If the evolution of the value of the dollar in Argentina is analyzed, it becomes evident that there is an exchange delay. In what range would the correct price be
Recently, there have been many speculations in networks that, in the absence of dollars in reserves, the Central Bank could take deposits from the private sector to rebuild its position in foreign currency. The truth is that private sector dollar deposits they are heavily protected by the high liquidity of the banks and something like this is unlikely to happen. Above all, because that would be a solution to the wrong problem.
The problem is not that dollars are missing, but that shortage of foreign currency at the official exchange rate. It is a matter of price, do not give shortage. It was the government itself, when talking about the lack of dollars, the external restriction and ignoring the question of the exchange rate, which got into this mess.
As the exchange rate is analyzed, it can be seen that there is a delay in the official exchange rate. The most obvious of all signals is the value of the exchange rate in the free market, be it the MEP or Stock Dollar, the CCL (Cash with Settlement) or the parallel. When there is an exchange rate gap close to 100%, several things happen: on the one hand, exporters feel very harmed when selling their products abroad. On the contrary, importers try to anticipate all possible purchases, since the profit can be very high.
“The problem is not that dollars are missing, but that shortage of foreign currency at the official exchange rate. It is a matter of price, do not give shortage“
Additionally, such a large gap is a mistrust indicator on the value of the local currency and in the particular case of Argentina, in addition, the fact that the rates do not cover the expected inflation is added.
The problem of the dollar: there is a lack of foreign exchange at the official exchange rate.
If measurements of the historical real exchange rate are taken, It can be concluded that the official exchange rate is today between 20% and 30% behind the historical or long-term measures. If this exchange rate were out of equilibrium, we could say that the dollar is overvalued. Indeed, if it were necessary to devalue in real terms by 30%, we could think that a more reasonable dollar would be in the range of between $ 130 and $ 150, depending on the impact that said devaluation has on inflation. This is why some economists say that $ 200 is an expensive exchange rate.
Not only that: in historical terms, a price of $ 200 today is equivalent – once adjusted for inflation – to the maximum of $ 4 reached by the North American currency in April 2002 after devaluation, asymmetric pesification, etc. That was a maximum value. Therefore, many think that this value of the dollar is high. Even so, the market seems to validate it and has reasons for it.
To understand why the market is validating a free dollar value that seems high in historical terms, you have to understand that the problem is not the dollar but the weight value, which collapses. The fiscal deficit, the enormous debt of the Central Bank in Leliqs and Pases and its interests, represent a potential monetary issue That could easily lead to an acceleration of inflation and a further loss of the value of money. Not only because they represent a real risk for holdings of pesos, but also the lack of response from the government about the future of the monetary scheme does not help to clarify the outlook for the future.
The issue to cover the fiscal deficit could lead to an acceleration of inflation.
In other words, looking at the forward generation of pesos caused by the fiscal and quasi-fiscal deficits, the need to adjust the official exchange rate, public service rates and other frozen prices, the probability of a inflationary acceleration it is not low. In this context, it is not surprising that the market is anticipating it in the price of the free dollar. Above all, taking into account that since it does not have reserves or credibility, it is not clear what would be the combination of inflation and devaluation that will be observed in Argentina in the coming months.
“The probability of an inflationary acceleration is not low. In this context, it is not surprising that the market is anticipating it in the price of the free dollar”
When we speak of “exchange delay” or “high exchange rate” we refer to the real exchange rate. This is the combination of the exchange rate and inflation. For example, if it were devalued 10% and prices rose 10% above international prices, the real exchange rate would remain unchanged and the devaluation would be useless.
To correct the real exchange rate it is necessary for the dollar to rise more than prices. But we know that some prices are tied to the dollar, others must be corrected in dollar terms and the monetary issue of the next few weeks will be quite important. All this makes us think that the exchange rate adjustment must be large to compensate for all these inflationary effects. If low credibility is added to that, things get even more complicated. Because whatever the real devaluation that the government is studying, this can occur with different combinations of increases in the dollar and in prices. The higher the trust, the less the impact of both.
That is why it is crucial to close an agreement with the IMF and present a comprehensive and credible program that clears all these doubts.
Fausto Spotorno is an economist and university professor. He directs the Center for Economic Studies of OJF (Orlando Ferreres & Asociados), Institute of Economics of the UADE, professor at UCEMA and member of the Fundación Norte y Sur
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