The government of Javier Milei He has been in office for more than six months, a period in which he was able to show some improvements at the macroeconomic level. After an initial “flash” in December, the inflation is subsiding month after month, the public administration maintains an ironclad surplusa process of cleaning up the balance sheet of the Central Bank is carried out and The issuance of pesos without support to finance the treasury was eliminated. At the same time, the ruling party obtained a political victory this month with the general approval of the Bases Law and the fiscal package, another sign of certainty that was received with optimism by the financial market.
In this sense, there is an ominous variable that remains as a distortion and resists at a high threshold: the exchange gap, in the area of 40%, which makes a prompt exit from the “trap” difficult and, therefore, it is a serious obstacle to the aforementioned deregulation of the economy.
Immediately after the historic devaluation of December 13 of last year, when the official dollar rose 118.3% in a single day – from 366.45 to 799.95 pesos – the Government chose to reduce the gap “by the bad ones”, that is, he recognized the backwardness of the official dollar and at one stroke reduced the distance between quotes by raising their floor.
Simultaneously with the devaluation, on December 13, Decree 28/2023 was published, establishing a new edition of the “Export Increase Program” – in jargon, the so-called dollar. blend-, which allows 20% of the foreign currency received through collections for these operations to be entered through the stock market – at the “cash with settlement” price, while at least 80% must be entered through the market of changes.
This flow of foreign currency from foreign trade – whose surplus was boosted by the devaluation – was enough to oversupply demand and sharply lower the prices of stock dollars – and by contagion, of the “blue” -. Thus, the December 27, the exchange gap hit a floor of 10%not seen since October 2019, which was seen by several analysts as a “window of opportunity” to remove exchange controls immediately.
Such a low gap could not be sustained over time and widened again as the months went by. What were the reasons for this reversal?
1) “Crawling peg”. The Central Bank’s determination to maintain the gradual devaluation rate at 2% per month was initially an incentive for agricultural exporters to speed up settlements, since the dollars collected for said sales were going to be worth more in peso terms the less they were sold. operations will be postponed. Due to the high inflation rates, as the months went by, this inertia was lost, the official exchange rate fell behind and the incentive to liquidate was diluted.
2) Is the “blend” dollar ending? The currency settlement system 80% at the official exchange rate and 20% at “cash with liqui” appeared to have an end date at the end of June according to a report released by the International Monetary Fund (IMF). Part of the rise in financial dollars in recent weeks – the “liqui” reached over 1,300 pesos – was due to speculation regarding an eventual reduction in supply if the differential exchange rate scheme ceased.
The Minister of Economy Luis Caputo considered “unfounded” to these rumors and confirmed that there will be no devaluation, that the scheme of 2% monthly devaluation of the official exchange rate will not be touched and that the exporting dollar would continue in force, although this has not yet resulted in an increase in agricultural liquidations or in the reduction of the gap.
3) Reduction of the interest rate. Within the plan to clean up the BCRA’s liabilities, the Government chose to migrate said debt to Treasury bonds, while facing an aggressive path of cutting the monetary policy rate to deactivate the “endogenous” issuance of pesos due to the exponential increase. of remunerated liabilities, an engine that spiraled inflation. The reference rate fell from the annual nominal 133% when Milei assumed the current 40%, a strong adjustment that was inevitably replicated in the rise of alternative dollars, given the disincentive to remain placed in pesos.
4) There are many more weights. It is clear that the demand for foreign currency is related to the availability of pesos. In this regard, the Government decided to relax the shocking demonetization of the economy and in the last three months the Monetary Base grew 63.6% – from $10.7 billion to $17.5 billion between March 12 and March 12. June -, while monetary circulation – the main component of the Base – increased in the same period by 44.9% – from $7.8 trillion to $11.3 trillion -, well above inflation close to 26% in the last trimester.
It must be remembered that the Monetary Base in terms of GDP had hit its lowest levels since 2002 due to the December devaluation and an accumulated inflation of 90% in the first four months of libertarian management.
The financial analyst Christian Butler He explained that “I think the gap will continue to grow in this second part of the year. It seems that having had inflation traveling as strongly, from 25% in December, as we had in this first part of the year, and a dollar that rose only 2% monthly, also generated a gap there between the dollar and the inflation that is going to be shortened in the second part of the year.”
“You cannot have the prices of the economy rising at that rate, at that speed, and the dollar – which is another price within the economy – does so at such a slower speed. So, as I think they are also going to maintain the crawling peg of 2%, what it will do is that the dollar’s rise will increase the gap. I see that in the coming months the official dollar-financial or free dollar gap will growwhile the gap inflation-free dollar will decrease. Maybe if everything goes relatively well, in 2024 inflation ends up rising more than financial dollars, but it seems to me not to the magnitude that we saw in this semester,” Buteler told Infobae.
The exchange gap sits in the 40% area, still far from the 200% it had reached in the week prior to the October 2023 presidential elections.
Juan Manuel FrancoChief Economist of the SBS Group, expressed that “going forward we continue to maintain the view That the The focus should be on the dollar flows resulting from the liquidation of exports via dollar blend and political dynamics. The latter is key given that fundamental aspects of the fiscal package in terms of income – tax on Income and Personal Assets – were rejected in the Senate and are key to giving some strength to income that this year is on the decline in terms of linked to economic activity, a product of the strong recession.”
Pedro Siaba SerrateHead of Research & Strategy at Portfolio Personal Inversiones, considered that “the The great goal that the Government has now is exchange normalization and the tax issue. At the same time, beyond the comings and goings of the economic team, a foundation is beginning to be laid for what the exit from the stocks could be. Something immediate will not be the same. The risk is lower – something that was tested with the Bopreal series 3 – and the monetary amounts are lower – they are at minimum levels in real terms in the last 20 years – but there is repressed demand for dollars. Therefore, one of the market’s doubts is whether or not the release of the stocks can cause some inflationary jump.
A report of GMA Capital He emphasized that “the Government announced that the objective of eliminating exchange restrictions will not include commitments on dates or specific measures. Thus, the economic team preserves the discretion when deciding on leaving the stocks. At the same time, it reaffirms that this will be executed ‘as long as these measures do not imply excessive risks for the process of reducing inflation and strengthening its balance sheet, as reflected in the Agreement’” with the IMF.
Is this a suggestion that there will be stocks for longer? “He BCRA appears cautious regarding the lifting of restrictions exchange. Perhaps it is because we learned from the experience of 2015, when rapid progress was made with the liberalization of the capital market, but fiscal consolidation was postponed – now it is the other way around -,” they added from GMA Capital.
