The former Minister of Economy, Sunday Cavalloproposed a strategy for exiting the exchange rate and put a price on the dollar when that happens.
“To move towards unification of the official exchange rate and the free exchange rate “The pace of the crawl with which the official exchange rate and the interest rate is adjusted should be managed in such a way that the gap tends to close,” the economist assessed in a publication on his personal blog about the government’s expectations for the second semester.
And he added: “From the meeting of the two types of exchange, the monetary system would begin to function as ccurrency competition and managed float, imitating the monetary system that has worked very well in Peru”.
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What are “puts” and why do they condition the exit from the exchange rate according to Milei
In its opinion, the economic team “shows no rush to remove exchange restrictions “both to trade in goods and to trade in services and the movement of capital because they fear that doing so could lead to an exchange rate jump capable of destabilizing the macroeconomy again.”
For the former official of the governments of Carlos Menem and Fernando de la Rua, “the idea of moving towards a new monetary system with competition between the peso and the dollar and endogenous dollarization that President Milei repeatedly announces would be postponed, at least until 2025, to complete the transformation of the remunerated liabilities of the Central Bank into Treasury debt”.
However, Cavallo considers that both the IMF and orthodox economists and investors “do not seem to share this optimistic projection of the government and “they expect important changes in exchange and monetary policies.”
Exporter dollar
“The main objection to the simple continuity of these policies lies in what is considered an exaggerated real appreciation of the peso in the official market and in the scarce net purchase of reserves by the Central Bank that is expected from June due to the derivation of 20% of export revenues to the CCL market”he added.
In that sense, he commented that the report from the Monetary Fund staff suggests “eliminating this derivation towards the CCL market of that 20% and offset its effect on the effective export exchange rate, by an adjustment of the official exchange rate of around 10%”.
“It would mean placing it close to $1,000 per dollar. If, at the same time, the country tax were reduced from 17.5 to 7.5%, the inflationary impact of the increase in the cost of imports could be avoided. It would be a perfectly compensated devaluation that would allow the Central Bank to buy the reserves that until this change were derived from the CCL market,” he explained.
Regarding the relationship between the economic team and the IMF, Cavallo said “for the moment, the Minister of Economy (Luis Caputo) denies that these changes will occur during the current year unless a new agreement is reached with the IMF. which means providing fresh funds to reinforce reserves. But It is unlikely that he will find a climate favorable to that type of negotiation with the IMF if it does not first adopt measures to increase reserves such as those we have just described.”
LM cp
