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Serious dilemmas in an economy without anchors to contain inflation


The electoral race begins to pick up pace amid the promise to the IMF to contain spending to reduce the deficit and a drought that will severely limit the inflow of dollars and collection.

Jerome Powell

, the head of the Federal Reserve of the United States, will face on Wednesday the most serious dilemma in recent years regarding the evolution of the world's largest economy.

In the midst of the accelerated banking crisis unleashed a week ago by the fall of the Californian

Silicon Valley Bank (SVB

), which financed the start-up of technology companies, Powell must decide

whether or not to continue with his aggressive policy of raising

interest rates to combat inflation.

That reference rate is at 4.75% per year and, until a week ago, the expectation was that it could continue rising to 6%.

But the collapse of SVB changed everything

and now the bet is that on Wednesday it increases only 0.25 points or it remains as it is.

Powell's dilemma is to continue raising the rate to

defend his credibility

, or stop the increase to moderate the run on deposits that is taking place from the smallest to the largest regional banks.

They took

US$42 billion

from the SVB in one afternoon (depositors did not need to wait in line) and the US government ordered full deposit guarantees but the markets did not calm down: the

Credit Suisse tremor came.

For Argentina, the tail was strong: stocks and bonds fell (they returned to US$25, losing everything they had earned at the beginning of the year and more) and country risk rose (to 2,374 points).

The outlook became cloudy and added uncertainty to that generated by the 6.6% inflation in February.

The rise in the cost of living in the first two months speaks of an

"economy without anchors"

as highlighted by the latest report from the consulting firm 


and the important dilemma facing the Minister of Economy.

Part of the dilemma on how to contain the dollar and tend to stabilize the exchange situation (cash with liquidation is at $403 and the gap returned to 100%) is being resolved with a three-point rise in the reference rate, which is now 78% per year, 113% effective per year.

The intent is for the rate to exceed inflation and absorb pesos so that they do not go to buy



The problem is that the one who ends up having to issue to pay the highest interest is the State itself, which is the main credit taker in the market.

The other part of Massa's dilemma is the


lack of dollars but now


While the countryside tries to assimilate the strong

blow of the drought on production and exports,

the Central Bank continues to act as the only net seller in the market and reserves continue to fall.

The possibility of making use of the US$ 5,000 million free from the swap with China is just around the corner and it would be a bridge to some type of soybean dollar 3 or another sectoral exchange improvement that brings some reserves to the Central.

Massa awaits the disbursement of US$ 5,200 million from the International Monetary Fund (it has to be approved by the Board of Directors) also to see the displeasure generated in the organization by the sanction of the new pension moratorium that was not in the negotiation papers overcome.


Cristalina Georgieva, head of the IMF,

 it must be difficult to accept that Sergio Massa promises a reduction in the fiscal deficit almost simultaneously with the approval of a

retirement moratorium

that implies an increase in public spending equivalent to 0.4% of GDP.

But the discussion is growing on the domestic front about whether the government should comply with the deficit drop to 1.9% of GDP this year of drought and consequent loss of collection due to the lower contribution of withholdings to agricultural exports.

The economist Emmanuel Álvarez Agis, former deputy minister of Axel Kicillof, threw the first stone by saying that, in this context, he preferred not to meet the fiscal goal agreed with the IMF.

Friendly fire for Massa?

The precariousness of the exchange stability of these weeks (the Central sold more than US$ 730 million) does not leave much room to think that the Government will depart from the commitments with the IMF, but it must also be considered that the electoral political race begins

to take rhythm.

And politics, as defined by Blaise Pascal in the mid-1600s referring to the heart, "has reasons that reason ignores."

look also

Alvarez Agis: "If these are the parameters, I prefer to break the IMF agreement"

How much will the dollar go in December: the response of private banks

Source: clarin

All business articles on 2023-03-18

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