The pre-candidate for the Presidency Javier Milei advances steadily in the polls.
What's more, the predictions place it among the top three;
some even put it in second place and with a definition by ballot.
Faced with this scenario, one of the basic principles proclaimed by the man from La Libertad Avanza resonates strongly:
dollarize the economy
.
This idea was put, in the last hours, under analysis by two consultancies, one of them very listened to by the banks, the other a think tank.
At this time, the economist and candidate is in the Llao Llao and at noon he will be the speaker at the lunch that will be held for the second day of the Forum.
His main axis will be to explain how he would carry out the dollarization that he proposes.
The consultancy document 1816 questions the viability of this process and also warns about the risks.
"
It could even generate a kind of self-fulfilling prophecy:
that the holders of pesos fear a dollarization and when trying to get rid of their holdings,
the conditions for a dollarization are generated via a massive liquefaction of the stocks
," he details.
One of the biggest difficulties that they have seen since 1816 is that
it is difficult to dollarize in an economy that does not have dollars
.
"Today the monetary base is $5.4 trillion, which at the current CCL of 400 is $13.5 billion. All in all, Argentina has only $1.8 billion in net reserves, so it would need to raise another $11.7 billion to be able to rescue the base," they say.
And in this sense, they warn that although the number is not huge, "the drawback is that the BCRA's liabilities are not only the base, but also the Leliq/Pases, which add up to $12.5 trillion, more than
double the base.
To repurchase the monetary base and the Leliq,
a total of US$ 44.750 million is needed at the current CCL.
In other words, another Stand By loan like Macri's."
Another point is that according to Milei's plan, the dollarization would not only be done with the reserves of the Central
but also with the inflow of dollars from abroad.
And in that sense, they warn that this "would require a level of confidence from the world in the plan that is almost impossible by 2024."
Fundar's analysis
The second report, that of the Fundar research center -the think tank chaired by the economist and businessman Sebastián Ceria- in the same sense: "To travel the path of dollarization , at least two fundamental problems
must be solved: exchange all the pesos
of the economy for dollars and
align the flows of income and expenses of the public sector
".
The first
is to define the exchange rate at which the dollarization would be made
.
In this regard, the organization explains, "to do so, it will be necessary to divide the amount of pesos in the economy by the international reserves in the Central Bank. At the beginning of March 2023, the net reserves of the BCRA were close to US$ 2,300 million. With Therefore, if one wanted to replace only the monetary base ($5,242,210 million),
the conversion exchange rate would be around 2,280 pesos per dollar"
.
And he continues, "however, the deposits of the Argentine company have as a counterpart the remunerated liabilities of the Central Bank. So, if in addition to the monetary base one wants to convert these liabilities ($11,017,136 million), the conversion exchange
rate would amount to approximately $7070 per dollar.
In both cases, it implies a sharp adjustment and a considerable loss of purchasing power."
What today "in both cases,
implies a strong adjustment and a considerable loss of purchasing power"
, warn Emiliano Libman, Juan Martín Ianni and Guido Zack, who prepared the report
.
In response to Milei, although without naming him directly, from Fundar they point out that those who defend this path "presume that the
mere announcement of dollarization and the necessary reforms to apply it would be enough"
to restore confidence
international markets in Argentina and generate "a shower of investments" to avoid this deficit.
"However, the
experience of Ecuador, Panama and El Salvador
shows us
that the situation is more complex
," they warn.
And they add: "In these cases, dollarization has exacerbated or at least has not contributed to reducing economic volatility."
And in this sense, they explain that
"it does not eliminate the possibility of incurring in unsustainable situations of fiscal deficit and indebtedness"
and, therefore, it does not "imply an improvement in the financing conditions of the public and private sector."
So, from the consultancy they indicate that for a successful dollarization
some additional conditions are necessary
, such as "reducing the fiscal and commercial deficit to financeable levels, accumulating international reserves, aligning relative prices (exchange rate and tariffs) and making income policy to stop the inertia, since if maintained it can cause residual inflation in dollars that undermines competitiveness".
Somewhat less moderate, on Monday, Emmanuel Alvarez Agis, former Vice Minister of the Economy during the second term of Cristina Kirchner and head of the consultancy PxQ, questioned the "
dollarization ideas"
of his libertarian counterpart and accused him of seeking to generate a
"bank run "
.
"If someone says that his economic program is to set fire to the Central Bank
, which is the entity that regulates the banks, and
I would not have the money in a bank
," he sentenced.
What to do and what not to do, according to Fundar
Generate real and sustained incentives for saving in pesos
: to recover the function of the currency as a store of value, it is necessary that the interest rate of the instruments in pesos is higher than the expected inflation and the return expectation of the alternatives in Dollars.
For this, it is essential to avoid jumps in the exchange rate.
Establish prudential regulations and coordination policies
: it is necessary to encourage deposits in pesos through lower reserve requirements than those denominated in dollars and deposit insurance only for those in pesos.
In order to promote the use of the national currency as a unit of account and means of payment, resolutions are necessary that induce the listing of prices in pesos.
Completing markets
: in order to strengthen the value reserve function of the local currency, it is essential that the public sector be able to offer instruments in pesos in the short, medium and long term, so that banks can also offer loans in pesos to the private sector at different terms.
Encourage de-indexation of contracts
: While indexing allows the currency to retain some of its functions in inflationary contexts, it does so at the cost of entrenching inertia and establishing an inflation floor that is difficult to pierce.
Maintain prudence regarding the circulation of the dollar
: if the circulation of the dollar is allowed, strict supervision policies are recommended to avoid saving in that currency outside the system and the risk of raising the degree of bimonetarism.
The don'ts:
The compulsory pesification of dollar deposits
is not effective because it reinforces the incentives to save in foreign currency.
The
destruction of public statistics undermines confidence
, especially when the profitability of the instruments in pesos is linked to inflation.
Failure to meet debt commitments in pesos
is unnecessary and is the most drastic way to punish the national currency.
Restrict access to the exchange market
only in extreme cases, since they generate large distortions and counterproductive incentives.
NS
look also
This is the plan to dollarize the economy that Milei presented to the businessmen in the Llao Llao
