The former Minister of Economy Sunday Cavallo referred to the delay of the official dollar, explained what the main requirements are for lift the trap and what value the exchange rate should be in order to add reserves.
Furthermore, he proposed imitate the monetary system that “has worked very well in Peru”. He also said the government was unlikely to reach a new deal with the IMF this year.
How long does it take to lift the stocks on the dollar, according to Domingo Cavallo
“To move towards the unification of the official exchange rate and the free exchange rate, the crawl rhythm with which the official exchange rate is adjusted and the interest rate in such a way that the gap tends to close. From the meeting of the two types of changes, the monetary system would begin to function as currency competition and managed flotationimitating the monetary system that has worked very well in Peru,” evaluated the economist.
According to Cavallo, as the Minister of Economy, Luis Caputo “denies that these changes will occur during the year ongoing unless a new agreement is reached with the IMF that means providing fresh funds to reinforce reserves,” that is,unlikely to find a favorable climate to that type of negotiation with the Fund if it does not first adopt measures to increase the reserves”.
“What without a doubt is not going to happen is that in the coming months all exchange restrictions will be completely eliminated and the unification and liberalization of the exchange market is decided, admitting a significant devaluation of the peso,” said the former head of the Treasury Palace in his personal blog.
At your discretion, 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 he fears that doing so could lead to an exchange rate jump capable of destabilizing the macroeconomy again,” something that could occur, he estimated, next year.
For Domingo Cavallo, the exit from the dollar stocks is not going to happen in the coming months
“Changes are expected in exchange rate policy”
Cavallo also highlighted that the IMF, orthodox economists and investors “expect important changes in exchange and monetary policies.”
“The main objection to the simple continuation of these policies lies in what is considered an exaggerated real appreciation of the peso in the official market and in the low net purchase of reserves by the Central Bank that is expected from June due to the derivation of 20% of export income to the CCL market,” he added.
In that sense, he commented that the report from the staff of the Monetary Fund suggests “eliminating this referral to 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 was reduced 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.
