Ambito Financiero – The most consulted economic texts deal with free and advanced societies. That is why economists are not educated in the importance of the particular context. One thing is monetary policy in competitive societies, like the US and advanced nations, where there are ample credit markets and macro conditions are less destabilizing. And another in Argentina, where the rulers demand to use a depreciated currency, the peso, which has already removed 13 zeroes since 1970. While in the US a 5%-of-GDP deficit raises interest rates slightly, in Argentina it would cause the default of debt, the largest financial and even political catastrophe. A measure of mistrust: The residents of the country maintain 75% of their financial assets in currencies. In the hour, the IMF rescued us.
Now, from the peak of the end of September dollar, the currency stabilized and people are a little more quiet and lively. Well, our favorite currency is the dollar, but they force us to use the weight. Each time the weight is depreciated, all the accounts are broken and the population feels violent. In these conditions, it is funny to listen to forecasts as if the future did not depend on BCRA and politics.
For instance, in January they felt that this year would be quiet. BCRA published that expectations (REM) were 16.5% for average inflation and a dollar of 22 pesos as the end of 2018. Obviously, the facts were completely diverted. Since the onset of the crisis, 23/4/2018 to 1/10/2018, BCRA expanded the monetary base by 80% and issued pesos to cancel the Lebac! The furious devaluation cannot be a surprise. Even worse, if the BCRA had not sole 13.541 billion dollars, the current price would be three digits, pushing the abyss of hyperinflation and its political and social derivations. For a quiet future, we need exchange certainty.
Since October, BCRA does not issue money to finance the government and other internal entities, fulfilling a necessary condition to stabilize the dollar. It establishes high interest rates to discourage the purchase of dollars. You can’t put them down because of the lack of confidence in your program. We propose a decisive injection of confidence by modifying the rule of exchange intervention. BCRA should be committed to selling and buying dollars unlimited, at a fixed price for a long time, with a minimal difference between buying and selling. The IMF forbids it because it does not want the credit granted to finance the purchase of dollars, rather than securing payments to external creditors. It does not link exchange rate stability with financial solvency. Even more, to the extent that the commitment not to issue was credible, the IMF would know that every dollar sold would contract monetary circulation, so it would not be funding a stampede of country funds. It is the task of our authorities to convince the IMF of the sustainability of the rules we propose, practically the convertibility that worked so well for 10 years. If the IMF does not trust us, what do we expect from investors?
The daily verifiable commitment to buy and sell currencies to a long-term fixed quote would lower inflation and hit interest rates, restoring trust and activities. The monetary balance, the equality of supply and demand of monetary basis, would be assured, even with the high volatility that characterizes it. The times when the offered loan to demand, people would buy dollars in exchange for pesos, which would be deducted from circulation. Automatically the balance would be reset. When the demand loan exercised an offer, the market would sell dollars to the BCRA, and the emission would increase in that exact amount. The consistency in the dollar quote would make both currencies better substitutes.
This confidence would stimulate productive activities and people would feel more satisfied. My new end of poverty book explains the other conditions to make us more prosperous.
Published by Ambito Financiero on the 1st of november
