The economist highlighted the risks involved in the current situation of the economy. Issue, reserves, dollar and inflation in the context of the pandemic
The economist Ricardo Arriazu He analyzed the current situation of the Argentine economy and issued a disturbing warning.
According to the consultant, the paralysis of the activity caused by the quarantine results in a scenario very similar to the days before Rodrigazo, which was a sudden devaluation in 1975, which had the effect of an inflationary crisis of magnitud.
In an interview with the LN, Arriazu was asked to assess whether the country’s current moment was more like the hyperinflation crisis of 1989 or the post-convertibility crisis in 2001 and 2002. The economist replied that “in reality it lacks a more, which is what happened in 1975. And it is the one that this context most resembles “.
He added: “In 1973, the government entered with a fiscal deficit of 3.5 of GDP and a small trade surplus. It made a program in which it basically increased wages, froze prices, exchange rates and tariffs. And it made a huge Credit expansion. As the economy was closer to full employment, this credit expansion produced an increase in economic activity, a deterioration in the external sector and caused the gap to increase in the parallel. “
“At that time there was an external event, which was the tripling of the price of oil. That produced a drop in the prices of raw materials of 35 percent. And Argentina immediately went on to have a trade deficit where it previously had a surplus. With the addition of tourism, it began to lose reserves. The value of the parallel went four times to the value of the officer, and when they ran out of reserves the Rodrigazo came“, full.
Regarding the coronavirus, Arriazu said that “humanity is facing one of its greatest challenges: a pandemic and an economic implosion. All trade, which is 80 percent of the world’s Gross Domestic Product (GDP), is being destroyed.”
On what can be done from governments, he stated that “the first thing to do is avoid conflict and social collapse. The second: companies must be saved. Once this is done, it is necessary to avoid that monetary expansion generating inflation. And for that it is essential to take care of the fiscal surplus that we have “.
“What we are trying to do is first of all give income to the people who lost when the GDP fell, and give money to the companies so that they do not fail. In some countries, for example, in the United States, the Federal Reserve expanded in three weeks what would be its assets, the monetary base, by 46 percent. In Argentina the growth of the monetary base was 41 percent, “he explained.
However, he assured that “the great difference is that in the United States there is trust, it is a country that has history, leadership, that believes in itself.”
“And Argentina is a country that has no currency, has no credit and has no reserve. But Argentina has some strengths. The main strengths are a low level of monetization (there are no pesos to buy dollars). The most important is that it has a trade surplus, which is what allows an explosion with that emission. And the third is that relative prices are relatively tight. And the Argentine fiscal situation at the beginning was the lowest in Argentina, “he added.
Arriazu also drew up some guidelines for what he considers actions to be taken: “We must prevent the monetary expansion from generating inflation. And for that it is essential to take care of the fiscal surplus that we have.”
“A clarification: all the hyperinflations in Argentina were the result of the government running out of foreign exchange and the official exchange rate exploded. If there are reserves and the official exchange rate does not explode, there is usually no hyperinflation“he continued.
“Obviously, such a monetary issue takes a turn for the parallel dollar and raises its price, and that gap generates a number of factors to extract dollars from the Central Bank. But Argentina has a strength there that it must take care of. And when I say take care, it is not closing the economy. There is talk of the Great Depression of the 29th. And one of the big mistakes of that was that on the second day they closed the economy. This time they are not doing that, “he concluded.
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