November 24, 2021
November 23, 2021
November 21, 2021
After the PASO primary defeat in September, the Argentine government’s diagnosis was that the ruling coalition had lost mainly because of the economy. The sentiment was expressed explicitly by Vice-President Cristina Fernández de Kirchner in a letter in which she spoke of wage arrears and uncontrolled prices, while criticizing the fact that in the midst of a delicate social situation, the deficit August was only 2.1% of GDP.
Despite focusing its post-PASO efforts on the economy, the government has received two bad news as the campaign enters its home stretch. On Thursday, just three days before voters go to the polls, October’s inflation rate will be released by INDEC’s national statistics office. According to private consultants, it will be between 3.2% and 3.6%. Meanwhile, tensions are mounting on the currency front, with the so-called ‘blue dollar’ hitting an all-time high last week due to greater hedging amid political uncertainty and rumors of a post devaluation. – imminent election.
The government’s strategy to moderate inflation has failed and the exchange rate differential (between the official market and the parallel market) is close to 100%. The blue dollar this week hit the psychological barrier of 200 pesos – a value that the Alberto Fernández administration wanted to avoid. Economists warn that this could have an additional impact on some prices.
This disturbing combination, coupled with the lack of progress on an agreement with the International Monetary Fund (IMF) last week, pushed Argentina’s “country risk” rate to its highest level since the debt swap. in September 2020.
Why and how did this situation arise? Economists argue that there was “a misdiagnosis” on the part of the Fernández administration and that the measures adopted after PASO by officials – such as price controls, printing money (to fund the ‘Platita map‘) and the tightening of exchange controls – have only further “deteriorated” inflation expectations. Add to that the fears of a devaluation, as well as the rise of internal strife within the ruling coalition following its defeat in the primaries, and there are clear doubts about the country’s leadership after November 14.
Juan Luis Bour, chief economist at FIEL, said Perfil that “the diagnosis was wrong: they thought there was not enough deficit and therefore an increase in spending financed by emissions, which accelerates inflation and widens the gap”.
Soledad Pérez Duhalde, from Abeceb, expressed the same opinion. “The diagnosis is wrong and the economy cannot be fixed in two months.” she said. “They are approaching the elections badly because the combination of measures and post-PASO internal politics created more uncertainty. The only thing they did was control prices, which further dampens expectations.”
In this regard, he said that “tariff flattening and a price freeze may serve to dampen inflation in the short term, but that makes us rule out future corrections.”
According to Abeceb’s estimates, inflation has a floor of 50% next year due to the level of issuance that will be needed to finance a 3% deficit, but in a negative scenario (a devaluation jump), it could end up at 61%.
Pérez Duhalde questioned that “in economic terms, there is no effective fiscal, monetary or exchange rate anchoring”, while stressing that “the ‘mother’ of all anchors which is lacking, c ‘is the policy: with a weakened government and tensions within the ruling coalition, there is no clarification on the direction of economic policy, the agreement with the IMF is on hold and no stabilization plan is in place. seen.”
Sebastián Menescaldi, Eco Go, agrees that “there is a deterioration in devaluation expectations going forward and this is having a negative impact on the exchange rate and inflation. We increase the price preventively because you don’t know what’s going to happen. after the elections. “
Aldo Abram, of the Fundación Libertad y Progreso, said that “the increase in emissions causes the value of the peso to depreciate more and more” and that with “the excess of money in the pocket, the trader, the industrialist, because of the uncertainty to come, is to put it on the foreign exchange market. ” In this context, he predicted that the “blue dollar” would reach 220 pesos by the end of the year.
For Andrés Borenstein of EconViews, the government “approaches inflation in a way that everyone knows it doesn’t work. Between the question and the inflation and devaluation expectations implicit in the blue and the CCL [exchange rate market], there is no anchor. “
According to him, “we have come to this because the government does not speak coherently. One day he said to businessmen ‘we are going to agree with the IMF’, [it says] ‘we are not going to kneel down’. If after the elections, the government unites a discourse of quickly concluding an agreement with the IMF, the alternative rates could fall, “he said.
Menescaldi agrees that in order to provide certainty, it is important to reach an agreement with the IMF “as soon as possible”.
The economist Iván Carriño attributes the uncertainty to “the post-PASO attitude of the government, with a radicalization of speeches, in accordance with the camper vision of the economy that prices must be controlled and that there is no need to pay the IMF.
He explains: “This creates more uncertainty, and investors are taking refuge in the greenback.”
As to whether the so-called ‘Platita map“(having money in your pockets) will turn into more votes for the ruling party on November 14,” Menescaldi said: “This implies 0.3% of GDP. There has been an improvement in income to very low levels, [but] it did not feel in the pocket, [and] this did not translate into an increase in consumption. I believe it was used to pay off debt or for small savings. ”
Impact on prices?
Contrary to statements by presidential spokeswoman Gabriela Cerruti, economists warn that a blue dollar at 200 pesos per greenback and an exchange rate differential close to 100% could be transferred to prices.
Abram explained that “it is true that it will not affect the prices of tradable products at the wholesale exchange rate, but there are a lot of goods that depend on the parallel market because they do not sell at the official dollar rate. “.
Federico Moll, Ecolatina, said that the extreme gap between official and parallel rates “would affect the transactions of companies that cannot access the official dollar and also the expectations of suppliers who have to decide on prices”, as well as exporters who delay “to sell and wait for a surge in exchange rates; and importers who, for the same reason, seek to import as much as possible.”
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