December 22, 2014
The peso also rises
Most critics of government economic policies seem to write off as a temporary respite the fact that, far from shooting off into some hyperinflationary stratosphere, the dollar ended last week (and yesterday) well below the eight-peso mark of January’s devaluation but can we be so sure that the triumph is so ephemeral? This feat was widely attributed to the Central Bank obliging the financial sector to shed all dollars exceeding 30 percent of assets in the case of bonds and 10 percent for futures, thus buying time artificially, but must we assume inevitable defeat at the hands of a tiny exchange market? Some critics grudgingly admit that if the government can restore credible inflation data and return to global capital markets, if soy exports can work their old magic in a near future, if collective bargaining can start without collapsing into incompatible differences and if the Central Bank can continue showing the firepower to tame the dollar, then the current policies might just work or at least ensure a soft landing. All these “ifs” are generally conveyed in a tone of “if pigs could fly” but an objective look at the above conditions would show all to be eminently possible. Nor does Argentina face an impossibly hostile world making any national government action futile — for all the buzz about this year’s crisis in emerging markets, almost all the countries in trouble (including Argentina) have fairly solid macro-economic fundamentals, including low debt: GDP ratios, solid banking systems, relatively abundant reserves and relatively minor fiscal imbalances, all soluble with a little exchange rate flexibility.
The fact that the problems are far from insoluble does not mean that there are none — and nor are they limited to the obsessively overrated exchange markets. With real wage losses of up to 10 percent almost inevitable this year in the best of scenarios, the labour front could be crucial — it remains to be seen if the lump sum increases now in vogue bridge the gap. Nor should the potentially devastating effect of last month’s devaluation on precarious provincial finances be underestimated.
Instead of fearing the worst, why not take the recent peso gains to conclude that control is possible and move to scrap the absurdity of increasingly multiple exchange rates? The beauty of any single exchange rate (probably a managed float) is that there would be no need to touch fragile Central Bank reserves — whatever the outcome, both the dollar and peso would be whatever they are in an authentic “pesofication.”