Key facts:
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The performance of the currency is key to controlling inflation, according to Bloomberg.
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The Argentine peso was the currency with the best performance in the last three months.
The managing director of the International Monetary Fund, Kristalina Georgieva, recently drew attention to the economic progress achieved by Argentina during the months of Javier Milei’s government. This, while Bloomberg analysts speak of an improvement in the performance of the Argentine peso in the last three months.
Georgieva referred to the situation in Argentina during a press conference held within the framework of the IMF and World Bank Assembly. She noted that the country “is moving forward very quickly.” to adjust fiscal spending and “inflation is falling faster than we initially expected.”
The organization forecasts inflation of 150% by the end of 2024 and 45% by the end of 2025. It is noted in this regard that, although inflation levels they are still high, “a tendency towards stabilization” is observed. As CriptoNoticias reported, this is a much lower prediction than the one proposed by most economists at the beginning of the year, when they calculated an inflation rate of between 200 to 800%.
The board made its statements also taking into account the recent report published by the National Institute of Statistics and Censuses (INDEC) of Argentina, according to which https://twitter.com/INDECArgentina/status/1778860721020788978?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1778860721020788978%7Ctwgr%5E6033242268a6d7fdbd81713b6a59b2a75ff35d1e%7Ctwcon%5Es1_&ref_url=https%3A%2F%2Fes.cointelegraph.com%2Fnews%2Finflation-in-argentina-falls-faster-than-expected-imf-says for the month of March stood at 11%, registering a slowdown compared to the previous months of the year.
These estimates from the IMF and INDEC somehow coincide with what a report published by Bloomberg on April 25 indicates about the performance of the Argentine peso. According to analysts, the local currency has not only stopped sinking, but “it is recovering sharply«.
In that sense, they indicate that the weight registers a 25% recovery against the US dollar in the last three months. “That is more than the gains recorded by any of the 148 currencies that Bloomberg tracks against the dollar,” the publication states, although they refer specifically to the exchanges that take place in the parallel market (known as the blue dollar).
Why is inflation falling in Argentina?
The peso has begun to recover in Argentina after the government announced a “remonetization” process, typical of economies in the recovery phase, which this time would not occur due to an expansion of money in circulation, but on the contrary. consists of stopping the issuance of money.
Javier Milei’s plan is to leave “a minimum of pesos in circulation” in order to make people “take their money out of the mattress.”
In this way, it seeks to apply an inverse process to that which has been used in Argentina in recent decades. In times of greater economic activity, no more pesos will be issued, which is always the Central Bank’s response to the demand for money. On the contrary, the level of the monetary base would remain unchanged. This is a measure aimed at controlling inflation.
Additionally, this rebound in the Argentine peso is also related to the tax cut policy implemented by Milei. A strategy to stabilize the currency that It is key in the plan to control inflation. For this reason, analysts describe the government’s achievement as “a fundamental feat in a country long devastated by rampant inflation.”
Nevertheless, All these achievements are accompanied by social effects and politicians. «Spending cuts have plunged the economy into a deep recession. And as Argentines (who have already been pressured by inflation) lose their jobs, political pressure will increase to reduce their fiscal program,” analysts warn.
«The great novelty in Argentina is that the person in charge is not worried about paying the political cost that austerity entails; “That’s unusual,” said Javier Casabal, head of research at AdCap Grupo Financiero in Buenos Aires. “The government’s objective will continue to be to end inflation.” Even so, there is a risk that inflation does not go down as fast as the Milei team predicts.
All this occurs in a context in which the eighth review of the IMF program applied to Argentina is expected, which should take place in mid-May and which would allow a disbursement of about USD 770 million. To this end, the possibility of a meeting with Georgieva or with Gita Gopinath, the number two of the Fund, who was in Buenos Aires last month and closely follows the evolution of Milei’s economic plan.
