How likely is the government to avoid a devaluation, according to economists?

File photo. One hundred US dollar bill on several hundred Argentine peso bills. Sep 3, 2019. REUTERS / Agustin Marcarian / Illustration

Much has been discussed in recent hours regarding the possibility of the Government carrying out a devaluation in a context in which the central bank it has a shortage of liquid reserves and dollars are missing as a result of the field having already liquidated a large part of the foreign exchange for this year’s harvest. Looking ahead to 2022, the 23% devaluation carried out by the former BCRA head resonates, Juan Carlos Fabrega, in January 2014, when the current governor of Buenos Aires, Axel Kicillof, was Minister of Economy. In that framework, Economists consulted by Infobae raised different scenarios for the coming months and evaluated the possibilities of the Government to avoid a strong depreciation of the peso.

Matías Carugatti, executive director of Seido, told this medium that in the absence of a comprehensive and coherent macro plan, the chances of avoiding a devaluation “depend on having enough firepower to contain the pressures”. In this sense, he stressed that strengthening the stock of reserves would be critical to keep the rate of depreciation under control.

As the outlook looks today, the chances of a modest jump in the exchange rate are relevant. Even more so when the government proposes not to move the interest rate but to accelerate the rate of depreciation of the official exchange rate. The risk of this strategy is that the acceleration results in a discrete jump, as happened at the beginning of 2014″ He raised.

“The possibilities of a discrete jump in the exchange rate are relevant. Even more so when the government proposes not to move the interest rate but to accelerate the rate of depreciation of the official exchange rate ”(Matías Carugatti)

In that sense, he said that an agreement with the IMF is a necessary but not sufficient condition to avoid a scenario of an exchange rate jump given that “a plan can anchor expectations, but then it is up to the government to implement it correctly.”

“All this assuming that the plan has a correct diagnosis of the situation and the necessary solutions,” he added.

To its turn, Sebastián Menescaldi, director of Eco Go, affirmed that if the Government manages to reach a quick agreement with the IMF, the possibility of avoiding a devaluation will depend on the consistency of the program.

If the agreement manages to generate confidence, mainly through a recomposition of the net international reserves, it is feasible that with a crawling peg (a progressive devaluation of the currency and controlled by the Central Bank) somewhat faster, it is possible to avoid a depreciation of the currency”, He assured.

While he remarked that, on the other hand, if a quick agreement is not achieved, “it is possible that the government decides to follow an inconsistent exchange rate policy and that the noise generates the need to drop the exchange rate at some point to reduce the exchange rate gap and once again improve the external position ”.

“We have a gap that is 100% between the official and parallel exchange rates. This is mainly due to the lack of credibility of the Government. The possibility of avoiding devaluation is nil ”(Agustín Etchebarne)

“This is because if exchange rate expectations are not anchored, the Central Bank will see its position sharpened by lower liquidations from exporters and higher demand from importers, weakening it even more,” he analyzed.

Meanwhile, according to the brokerage Portfolio Personal, the context is not encouraging given that “the gap remains high (110%) and reserves are too limited”. In this context, he indicated that the pace of negotiations with the IMF “is key” given that until the fine harvest, the entity has net reserves of around USD 4,300 million – and estimated liquid reserves at below USD 600 million, touching its lowest level since the beginning of March ”.

“Therefore, in the short term, it will be challenging for the Central Bank to be able to rebuild them or, in the worst case, not to continue losing them. In the meantime, the real exchange rate pierced the pre-devaluation levels of January 2014 in the last week″ He warned.

In turn, the director of the Fundación Libertad y Progreso, Agustin Etchebarne, said to Infobae that “there is not a fundamental problem of the exchange rate, but the problem is one of credibility.”

“We have a gap that is 100% between the official and parallel exchange rates. This is mainly due to the lack of credibility of the Government. The possibility of avoiding devaluation is nil because the data from both the Treasury and the Central Bank are very negative. To that you have to add that the Government is not doing anything to give a signal that there is going to be a significant change, “he said.

And he added: “If you look at the remunerated debt of the Central Bank, which are the Leliqs and the passes, and you suppose that they do not devalue and project yourself for twelve months, you will find that adding the fiscal deficit plus what you have to pay for the rate interest, the paid debt would rise to 250% of the monetary base. It is a snowball that requires some type of adjustment that will surely be some type of devaluation”.

It should be remembered that in the last hours, the government’s message regarding a possible devaluation was somewhat contradictory. While the president of the Central Bank Miguel Pesce said that to the extent that the inflationary process allows it, they will change the devaluation step that they have had until now, the spokeswoman for the Presidency of the Nation, Gabriela Cerruti, said that “there is, for the moment, the idea of ​​any type of devaluation” of the exchange rate, and stated that currently “the gap between dollars is smaller than at other times of the year.”

For his part, the Minister of Economy, Martin GuzmanHe assured when presenting at the CGT on the government’s multi-year plan and the negotiations with the IMF that Argentina “is not going to sign any adjustment agreement”, but rather an arrangement that will prioritize “economic recovery.”

In that sense, Nicolas Zeolla, an economist at FIDE, told Infobae that despite the tight situation of the external sector and the uncertainty generated by the negotiation process with the IMF “there are many room for maneuver to avoid a devaluation”.

“From the point of view of the current account and the supply of dollars, the trade balance is in surplus. From the point of view of competitiveness, the real exchange rate is at historically high values ​​and does not indicate the need for any correction. The 210-peso dollar is not a reference for the real economy and would indicate a value of the real exchange rate higher than that of the exit from convertibility, “he said.

“There are many room for maneuver to avoid a devaluation. From the point of view of the current account and the supply of dollars, the trade balance is in surplus. From competitiveness, the real exchange rate is at high values ​​and does not indicate the need for any correction ”(Nicolás Zeolla)

“Strictly conjunctural, we are going through months of seasonally few dollars because the thick harvest ended. However, we expect this to tend to partially offset in December when wheat dollars enter.. According to industry estimates, exports would be between 30 and 35% higher than a normal December or January. That is why the Central Bank should rebuild reserves ”, he stressed.

Structurally, I consider that exchange controls are reinsurance so that devaluation pressures can be managed. I believe that renegotiation with the IMF is a necessary condition to clear the maturity horizon, even in the short term, and to moderate uncertainty and the demand for financial dollars.

Finally, Federico Moll, from the consulting firm Ecolatina, told Infobae: “It is clear that the path we have traveled so far is unsustainable. The government no longer has reserves or more traps to apply if it wants to have a minimally functional economy between now and 2023. The exchange competitiveness lost in the pre-election period has to be recovered”.

“The government believes that it can accelerate the rate of depreciation and gradually gain competitiveness, but for this to have any chance of success it must rethink its monetary policy. If interest rates continue to be so negative in real terms and in the face of the expected devaluation, there is no incentive to stop demanding dollars and, therefore, the drain on reserves will not stop. This dynamic is what we saw at the end of 2013 and culminated in the exchange rate jump in early 2014 ″, he assured.

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Reference-www.infobae.com

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