Three weeks ago uncertainty reigns in the picture, although the crisis did not begin on Monday 12 August the errant behavior of current management puts us on alert and the deepening of this crisis is already a fact.
Tomorrow the local pressures in the exchange market will be expressed and just on Tuesday we will be able to see how these policies impact wall Street square (remember that Monday is a u.S. holiday) but beyond the moods of the markets there is a reality that affects us (a) directly to ordinary citizens: the escalation in inflation and the consequent loss of purchasing power of the already devalued wages. The wrong timing
If there is one thing economists agree on is the importance of timing, an economic measure is not good or bad in itself, but has to do with context and the signal that this policy issues to the rest of the economic operators.
In short, the crises of Macrism were not caused by specific or fundamental factors but by sustaining an open capital account model in a country where that does not work. Unfortunately, instead of tempering the problems, official decisions aggravated them. — Matías Rajnerman (@MatiasRajnerman)
August 30, 2019
With an endless August, where reserves fell nearly $14 billion and inflation is estimated at 4/5% per month, and on a September that starts with the tip plugs, it is valid to wonder what would have happened if the measures announced post PASO were you would have taken it sooner.
You can’t answer what didn’t happen but you can explain why they weren’t taken and it has to do just with the ideological stance of the current government, which you took on with a demonization of the exchange rate rate and capital market regulations, as well as strong criticism to what they broadly called “populism.”
Let us remember the regulations to the exchange market that the @BancoCentral_AR eliminated in these years. Let us never forget the consequences of this economic policy. It goes far beyond the #cepo the question.
I leave only the most important: pic.twitter.com/5x2ivNzZlT — Paul Wahren (@p_wahren)
September 1, 2019
However, economic reality requires concrete regulations and policies. The return of exchange controls demonstrates the importance they have in our economy and the risks of exposing the national economy to market humors. Welcome exchange controls, better late than ever. Burning manuals
In the first week post PASO we had announcements of measures that in other years would have entered the label of “populists”. Bond for workers and those who charge AUH, VAT exemption on products from the basic basket and others that aim to improve “people’s pockets”.
Measures that, given the moment they are taken, make it impossible to calculate their actual incidence. These revenue transfers to the most popular sectors should be compared to the inflationary shock that is happening from August after the heavy devaluation of the peso. These policies contrary to IMF handbook were taken in conjunction with the silence of the now former finance minister, Nicolas Dujovne, who that same weekend left his resignation and a legacy of historic public debt, easing in the conditions of entry and departure from foreign capitals and 3 exchange rate runs. >
The hot potato was grabbed by Hernan Lacunza. After confirming the direction of economic policy as if nothing had happened and we were simply facing a more expensive $10 dollar, he said the level between $58 and $62 was the right one for the currency quote. The Central Bank acted accordingly but international reserves continued to drain at an increasingly less effective rate of interest to absorb pesos.
Lacunza: “Surely inflation will be stepped up after last week’s devaluation” — Estefanía Pozzo (@estipozzo)
August 20, 2019
The following week, and in the face of the IMF’s silence on the disbursement of the $5.4 billion (which seem increasingly distant) “re-profile,” this selective default that has no cuts of capital or interest. A default of good manners that seeks to give air to the public debt maturities agenda.
The pressures did not drop and the surprise of an announcement so contrary to the Change manual generated more uncertainty. The Central Bank raised up to 6 times a day to strengthen green supply and keep the price below $62, as well as raising again the interest rate that already found its new record: 83% annual return. The unsustainability of the model was visible in the fall of international reserves and they had to burn what was much of their 2015 campaign, and one of their greatest ideological achievements, the exchange rate trap. Habemus Cepo
While the exchange rate trap has a very bad reputation, and fell under the one used in the last Kirchnerist government, there are many types of traps and exchange controls. It is also true that most countries have regulations for the purchase/sale of foreign currency and the inflow/exit of capital, especially in the region.
The day finally came. There is a means defending the reserves, it was restriction on the purchase of dollars or burning the reserves and conditioning the next government to a much more aggressive debt re-profile. — Rodrigo Alvarez (@RodrigoAlvarezL)
September 1, 2019
The exchange control announced today is aimed at guaranteeing the dollars of small savers, the solvency of the current banking system and avoiding compulsive transfer of pesos to dollars by companies. Added regulation to force exporting sectors to liquidate their currencies to strengthen the supply of dollars in the country (remember that it was Change who eliminated the obligation to liquidate these currencies earlier).
The strongest measure is that companies CANNOT BUY $S FOR TREASURE — Christian Buteler (@cbuteler)
September 1, 2019
While these controls were necessary, and the consequences of removing them demonstrate this, timing is central. The current signal can be seen as a sign of prudence among so much volatility or it can be read from social panic and deepen the drainage of dollar deposits, in addition to generating a new blue market of the currency. In this regard, it is important to announce the increased liquidity of banks in order to face the demand of paper dollar savers and the extension of bank hours with the intention of showing the solvency. In this note:
