The latest government definitions left a conclusion among analysts and businessmen: After the drop in inflation to 2.7% monthly in October, the exit from the stocks will come when the dollars appear. What fueled this reading was Javier Milei’s promise to lift restrictions when the dollar rises to 1% per month for three months (today, it is 2%) and Luis Caputo’s demand for an “additional injection of reserves.”
The atmosphere on the fifth floor of the Ministry of Economy is one of euphoria: they see “progress” in the gradual removal of controls, highlight the rebound in reserve purchases and believe that there is “margin” for greater exchange rate appreciation, despite the concern in industry sectors. “We are going to lose more competitiveness, but they need US$12 billion to move to a floating exchange rate,” they acknowledge in a private chamber.
The next few months will be key: the Government will travel to Brazil on Sunday where it will meet the IMF, In December it must define whether it compensates the end of the PAIS tax with surcharges to the card dollar and close the REPO with banks to pay US$ 4.5 billion in January, that month Donald Trump takes office and Milei would travel to China, in May the sale of soybeans begins, in June lists are closed for the August PASO and in July US$ 4.5 billion expires.
In this context, according to the analysis of an economist from a Wall Street bank, “three alternatives” seem to be drawn to advance the adjustment planwith the exchange rate scheme as the main variable in focus:
1) “Keep going”
Among the main defenders of the current exchange rate scheme, appears Ricardo Arriazuone of the economists most listened to by the Government. His main argument is that To continue lowering inflation it is necessary to lower the current 2% devaluation ratewhich would begin to occur in February, as long as the fiscal balance is maintained and there is no “political collapse.”
Arriazu denies that there is a “delay” in the real exchange rate, but recognizes that the reserves are still negative at around US$ 7,000 million, which is why the stocks cannot be lifted until “someone lends the money” and it can be defended. the exchange rate to avoid an exchange rate jump that impacts inflation. “If we devalue everything explodes into the air, even Milei“he said in August.
2) “We have to start”
On the other side, the former Minister of Economy, Domingo Cavallo, He believes that we must move forward “sooner rather than later” in the liberation and reunification of the exchange market, a measure that would be “far from causing a crisis.” “The exchange rate jump that would mean leaving the stocks, far from reintroducing galloping inflation, may mark the beginning of a plan of definitive stabilization,” he explained on his blog in September.
In his last article, he warned that disinflation was sustained by the recession, he proposed allowing at least a free exchange and financial market, without restrictions on the movement of capital, all with a prior agreement with the Fund. “You have to move forward and start“he said weeks ago in private meetings, as Clarín learned.
3) “Summer storm”
In the middle, some economists question the “tablita”, but recognize that the elimination of restrictions will not be free. “If we maintain the stocks, we will continue to lower inflation at the expense of underinvestment and underrebound, and If we get up we will have a summer storm“said Mauricio Macri’s former Finance Minister, Hernán Lacunza, at the FIEL conference on Tuesday.
According to their calculations, this “tropical” climate would imply a 60% rise in the exchange rate and a 40% annual inflation, above the 18% expected in both cases by the 2025 Budget.
With a country risk of less than 800 basis points, the Government increases the possibilities of closing a REPO loan, moving forward with a debt swap, adding RIGI dollars or placing sovereign debt. But the Wall Street analyst sees the external sector with concern: “If you grow, imports eat up your trade surplus“he warns.
The unknown for 2025 – he believes – is where the dollars will come from if the exchange rate continues to appreciate and agriculture does not want to liquidate. “With each passing month the necessary correction is greater“, affirms the analyst. And he warns that what they are liquidating today “will end up in the Lecap (capitalizable bills) and that interest paid by the Treasury does not appear as a fiscal deficit.”
He also looks with concern at the blend dollar. “It’s been 10 months and you’ve ate up US$1.3 billion in reserves,” he warns. Although he believes that the economic team is professional, he does not see that the exit from the stocks is as controlled as Cavallo suggests and sees risks in the elections. “There is a delicate social situation and We have to see what happens if Cristina or Kicillof get 35% of the votes“he concluded.