March 9, 2014
Pieces of eight
The sluggish start to newly permitted dollar purchases for private savers might be due to rather more than technical teething troubles for the new system. For a start, the new mechanism has enough built-in filters to reduce the opening to the merest chink — ceilings of US$2,000 a month and 20 percent of a salary whose floor of 7,200 pesos excludes a large majority of tax-payers (will this figure of 7,200 now become a prime target for collective wage bargaining negotiations when they start, just as the income tax floor was the obsession in last year’s pay talks?). But the simple factor of prior authorization by the AFIP tax bureau might well be a bigger hurdle than any of these filters (or the 20 percent surcharge slapped on those who want their dollars in cash rather than in fixed-term deposits for a year). While true blue is the latest colour choice for the parallel greenback, we should never forget that this is an illegal market at the end of the day and not too much of its money would thus be eligible for the new system — nor should we forget that this market usually has an extremely tiny volume out of all proportion to its huge and perhaps overrated economic impact (sometimes hardly larger than the trickle legally exchanged on Monday).
This reduced volume also conspires against large enough sums of this legally acquired currency rushing into the “blue” market and sharply reducing a value still stubbornly 50 percent ahead of the official exchange rate, despite last week’s major devaluation — the accusation of UNEN Senator Fernando “Pino” Solanas that the government has just facilitated a new speculative killing for those buying dollars at the official exchange rate of eight pesos (or 9.60 with the surcharge) and then selling them for 12-13 pesos on the “blue” market might be mathematically plausible but the quantities are too insignificant. Even if the volume of interest yesterday was 500 times higher than Monday’s trading, the former sum was still only half the Central Bank reserves sacrificed daily in the last few days to tame the “blue” dollar.
If the importance of money markets in general and the “blue” in particular is thus relative, what is the decisive factor? This new monetary scenario is all about credibility, which in turn hinges on inflation — if that cannot be tamed, exporters will continue to hold back awaiting future depreciation, importers will continue pressing for dollars and the reserves will keep on falling. In days to come, the price front should thus be far more crucial than the exchange markets, whether legal or illegal.