According to Alvarez Agiz, the government will come out of the trap in the last quarter of the year

In a presentation organized by Portfolio Personal Investments (PPI), Emmanuel Alvarez AgizThe head of consulting firm PxQ and a former deputy minister of the economy, painted a macroeconomic picture that is very difficult for the government to address, which he technically defined as “dynamic inconsistency” because the economy cannot remain stable over time.

“At the beginning of the La Libertad Avanza government there was an important challenge for all analysts: we only had the content of the dollarization and chainsaw campaign. Then fortunately something completely different emerged, the new challenge of knowing whether this is a plan, a plan in phases, an emergency plan or whether dollarization is really behind us. gave us.

However, he continued, over time it began to become clear where the government was going, which began to “hide” or put the dollarization discourse on a more distant horizon.

“We’re starting to hear more and more that we’re going to a currency competition; that term is very appropriate for the president because it includes an old idea from Hayek, his theoretical, political and economic point, in a super interesting 1978 book titled “The Nationalization of Currency” that Europe shouldn’t go to the euro. That said, for a central bank, the private sector has to go back to issuing its own currencies, usually bank currencies, when Milei takes it, but in today’s world we can’t (yet) choose that currency, which is the best central bank in the world. People can decide.

At the end of the day, Agis said, “currency competition” in Argentina is essentially getting out of the trap. “So, if I exit stocks, as a saver or company or person I will decide whether to buy dollars, yuan, reais or pesos. As an exporter, if I hold dollars or liquidate them against pesos. Don’t enter into a twist: currency competition is any Being free to decide whether to trade or save the currency, he explained, “if that is the intention of the president, this (current plan) is not a definitive program because it has the same restrictions.”

It is clear that the government wants to get out of the trap, but there are difficulties in doing so because it has taken $12,000 million in negative reserves and needs positive reserves to get out. At least USD 2,500 million, the country risk is 1,900 basis points, which should be reduced by not more than 700 USD, whose purchasing power is greatly reduced due to inflation and inflation or excess. The central bank exceeded 10% of GDP.

The economist described the evolution of these variables during the four and a half months of the government’s administration and pointed out that the government must leave with some pesos and many dollars to get out of the trap, because if the exchange control is removed it is a problem of the exchange rate depending on the amount of currencies and dollars.

BCRA has continued to be a creditor even though the government reduced the “expanded monetary base” by 31% since its inception, but with a certain illusion that it reduced central debt by transferring it to the Treasury. The last resort is through put mechanism held by private banks. “If BCRA counts those points as credit, I will not move forward. I change the drawer loan; “The central bank is not indebted, but the treasury, but the lender of last resort is the PCRA,” he insisted. For this reason, he pointed out, the government “solved” a problem by creating a similar problem, which he gave as an example in the case of commercial credit: it is almost the same as the accumulation of reserves by the central bank. He pointed out that the same thing happened in January-February this year, just as the previous government defaulted on 90% of imports in 2023 and forced the private sector to borrow.

“Reserve accumulation,” he summed up, was “new credit,” through, among other things, the Boprial mechanism, in which the central bank absorbed pesos and issued a dollar bond between importers and SMEs. He pointed out that May should be allowed to reach the big liquidation of the rough harvest. The problem, he continued, was that the harvest was good, but the settlement value for BCRA would be about USD 24,000 million (about USD 6,000 to be settled through CCL), better than USD 19,000 in 2023. Suffered from severe drought.

The economist, meanwhile, said the dollar is losing purchasing power, and at a rate that will be lower than the government envisioned with the “real exchange rate” by mid-year, “the soybean exporter is not. It’s more comfortable.”

Minister Caputo insists that there will be no new devaluation and that the peso should appreciate, but according to Aziz he is making false comparisons and “putting the cart before the horse” because the current relative value of the peso against the dollar is not due. Improvements in productivity occurred during the transition. “The government must have a plan B to get out of this mess,” he warned.

Likewise, whoever is Deputy Minister Axel Kisyloff When he was the nation’s economic minister, he compared the first quarter’s financial results. He noted that 40% of that was due to the liquidation of pensions, 20% to cuts in public works, and 14% to official decisions not to pay off loans to power producers through COMMESA. And, he asserted, the surplus thus obtained is now beginning to be threatened by recession, which has resulted in an 8.5% year-on-year drop in actual collections.

This is a situation that will last only “for a while”, although it could be improved if the government approves the Basic Law, and due to tax measures in the fiscal year, there is a shift from expenditure to improvement in income. Collection.

Even so, Aziz stressed, it is a difficult situation to sustain socially, as the minimum pension is at a historically low level, while private salaries are at “historically and ridiculously low” levels, a situation that worsens. They are not socially stable positions over time, he emphasized.

The economist came to this conclusione plan faces a combination of financially unsustainable stocks and socially sustainable pensions and salaries.. And if the real exchange rate (i.e. the dollar’s purchasing power) rises to drive equity outflows, the problems will only get worse, he said. Because of this, he continued, Caputo insists that there will be no devaluation. “The official macroeconomic regime is stable in terms of interactions of fixed variables, but I owe a lot of credit to its stability in dynamic terms,” ​​he said.

Agis said the fourth quarter of this year would be the best time for the government to try to get out of the trap if some prices like fuel, healthcare and tariffs can be “stabilised” first. This will help, he said, with the approval of the Basic Law and “through the Big Investment Incentives (RIGI) regime, the government achieves a good amount of dollar income, but it is doubtful that this will happen because those dollars take time to come”.

The fourth quarter would be the perfect time to get out of the trap, the economist concluded, because it is the period when pesos are in high demand and because, “no matter how free it is, it is not possible to make important corrections in a short period of time.” Election year.