1. 2018: always further away from stability
After the devaluation of Brazil from 1999 A discussion arose about whether or not the Argentinian economy was dollarising, which in particular led nowhere.
Although the then president of the BCRA, Pedro Pou, studied and debated with authorities and academics a draft of & # 39; Monetary agreement & # 39; with the USA. for that purpose, the change of government left the issue in the void.
The discussion appears again after the collapse of the agreement with the IMF in March 2001 and the beginning of a series of bank runs that would culminate with the fall of the government at the end of that year. Nor was anything in particular.
The political force "Triumphant", the Judicial party (especially the resident of Buenos Aires) was always against what he called "The dollarising lobby" and the story went on to a decade and a half of the IPO "Dirty" or "Governed", with exchange and capital controls.
Although there was no balance of payments crisis, Argentina was almost completely isolated from access to the most abundant and cheap financing of emerging countries for the last half century, between mid-2008 (start of the Subprime crisis) and the return to voluntary debt markets in April 2016.
The Kirchnerian inheritance was approached with a macroeconomic policy that was not fully attuned to what was expected:
> a BCRA more focused on promoting a financial product (indexed mortgage loans) than in price stability,
> an executive power that hardly assumed increased the number of ministries and central costs as if the resources were abundant, and
> the maintenance of one "Trend" inflationary that was tried to solve with an inflation-oriented system that was never credible.
Systematically, inflation was far above the official targets / forecasts, while the real economy did not start.
The announcements of "Second semester" with "Real investment rains" reality has never been observed.
As in the years of Kirchnerism, the economy grew as a result of the increase in consumer demand, with a sharp rise in government spending.. The main source of financing was the external debtand the conversion of the forecasted currencies did not take place through the private market (to prevent sharp exchange rate falls in the exchange rate), but rather through the BCRA.
The resulting issue was partially absorbed through the issue of BCRA Bills (LEBAC). the fiscal imbalance it was reflected in the simultaneous increase
> of government debt,
> the debt of the BCRA (technically a pseudo tax liability),
> the money supply and
> the international reserves of the BCRA.
The system can only be enforced if the demand for government debt between residents and non-residents does not stop growing, and if the demand for money and LEBAC does not stop growing.
something difficult to maintain over time with floating exchange rate (managed float), free capital mobility, a subordinated BCRA, either to the Treasury or to the Ministry of Finance, and the stock of LEBAC and the money that is endogenous for fluctuations in the demand for these BCRA obligations.
Indexation of prices strengthened inflationary inertia and its impact on regulated prices.
From October 2017, fuels have been transferred to be linked to the fluctuations of the international price of crude oil, the wholesale exchange rate and the price of fuels.
The "anchor " nominal inflation, "de facto", the salaryand whose evolution is not completely free or controlled by the state.
Interest rates on public securities are determined by international rates, the risk premium for the country and expectations of a rise in the exchange rate. The call "Monetary control rate" never seriously influenced expectations.
On the contrary, it has reacted passively to them, sometimes in accordance with the BCRA's interpretation of inflation expectations, others to discourage the purchase of the year (so far unsuccessful so far this year), or to generate speculative capital via LEBAC interest rates higher than those required to avoid arbitrage between LEBAC in peso & s and alternatives from other countries in dollars.
That ability to free rent known in finance as "Carry trade" it is about eliminating the disappearance of the LEBAC. But the local market does not reveal any extra demand from the Treasury in exchange for the issued pesos to pay for the non-renewed LEBACs.
I could not miss the dollar jump to more than $ 40 in August. In that month, the BCRA increased the monetary base by $ 141,467 M, and in this month, until Tuesday 11/09, another $ 97,256 M.
In just 42 consecutive days, the stock of primary money rose by no less than $ 238,723 M. Throughout 2017, the monetary base increased by $ 179,449 and throughout 2016 with $ 197,775.
Increasing reserve requirements and authorizing their integration with BCRA or Treasury bills has been an inefficient measure and should be clearly stated as soon as possible.
In short, the premature cancellation strategy of LEBAC resulted in a loss of monetary control. A blatant error by both the government and the IMF, which approved this mechanism that incubates an inevitable acceleration of the price increases of goods and services, of the dollar and other foreign currencies, and of interest rates.
2. Dollarisation of the proposals for the crisis
The scenario is not only worrying, but also uncertain. Nobody knows where the values of prices, returns, shares and flows of the Argentine economy come together. Also not at what speed.
The demand for stability comes to the fore, along with a legitimate demand to cease practices and policies that have remained unchanged by excessive foolishness and arrogance. Some, well-intentioned, requirements an improved and credible program.
For weeks several colleagues propose or claim a dollar of $ 40 to $ 42 and stop the reduction of retention for agroexports. We are today with a dollar for $ 40 and with a new scheme of comprehensive deductions for export of services and the rest of exportable goods. Can anyone find evidence that we are better?
Others have opted for a more drastic departure: choose a convertibility (at an uncertain exchange rate) or deeper by oneofficial dollarization or de jure. The last one looks like this more attractivesince the exchange rate would disappear as a disruptive factor, since the peso disappears as a monetary sign.
The idea arose from short statements by the influential economist Guillermo Calvo from the USA. for consideration "Later" said the proposal. Good now Is it logical in Argentina today?
3. Dollar proposal or derivation?
Balance of payments crises vary in intensity and duration, however they can obey, the perception that macro-policy is not consistent with a fixed or stable exchange rate, or the loss of credibility in the official policy, or a contamination of the foreign foreign exchange market against distortions of another origina panic attack, a default, a negative shock from another country, or the international market of critical imported inputs, or export goods.
The current situation is the result of one loss of credibility when the historic record level of gross international reserves was available. This process, underground during the past year, broke out at the press conference of December 2018 when the chief of staff announced the conversion from a non-credible inflation target to another that is not credible and the subordination of the BCRA to the dictates of the cabinet.
After all, the crisis was caused when LEBAC's income tax was applied in April, by far the biggest mistake of the unconvincing tax reform of last year.. Since then we have been dealing with a currency conversion that is nothing other than the actual dollarization of the savings of natural persons and legal entities. The acceleration of inflation and the rush of interest rates are effects, not a cause, and the dollar regains strength as a replacement for the peso in its functions of reserve of value and unit of account, and not only for the sale of recordable goods.
Can official or correct dollarisation offer an acceptable exit? really no. The problem of loss of credibility is the external symptom of two fundamental imbalances:
> the budget deficit of more than 6% of GDP and
> the current account deficit of the balance of payments of around 5% of GDP.
The lack of budgetary discipline is not solved by the mere replacement of the dollar by the local currency. In this case, the financing limit is given by the demand for debt.
It is true that, as with a fixed exchange rate, the Treasury is more limited by markets, but it is not enough to reverse the fiscally irresponsible behavior of the politicians of the day.
Greece He replaced the drachma with the euro and ended in one of the worst debt crises in his history.
Ecuador Dollarized in the year 2000, and today it has a higher country risk than Argentina in the middle of the balance of payments crisis.
Like it or not, data kills story. With this background, the inevitable problem of actual viability seems to be dollarizing de jure demands that the National Congress (there is no other authority) closes the BCRA and forces the provinces into a fiscal discipline that is unknown by most in recent history. Can anyone think that the majority parties even give legislative treatment to a bill that replaces the national currency with the dollar as a monetary sign of legal tender?
As far as the external imbalance is concerned, this is the result of decades of non-existent programs that provide a coherent complement to trade policy instruments, regulation of internal markets (labor, goods, services) and the game of pressure in the political arena.
It is a game of pressure and demands whose total amount is higher than "The size of the cake" and it translates to high "Argentine costs", mainly due to record fiscal pressure and a low competitive position. Dollarising the economy does not solve this problem.
Neither the lack of variety of exportable supply. Moreover, it aggravates the sensitivity of the real economy to the volatility of relative prices. Large fluctuations can lead to waves of optimism and pessimism, increasing the risk of financial crises in dollarization could not be mitigated by the lack of this regime of a lender in the last resort own.
Again, the recent Greek tragedy (country)eurizado ", instead of "Dollarized") is more than illustrative.
Some claim that dollarization would cause or force tax discipline. When the monetary issue disappears as a tax resource, it's true. But in practice that effect is direct and visible right from the start in unitary countries than in federalisms in which "Existing agreements" they allow provincial governments to maintain their own banking entities and financing mechanisms that are not always in line with national regulations.
With the jure dollarization Who guarantees that the province of Buenos Aires or others refrain from issuing quasi-dollar funds in the event of an acute liquidity crisis?
In terms of integration into the world, the jure dollarization can only be total. Since the dollar is the only currency with legal tender, interest rates must be aligned with those of the US, but If investors maintain the perception of high uncertainty about the legal framework, political risk and mistrust of the judicial system, dollarization is not a necessary or sufficient condition to reduce country risk to zero..
The Ecuadorian case is convincing in this respect.
certainly, liquid dollarization of exchange rate risk as a source of uncontrollable shocks, but does not offer bank or financial stability insurance. Nothing makes dollarisation possible to offset the negative impact in a dollar and recession country of a rise in US interest rates. or a decrease in the terms of trade. Even less, the contamination of bank or financial crises in other countries.
In the case of a banking crisis or domestic financial crisis, the introduction of a foreign currency presumes instead of the local currency the lack of local deposit insurance (unless it is completely private and in dollars) but there will inevitably no longer be a lender in the last resort. In a crisis this would allow access to a window of the Federal Reserve.
however, The Fed's charter does not allow this entity to be the last lender to apply to banking systems in other countries. This requires a round of debates and approvals from the Congress, the Treasury and the White House of uncertain outcome.
Can the parent banks act as lenders in the last resort? Not necessary It was already seen in the Tequila effect from 1995 that the parent companies have not responded to the refund of deposits.
The reason is simple: his Argentine subsidiaries are not strictly speaking "Branches" of those banks, but Argentine companies with franchise of the name, brand and merchandising of the parent companies' financial products.
Finally, and no less importantly, the potential success depends essentially on the credibility that the authorities have achieved since the launch of the new regime. This asks explain to the citizens how many dollars that the monetary authority will deliver to the public in exchange for the means of payment in pesos and at what exchange rate. A basic relationship for the exchange between payment instruments in peso & # 39; s and constant and floating dollars of the BCRA (own liquid reserves) is the sum of M2 + LEBAC + LELIQ / Liquid International Reserves.
The estimated numbers until 07/09/2018 (given that the BCRA does not report the net international reserves) showed an exchange rate of "conversion" of $ 196 per dollar. Dr. M3 arrived with M3. Carlos Rodríguez with data until June $ 293 per dollar. The exchange rate of conversion to September is undoubtedly higher than the $ 300
That is clear more than unthinkable, at least in the short term, to implement a dollarization without causing an economic and political collapse that would ruin the political viability of the attempt.
In short, you can share the enthusiasm with those who propose some kind of exit to end the current crisis, but dollarization de jure, it is not by far the most recommended and not the most feasible.
The current problem is fiscal and lack of competitiveness.
And the replacement of one currency by another currency does not solve it or necessarily evades the consequences.
Besides sensitivity, it is one "Proposal" Which he can not even take himself seriously. At least on the stage today.