In the midst of the 47% rise in the dollar, Milei seeks political support this week for his reform plan and zero deficit - infobae
Source:
www.infobae.com
January 21, 2024
While the changes to the omnibus law are defined, for the Government it is key that the exchange market recovers some tranquility after the strong increases it had so far in January
By Pablo Wende
They count 100 bills 10/12/2010 REUTERS/Sukree Sukplang
The dollar put pressure at the start of the year, even more than the economic team, but also banks and analysts, had imagined. The cash with settlement ended the week at nominal highs, above $1,300 and accumulated a rise of 47% from the floor it had reached in the last days of 2023. The MEP and the free dollar also ended above 1,200, that is, one step down.
Behind the new increase in the gap - which is close to 50% between the CCL and the official dollar - there seems to be more than one cause. One of the most cited is that the interest rate remains in strongly negative territory in real terms: banks pay 110% annual rate, when inflation exceeds 210 percent.
To make matters worse the carrot to stay in pesos disappeared, because the exchange rate adjusted strongly at the start of 2024. This means that a company or individual that put the money in a fixed term or bonds adjusted in pesos did a very bad business. It has been losing heavily against inflation and against the exchange rate. Dollarizing became the only option available (and profitable) for savers.
The agreement with the IMF was a step in that direction and in the coming weeks the committed USD 4.7 billion will be received. They are added to the more than USD 4,000 million that the Central Bank bought since Javier Milei became president, of course with the great help of a market of imports completely paralyzed.
File photo of Argentine President Javier Milei. EFE/EPA/GIAN EHRENZELLER
This week will be particularly intense. Everything indicates that the omnibus bill will be discussed in the Chamber of Deputies. Although changes were made, most articles survived. It would be a boost for the management of the new government, which took advantage - as the manuals indicate - of its first weeks to try to move forward with fundamental changes.
However, it remains to be seen what the result will be from a fiscal point of view, which is ultimately the “heart” of the proposal. In other words, beyond political reform or modernization of the State, it is essential for the new Government to fulfill the promise of quickly achieving balance in public accounts. If that does not appear, then distrust of the markets and investors will prevail again.
Meanwhile, on the street one feels the “bad drink” that Milei announced on the day of his inauguration. December's 25% inflation wreaked havoc on salaries and sales, right in the most important month of the year for the commercial sector. January would come with a certain slowdown but it would not drop below 20/22%. Most salaries will lose sharply against the rise in prices, except in the case of unions with strong bargaining power.
Archive photograph of the Minister of Economy of Argentina, Luis Caputo. EFE/David Fernández
The expectation is that the good news will begin in the coming months, once the fiscal plan already shows more consistent results. Everything indicates that inflation should drop more markedly in February. The objective would be for it to return to cruising speed in the second half of 2023, that is, around 12% monthly.
In addition to the gradual deceleration of inflation, the beginning of the second quarter will coincide with the increase in dollar income from a harvest that will be spectacular. The additional USD 20 billion expected for this year will recover the economy and at the same time will serve to strongly increase the supply of the exchange market. The expectation - and possibly the great challenge - is that it can be get out of the stocks sometime in the second trimester.
The general strike that the Government will face this week also reflects the brakes that will be attempted by different sectors of power, in this case the main unions. The Government will, however, have an interesting opportunity to use this measure of force in its favor, taking into account the terrible image of the unionists - starting with the Moyano clan - among the people.
It will be a week in which we will have to continue closely monitoring the exchange market, but above all in which the political leadership capacity of the new government will be put into play.
Source:
En medio de la suba de 47% del dólar, Milei busca esta semana respaldo político para su plan de reformas y déficit cero
Mientras se definen los cambios a la ley ómnibus, para el Gobierno es clave que el mercado cambiario recupere cierta tranquilidad luego de los fuertes aumentos que tuvo en lo que va de enero
www.infobae.com
January 21, 2024
While the changes to the omnibus law are defined, for the Government it is key that the exchange market recovers some tranquility after the strong increases it had so far in January
By Pablo Wende
They count 100 bills 10/12/2010 REUTERS/Sukree Sukplang
The dollar put pressure at the start of the year, even more than the economic team, but also banks and analysts, had imagined. The cash with settlement ended the week at nominal highs, above $1,300 and accumulated a rise of 47% from the floor it had reached in the last days of 2023. The MEP and the free dollar also ended above 1,200, that is, one step down.
Behind the new increase in the gap - which is close to 50% between the CCL and the official dollar - there seems to be more than one cause. One of the most cited is that the interest rate remains in strongly negative territory in real terms: banks pay 110% annual rate, when inflation exceeds 210 percent.
To make matters worse the carrot to stay in pesos disappeared, because the exchange rate adjusted strongly at the start of 2024. This means that a company or individual that put the money in a fixed term or bonds adjusted in pesos did a very bad business. It has been losing heavily against inflation and against the exchange rate. Dollarizing became the only option available (and profitable) for savers.
Noise
The rise in the dollar makes noise, but within the economic team they believe that they are in a position to dominate the increase in the exchange gap. For this reason, they consider that everything that serves to reduce uncertainty is of great help. It is about reducing mistrust and improving investor expectations. Some of this has already begun to happen, but it is a long process that is just beginning.The agreement with the IMF was a step in that direction and in the coming weeks the committed USD 4.7 billion will be received. They are added to the more than USD 4,000 million that the Central Bank bought since Javier Milei became president, of course with the great help of a market of imports completely paralyzed.
There were also words of encouragement from North American officials such as Kevin Sullivan, representative of the Office of Western Hemisphere Affairs, who assured that the government of Joe Biden is “very interested” in working with Argentina. Words of commitment, but at the same time they would ensure the support of that country so that the treatment of the disbursement in the Fund's board of directors does not have major obstacles. At the same time, there were several optimistic reports from Wall Street banks, such as JP Morgan and Bank of America.
Fingerprint
Milei's time in Davos also left its mark. Some criticized that she had missed an opportunity to present Argentina's opportunities to the world. However, it was not the objective of that dissertation nor the specific place to do it. Of course, the libertarian managed to make his words trending topic on social networks worldwide, exporting the phenomenon that in Argentina took him from anonymity to few years to the presidency. Does that have any practical use, or does it serve to attract investment? Hard to know now.File photo of Argentine President Javier Milei. EFE/EPA/GIAN EHRENZELLER
This week will be particularly intense. Everything indicates that the omnibus bill will be discussed in the Chamber of Deputies. Although changes were made, most articles survived. It would be a boost for the management of the new government, which took advantage - as the manuals indicate - of its first weeks to try to move forward with fundamental changes.
However, it remains to be seen what the result will be from a fiscal point of view, which is ultimately the “heart” of the proposal. In other words, beyond political reform or modernization of the State, it is essential for the new Government to fulfill the promise of quickly achieving balance in public accounts. If that does not appear, then distrust of the markets and investors will prevail again.
At the request of the most dialogue-oriented blocs, withholdings for regional economies will remain at 0% and the modification of the retirement mobility law would not be accepted. Both issues imply a decrease in the resources expected for 2024, so the economic team will have to think about how these lower incomes are achieved.
Meanwhile, on the street one feels the “bad drink” that Milei announced on the day of his inauguration. December's 25% inflation wreaked havoc on salaries and sales, right in the most important month of the year for the commercial sector. January would come with a certain slowdown but it would not drop below 20/22%. Most salaries will lose sharply against the rise in prices, except in the case of unions with strong bargaining power.
Deadlines and expectations
Maintaining the popular support that he achieved in the second round is the great challenge of these hours for Milei. But for that she will have to show that there is a possible way out and that it is worth the sacrifice.Archive photograph of the Minister of Economy of Argentina, Luis Caputo. EFE/David Fernández
The expectation is that the good news will begin in the coming months, once the fiscal plan already shows more consistent results. Everything indicates that inflation should drop more markedly in February. The objective would be for it to return to cruising speed in the second half of 2023, that is, around 12% monthly.
The increase in the exchange gap and the fear of a new devaluation of the official dollar would be an obstacle. But even in the case of a new “sincerity” of the dollar, the adjustment would be much softer than the December megadevaluation.
In addition to the gradual deceleration of inflation, the beginning of the second quarter will coincide with the increase in dollar income from a harvest that will be spectacular. The additional USD 20 billion expected for this year will recover the economy and at the same time will serve to strongly increase the supply of the exchange market. The expectation - and possibly the great challenge - is that it can be get out of the stocks sometime in the second trimester.
The general strike that the Government will face this week also reflects the brakes that will be attempted by different sectors of power, in this case the main unions. The Government will, however, have an interesting opportunity to use this measure of force in its favor, taking into account the terrible image of the unionists - starting with the Moyano clan - among the people.
It will be a week in which we will have to continue closely monitoring the exchange market, but above all in which the political leadership capacity of the new government will be put into play.
