March 9, 2014
Easy does it
The economic problems facing an electorally humbled government with a revamped Cabinet are truly formidable but even the most uphill need not be irreversible, as shown by the early success of the moves to reverse the drainage of Central Bank reserves — a problem which had been looming as a veritable black hole with nine-digit daily losses in recent weeks. And what is especially refreshing about this success is that it has been achieved not by the draconian curbs of the last two years in particular but by a healthy dose of pragmatism. In the previous week Cabinet Chief Jorge Capitanich had been echoing complaints about soy hoarding but he was not really in a position to blame farmers — if devaluation of the official exchange rate was accelerating, the latter had every reason to hold back stocks because they could expect all the more pesos further down the road and because the intensified inflation made it more necessary to stagger their earnings. Even amid continuing inflation denial (as maintained by INDEC official statistics bureau’s November inflation figure of 0.9 percent), the future adjustable dollar bond accommodates these difficulties because it enables exporters to cover themselves against the pace of devaluation over a six-month period since they can be traded for pesos at leisure. Regardless of whether the credit for this plan should go to the new economic team or the equally new Central Bank governor Juan Carlos Fábrega, it has gained valuable time during a long hot summer until the next harvest while permitting the peso to be made more competitive.
Quite apart from this innovation, the exchange rate gap underlying the dollar problem has been helped by the increased demand this month for pesos in order to pay Christmas bonuses and summer holidays. Yet Treasury needs are also mounting — some economists are calculating that 33 billion pesos will be printed this month to close out the year fiscally, which would outstrip the rising market for pesos and threaten to end the more balanced demand for the two currencies so far this month. And printing money at this pace would do far more to feed inflation than boost purchasing-power.
In short, there are no easy exits from the traps created by a decade of populism but perhaps the only way out is one step at a time (settling with Repsol one day, accommodating soy farmers another) because any shock plan (whether orthodox or unorthodox) offers no guarantee of a pleasant surprise.