Ambito Financiero – Mauricio Macri’s government ends his term by taking several measures that he clearly does not share.
The main of these measures is regarding exchange control policies. After making hard criticisms of Cristina Fernández de Kirchner’s exchange control policies, the Cambiemos government ends up taking the same measure. How did you get to that situation?
Basically the imbalance in the exchange market became unsustainable. What does this mean? That the demand for dollars is high and the supply very weak.
This imbalance generates pressures on the exchange rate. However, it is not the only variable that influences. It also happens that the demand for pesos falls and when this happens, the pesos that are not demanded are exchanged for goods or other currencies (in our case, mainly the dollar).
On the other hand, it can also influence the value of the dollar in the world. The truth is that the demand for dollars is high in Argentina and there are not so many dollars to meet that demand and when that happens, the BCRA must intervene selling reserves if it wants to maintain the value of the exchange rate.
The appetite for the dollar is strong and, in Argentina, it is understandable. It is not that there is a love for the dollar, but that there is panic to the Peso.
Panic to the peso because in Argentina, since the BCRA (Argentina’s Central Bank) was created, thirteen zeros were removed from the national currency.
Panic to the peso because Argentina traded five different currencies.
Panic to the peso because anyone who was born between 1950 and 1955 bought his first toy with Peso National Currency, he invited his first drink with Pesos Ley, he married with Argentine Peso, bought clothes for his son with Australes and gives gifts to his grandson with the current Peso Argentino.
With this track-record, panic is created towards the peso, because a currency that constantly loses its value (remember, we lost thirteen zeros from 1900 to 2019) flows into a kind of “Pavlov reflex” to protect itself, and one way is to buy dollars.
Specifically, the demand for pesos falls and the demand for dollars increases. Measures of the central bank in recent months, the foreign exchange market was “artificially balanced” because the Treasury sold $60 million a day, because seasonally they entered agro-dollars and because the carry-trade had returned somewhat.
As soon as these variables were yielding, the supply of dollars fell without being able to meet the demand for dollars, with the aggravating factor that the demand for pesos continued to fall.
Thus came the first exchange control where a ceiling of $10,000 was established for individuals. However, the BCRA continued to lose reserves because people kept buying dollars.
Finally, after the October elections, the stocks deepened. Now, you can only get $200 if the operation is done through a bank account, or $100 if the purchase of dollars is in cash.
It is more than clear that the measure is taken in a context of urgency by the delicate economic situation. In addition, if the priority is to take care of the reserves, with the exchange rate it prevents people from buying dollars by giving air to the reserves of the Central Bank.
But, this does not mean that it has no consequences. The exchange controls are not good news for the country. In the first place, because if the dollars cannot leave, then they will not enter either. It is an instinctive matter, nobody is going to enter a place from which he cannot leave.
On the other hand, the exchange control policies are nothing more than a maximum price to the dollar and as any maximum price has economic consequences. The true value of the dollar will be closer to the dollar counted with liquidation than the official dollar.
The deeper the exchange control, the greater the trend of the gap between the alternative dollars and the official one. And if there is something that demonstrates the history of Argentina is that the exchange market dances to the beat of the alternative dollar.
Whenever there was exchange control, when the situation became unsustainable, the official dollar ended up losing purchase power converging towards the value of the dollar counted with liquidation or the parallel dollar. Since experience shows this, the expectation is that sooner or later a devaluation will come.
If Argentina does not go the way of facing structural reforms to build trust, so the economy grows again and can have a normal exchange market, then they will continue taking measures that address the urgent and not the important; In other words, patches.
If the line to be followed is this, then it is probably convenient to split the exchange rate instead of an exchange control, where at least people have the freedom to buy dollars, at a higher price, but continue with the freedom of being able to protect yourself from a currency (the peso) that all you can expect is lose value. Because, in short, what exchange controls are looking for is not that dollars are not demanded, but to force us to use pesos, the currency that loses value.
By Ivan Cachanosky