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A private report warns of the risk of currency collapse if the economy grows again - Infobae
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Un informe privado advierte sobre el riesgo de colapso cambiario en caso de que la economía vuelva a crecer
Se trata de un estudio realizado por Celag Data, el cual plantea distintos escenarios y advierte que el modelo económico de Javier Milei no es compatible con el crecimiento
www.infobae.com
October 14, 2024
This is a study carried out by Celag Data, which presents different scenarios and warns that Javier Milei's economic model is not compatible with growth.
"If the economy were to grow at the rate forecast in the 2025 budget, there would be a currency collapse between 2025 and 2026," Celag Data said (REUTERS/Jose Luis Gonzalez/Illustration/File Photo/File Photo)
According to the government's draft budget, the economy is expected to rebound by 5% in 2025 after falling by 3.8% this year. But a private report warns that if economic growth occurs in the next two years, there is a risk of a currency collapse, so under the current model, a continuation of the recession would be the only way out to avoid it.
Based on a simulation of the demand for dollars based on the real exchange rate and different economic growth scenarios, Celag Data stated that Javier Milei 's economic model is not compatible with growth.
“If the economy were to grow at the rate projected in the 2025 budget, there would be a currency collapse between 2025 and 2026 depending on the scenario. If the economy were to stagnate in 2025 and 2026, the risk improves, but not enough to avoid a currency collapse in 2025 or 2026. If we ask what pace of growth is compatible with stability, the answer is none,” the report said.
According to CP Consulting, the economy will be short of USD 20 billion by 2025 (Photo: Shutterstock)
Celag believes that the current government has opted for a policy of economic anaemia. “Unlike fiscal adjustment, which focuses on fiscal expenditure and revenue, economic anaemia aims to weaken all productive activities without discrimination,” they say.
Now, after the devaluation in December, which according to Celag, depressed imports enough to generate abundant foreign currency; and the adjustment to the public sector, which would allow the generation of the fiscal surplus to acquire these currencies, the study took the current economic framework, characterized as a combination of "import-biased trade opening" and currency appreciation against the dollar, and evaluated what the effect of different rates of economic growth would be on the international reserves available in the coming years.
It is worth noting that other private consulting firms estimate that the economy will be short of USD 20 billion next year , in a context in which significant amounts of debt are approaching, international export prices are falling and the demand for imports could increase due to the removal of the PAIS Tax and the appreciation of the peso, as well as some degree of rebound in economic activity.
Celag, for its part, estimated the levels of international reserves for 2025 and 2026, based on the effect of economic growth on imports and net payments of investment income. They propose 4 estimates with a more optimistic and a more pessimistic scenario each:
Estimate 1
In this way, they specify that if the economy were to grow 5% in 2025, the level of gross international reserves would reach USD 23.7 billion in the most optimistic scenario and around USD 10.4 billion in the most pessimistic one. In both scenarios, the amounts are lower than the projections for this year, which expect the Central Bank's reserves to end at USD 26 billion.
By the end of 2026, if the economy grows by 5.5%, reserves would fall to USD 4.7 billion in the most optimistic scenario and USD 11 billion according to the least optimistic one.
"Both outcomes are impossible to achieve and indicate that the economy could collapse due to insufficient international reserves, even before the end of 2025," the report states.
Estimate 2
In this context, the study raises the question of whether the current economic model is compatible with stagnation, that is, GDP growth in 2025 and 2026 being equal to 0.
In 2025, there could be an accumulation of around USD 3 billion more than in 2024 under the most optimistic scenario, but around USD 7 billion less in international reserves under the most pessimistic scenario.
Estimates of the effects of economic growth or decline on the level of international reserves (Celag Data)
“The result is not ambiguous in 2026, as the level of reserves would fall to USD 23 billion in the pessimistic scenario and to just USD 11 billion in the less optimistic one. Therefore, this estimate tells us that Milei's economy not only cannot withstand growth, but also stagnation,” Celag said.
Estimate 3
On the other hand, Celag proposes what would be the highest possible growth rate that would allow international reserves to reach over USD 26 billion at the end of each year in at least one of the two scenarios.
In 2025, growth of 2.4% would be possible, with reserves remaining above USD 26 billion under the optimistic scenario, but under the pessimistic scenario, they could fall to around USD 17 billion.
By 2026, only with an economy falling to 6.9% could reserves remain above USD 26 billion in the optimistic scenario, and in the pessimistic scenario, they would be at USD 13.1 billion.
"The economy could experience modest growth in 2025 but at the cost of engaging in major exchange rate risks and it would definitely not be compatible with growth for two years in a row," the study notes.
Estimate 4
Finally, they estimate that if the economy were to fall by 9% in 2025, international reserves could reach USD 40 billion in the most optimistic scenario and USD 26.3 billion in the most pessimistic one.
By 2026, if the economy were to experience a 1% decline, reserves could total nearly $46.2 billion in the most optimistic scenario and $26.6 billion in the most pessimistic.
"That is to say, the economy would have to assume another year of enormous sacrifice in 2025 and another of moderate decline in 2026 in order to avoid currency risks," Celag said.
In short, according to the study, Milei's economy can only reduce the risks of a currency collapse by continuing with the strategy of economic anemia, but if this strategy continues, the risks of social and economic collapse will increase.
"We believe that, unless there are significant changes in exchange rate, production, price and foreign trade policies, a collapse will be looming sooner rather than later, caused by the social effects of the unprecedented depression if the policy of trade openness, exchange rate appreciation and monopolistic prices continues or, in the event of an economic recovery, due to the shortage of international reserves," they concluded.
