why the government could decide to jump the dollar

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For the former economy minister, one of the issues that generate uncertainty is the suspicion that a new devaluation will occur

The Economist Domingo Cavallo he spoke again about the dollar and affirmed that one of the questions that generates the greatest uncertainty at present is whether “the government will manage to avoid a devaluation jump before the 2021 election. ”

In fact, the former Minister of Economy of Menem y De la Rúa maintained that There are two types of arguments “that lead us to think that the government could decide a devaluation jump in the second semester this year or early next year

This was expressed by Cavallo in a post made on his personal blog, in which he also stated that the Government “installs debates that obscure the political landscape and show that the President changes his mind according to the occasion.”

The reasons for a dollar jump

According to Cavallo, the reasons that exist today to think that the Government will devalue are the following:

– “One has to do with my argument that, if the government decided to face a good reorganization of the economy and were able to formulate a comprehensive stabilization plan and confidence-inspiring growth should start with an honesty of the relative price structure, which should certainly include a currency jump beginsl “.

– “Another is the one suggested by officials and analysts who think it would be convenient to reproduce the twin surpluses that generated the decisions of Duhalde at the beginning of 2002, to obtain results of disinflation and reactivation like those that were achieved from 2003 “.

“My impression is that the first type of argument will not even be taken into account and the second type of argument will be discarded because, since the economy in 2020 did not have the accumulated savings buffers in the banking system that existed at the end of 2001, they will not find a way to make it compatible with the populist praxis of the coalition that today governs“, evaluates Cavallo.

And he adds: “For this reason, I believe that the management of the economy, until the next elections, will be based on controls of all kinds, who will try to suppress inflation and redistribute income, even at the cost of accumulating an unsustainable situation after the elections. A sort of Plan Gelbard in the Kicillof-Moreno version. ”

For Cavallo, “the big question” is to see “whether such a strategy can be sustained for the next 14 months and avoid exhaustion before the elections.”

Cavallo believes that a new stabilization plan should have a rise in the initial dollar.

The complete text of Cavallo

What will the exchange rate management look like between now and the 2021 elections?

Uncertainty for the future increases, not only because the quarantine seems to extend indefinitely as the pivot of the fight against the pandemic, but because the government, instead of moving towards a better organization of the economy and society, installs debates that darken the political landscape and show that the president changes his mind depending on the occasion.

Among the questions that generate uncertainty is the question of whether the government will manage to avoid a devaluation jump before the election of 2021.

There are two types of arguments that lead us to think that the government could decide a devaluation jump in the second half of this year or at the beginning of next year.

One has to do with my argument that, if the government were to decide to face a good reorganization of the economy and were able to formulate a comprehensive stabilization and growth plan that inspires confidence, it should start with an honesty of the relative price structure. , which, without a doubt, should include an initial exchange rate jump.

Cristina

Cavallo believes that Fernández follows the “interventionist and isolationist ideology” of the “Cristina” Kirchnerism.

Another is the one suggested by officials and analysts who think that it would be advisable to reproduce the twin surpluses that generated Duhalde’s decisions in early 2002, in order to achieve disinflation and reactivation results such as those achieved since 2003.

The first type of argument would be relevant only if President Alberto Fernández radically changed his speech and his way of governing, detaching from the statist, interventionist and isolationist ideology that characterizes Cristina’s Kirchnerism. I see no possibility of that happening.

The second type of argument is currently being discussed between government economists and some external analysts who consider the experience of Duhalde-Lavagna (and Kirchner’s first two years) to be desirable and reproducible.

My impression is that the first type of argument will not even be taken into account and the second type of argument will be discarded because, since the economy in 2020 did not have the accumulated savings buffers in the banking system that existed at the end of 2001 They will not find a way to make it compatible with the populist praxis of the coalition that today governs.

For this reason, I estimate that the management of the economy, until the next elections, will be based on controls of all kinds, which will seek to suppress inflation and redistribute income, even at the cost of accumulating an unsustainable situation for after the elections. A kind of Plan Gelbard in Kicillof-Moreno version.

The big question is whether such a strategy can be sustained for the next 14 months and avoid exhaustion before the elections.

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