price, Argentina would have the highest real exchange rate in its entire history and would be a low-income country. Something that, as much as some may like the idea, does not make sense.
The problem is not that, the problem is that in the market what is expensive today may be cheap tomorrow. Or worse still, what we consider “expensive” today, tomorrow may be even more “expensive”. I insist, the problem there is not one of supply and demand (which there is), but rather a much deeper one that has to do with the macroeconomic disorder that has prevailed in the country for (being generous) a year and makes it impossible to generate anchors to stabilize the expectations and that this helps to put the parallel market in order.
Proposals such as going to the caves with the police do nothing more than confuse the consequences with the causes. Today more than 1/3 of the economy moves in the informal sector, if to that flow of pesos we add the stock of billions of dollars in mattresses and a gap of more than one hundred percent, we have everything given so that the market parallel exists, grows and operates with its own dynamics.
The blue is not just a quote in a newspaper, but a reference price for an entire economic circuit that moves informally. In other words, behind the caves there is a whole parallel economic system. If that system doesn’t detect anchors in the official system, it goes haywire. It is a very small market and is usually takingr (that is, oversubscribed). If to this usual dynamic we add some uncertainty and expectations of an exchange rate jump in the official, everything quickly gets worse because the little supply that the market may have evaporates, giving way to a demand that makes the price fly, as we have seen these weeks .
Here it is also important to note that the volume itself does not say much: the blue dollar market can move between 3 and 6 million daily, little against the stock dollars that move 70 million on the best day or nothing against the official one that moves 1,275 million gross per day Infimum. But it still works as a reference for the informal. And it would not be the first market that works like this. Without going any further, the Liniers market does not move more than 15 percent of the farm and is also a reference for the entire livestock sector.
Connecting everything, what exists is a logic that feeds back. If the macro is in order, the two markets (official and parallel) can move similarly with a stable gap. But if problems appear in the official market (namely, a BCRA that does not stop losing reserves and issuing pesos) devaluation expectations are generated in said market, this infects the parallel ones, the offer in these markets disappears, the price flies and we return lets start. In other words, contrary to what some officials have argued in recent weeks, the jump in the blue dollar does have an impact on the formal economy. And that second round of impacts generates another round at the parallels. And so we can continue.
The problem is thinking that this vicious circuit ends there, at the tip of the iceberg of parallel markets: the caves. No, to solve it structurally we have to work on the formalization of the economy. Since that takes time, in the short term you can buy some stability by ordering the official market.
How do we achieve that? If the way we have been thinking is not so wrong, there is no other alternative than to generate anchors in the official market. Said in Creole: the ceiling on parallel dollars is set by the macro. If the macro is ordered, selling dollars today at 340 pesos could end up being a great deal. What was it like to sell in October 2020 or February 2022. Needless to say if we measure it in real terms (we clarify since 90 percent of Argentines suffer from the disease of “nominality”).
Specifically, the normalization of the macro has to imply more dollars and fewer pesos in the economy. This can be achieved in the short term, but requires a lot of coordination, political will and technical capacity. For example, if it is possible to converge fiscally towards the IMF’s goals, that would shield the financial program in dollars and decompress that of pesos, where the banks could put what is missing until December, at the same time that the BCRA unlocks grain balances. to settle, the IDB disburses the money that it committed in the agreement with the IMF and the energy demand begins to fall for the season.
Would we be Switzerland? Probably not, but in that scenario a dollar at 340 pesos is expensive, that’s for sure.
* Member of CEPA.
Title 2: Normalize the market
By Sergio Chouza *
The de facto exchange rate split in a multiplicity of segments is one of the biggest distortions in the Argentine economy. Only 2 percent of the countries in the world today maintain a non-unified exchange system, and this is not exactly a list of successful countries. This government has been postponing the exit from this regime, as was proposed during the 2019 campaign. The reasons are various, most of them valid due to imponderable context problems. But it seems to be the right time to think about a path to normalization.
The economic setbacks of de facto splitting are multiple. It is a system that absorbs all the negative aspects of excess demand, but without the benefits of encouraging supply. In recent years, the inefficiency of the system became evident every time the exchange rate gap remained high and volatile:
*Ggenerating spurious incentives in foreign trade. Illegal practices such as over-invoicing and under-invoicing, but also distortions in temporary foreign marketing decisions.
* By transferring income to the financial sector, which has a greater capacity to ‘arbitrate the gap’ and take advantage of the particular conditions of a regime that is very difficult to fully regulate.
* Causing collateral economic damage, since the effervescence in the parallel markets generates expectations of devaluation (of the official) and has an impact on the prices of the economy from increases due to coverage.
Some economists critical of orthodoxy fall into a certain idealization of certain economic policy tools. It starts from the irrefutable diagnosis of the problems caused by an indiscriminate opening of the capital account, but automatically concludes on the need to perpetuate controls as the only mechanism to avoid macroeconomic tensions. The rigidity of segmentation schemes like a trap is high and puts politics in a trap.
The evaluation of exit costs always ends up seeming greater than the benefits, in addition to implying an exposure to internal criticism. Procrastination accumulates imbalances and requires more and more patches, absurd restrictions and further increasing market segmentation. The exchange rate regime becomes an uncontrollable frankenstein that citizens do not understand, producing many distortions and loss of economic efficiency.
The political strength of the new unified leadership of Sergio Massa seems to provide a good context to begin to get out of this macro mess. How? These lines are not enough for an in-depth approach, but a strong idea is raised. A first step in the broad outline could be a formal unfolding, simplifying the entire system to just two exchange rates: a commercial one for the operations of the foreign exchange of goods, and a financial one for everything else. It should be presented as the first link in a comprehensive economic plan, integrating the details of fiscal, monetary and financial policy. Set temporary goals for the trajectory of the exchange rate gap, in addition to defining the strategy of official interventions in each market.
No decision is easy and it is exempt from setbacks. Part of the policy assesses the risk of an eventual price spike in the financial market. On this, first ask yourself if each of the current jumps in the alternative dollars does not cause the same problem. Second, as a hypothesis, there would be the possibility that at a certain price more genuine supply would arise that would put a ceiling on the financial dollar.
The drop in the official exchange rate gap vs. the MEP from the historical maximum of 131 percent to 100 percent only due to the ‘Massa effect’ shock of optimism seems to give an unfolding an even better ceiling. Anchoring expectations and showing results (accumulation of reserves), the convergence of the commercial and financial dollar contingents should naturally occur. At some end point the differences would become insignificant. It would be the ultimate goal for unification.
Politically, one reads two alternatives: build a program now to go down that path and normalize the exchange market, or have a liberal government do it in a disorderly manner on December 11, 2023.
* Sarandi Consulting Director.