Argentina’s deal: forex reform for $ 42 billion

“Today we first break the circle of disillusionment, and start moving forward for the first time,” President Millie said in a statement to the nation about the deal with the international organizations, surrounded by his own. “We eliminated the exchange on the exchange rate on the Argentine economy permanently.” The Minister of Economy (parallel to the Finance Minister in Argentina) Luis Capoto added that “the agreement will allow us, starting Monday, to remove the supervision of the exchange rate that limits the proper functioning of the economy.

Danger to Manage Capital

Argentina has been suffering from an extremely high inflation for many years, which has leapt under the previous government. In order to prevent capital escape and subsidize the import, the government imposed a variety of foreign currency trade restrictions in 2019, known as the “EL CEPO” (EL CEPO), with the aim of artificially inflating the pseudo. In fact, the government determines the exchange rate in front of the dollar, prohibiting imports and exports but at this gate. In addition, citizens cannot attract more than $ 200 a day from banks. In practice, Argentines are privately trading in dollars in the “Blue Market”. The gap between the official gate and the blue gate is about 25% today (for the detriment), but the importers and exporters are forced to trade solely at the official gate.

When President Millie took office under a free market bedding, it was possible to get rid of these limitations quickly. But in practice, it turned out to be a difficult task: the danger of capitalizing capital is real, and dollars’ purchase wave could have emptied Argentina’s poor dollar reserves, which it needed to pay the external debt specified in dollars. In addition, the import of imports could have increased inflation, which the war has been a top priority of Millie. Indeed, after a dramatic cut of 30% of government expenses (and closing ten government ministries out of 18) inflation has dropped from 25% per month with its entry into the position – to 3.7% per month only “today. These changes have led to dramatic shaking in the Argentine economy, but eventually for the first quarter of growth for a year and a half, and a decrease in poverty rate.

Now, attention is going through inflation for economic growth, and to achieve it – Argentina is required to export, for example agricultural goods, energy and quarries. However, due to the “brace”, the profits from exports are very limited. As long as this is the case, in Buenos Aires, it is difficult to convince foreign companies to invest and create higher -paying new jobs. According to Matan Lev Ari, a former Israeli -American Bank representative, “There is a desire of Millie to help Argentina’s competitiveness around the world through losing a more flexible model, and pressure from the currency balances through the dollars from the intermediate organizations. At the same time, Argentina removes imports related to foreign currency trade, such as payment as soon as the goods arrive at the port (and not 30 days late). Small and medium companies will even be able to pay when the goods are sent. ”

Similarities to Israel

Now, Argentina moves from a hard exchange rate to the “diagonal strip” as it was used in Israel in the 1990s: a strip can be traded in the market, but only in the range of 1,000 – 1,400 pesos to the dollar, each month the upper border and the lower border will expand by 1%. By comparison, the official gate is currently 1,098 pesos per dollar, and the blue gate is 1,375 pesos per dollar. If the currency exceeds the Gaza Strip – the central bank will intervene in the market to bring it back in (selling or buying a forex for example). Without intervention in the form of a pseudo in the dollars, the fear is that the official gate and the gate in the black market will be crushed down, which will bring a dramatic scrutiny of the pseudo.

To avoid too fast, the Argentine government needs many dollars that, with their sale, will increase the demand for Paso, and it is expected to receive from the international economic organizations: $ 20 billion from the currency fund, 12 billion from the World Bank and 10 billion from the US Bank to Development (designed to establish public infrastructure). Other bodies projects, such as the World Bank and the Inter -American Bank. ”

Lev Ari is reminiscent of the inter -American bank president Ilan Goldfin, a native of Haifa, who was also the Governor of the Central Bank of Brazil and the director of the Coin Foundation’s Western Hemisphere, adding “Millie Fuda the credit on his policy, and the message from Washington.”

But will it suffice to prevent a dramatic 25% of the pseudo, which will cost the import and thus accelerate inflation? unclear. “A big question mark is the inflation in the second quarter of the year. It is very likely to have a market,” the American ABC Leonardo Piazza, the chief economist at LP consulting company.

The fear increases when taking into account inflation in March, which climbed 3.7% a month in relation to 2.4% in February, mainly due to the increase in food prices. An increase in inflation that will come out of control will be a political risk to Milie, who wants to increase his power in the split congress in the middle elections in October. “Still, this is an issue that the international bodies have pressed Argentina to work for a long time, and he had to happen sooner or later,” says Lev Ari. There will be advantages to this move, even in the short term, but Milly takes a risk of renewed immigration of inflation. ”