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Milei said he plans to go to a flexible exchange rate after the dollar restrictions are lifted, in line with what the IMF is asking for - Infobae
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Milei anticipó que planea ir a un tipo de cambio flexible tras la salida del cepo al dólar, en línea con lo que pide el FMI
La competencia de monedas que pretende el Presidente se parecería a la flotación administrada de Uruguay o Perú, según el Fondo. El gobierno pretende una divisa libre, sin intervenciones, una vez que elimine el excedente de pesos
www.infobae.com
October 16, 2024
The currency competition that the President is seeking would be similar to the managed float of Uruguay or Peru, according to the Fund. The government wants a free currency, without interventions, once it eliminates the surplus of pesos.
By Augustin Maza
The government-IMF talks will move to Washington next week. (AP Photo/Natacha Pisarenko)
President Javier Milei announced this Tuesday, during his closing speech at the Monetary Conference of the Central Bank , that his intention is for Argentina to have a flexible exchange rate once he manages to eliminate the exchange rate restriction , a prior step for which he did not give a date but did give necessary conditions. The Government hopes that the price of the dollar can float without surprises once it manages to eliminate the surplus of pesos in the economy, beyond the availability of foreign currency.
This definition is in line with the definitions made by the International Monetary Fund (IMF) on what could be a currency competition regime , similar to the managed float of Peru and Uruguay . Next week, discussions on the current agreement with the country and the future of the economic program, which includes the exchange rate scheme, will move to Washington.
The President first commented that he does not know when the restrictions that were reimposed in 2019 during the crisis faced by Mauricio Macri and that were systematically tightened until the end of last year with the administration of Alberto Fernández will be lifted . “Time is God’s, because we did all the operations at market prices and that means that it will depend on the decision of the agents,” he said.
International Monetary Fund (IMF) Managing Director Kristalina Georgieva and Argentina's President Javier Milei talk before a working session at the G7 summit in Borgo Egnazia, Italy, June 14, 2024. REUTERS/Louisa Gouliamaki
Immediately afterwards, Milei gave a clue as to what the exchange rate scheme could be in the event of the release of exchange restrictions: “When the money overhand was eliminated , there is no excess supply of pesos. And if there is no excess supply of pesos, I can open the dry even if I don’t have dollars, because I am going to a flexible exchange rate system.”
The government understands that the conditions for moving forward on that path are not yet met, but it knows that the path is a gradual relaxation that does not imply endangering stability and, more specifically, the slowdown of inflation. “It is very difficult to think that opening the exchange rate restriction automatically allows you to have exchange rate equilibrium,” summarized the vice president of the BCRA, Vladimir Werning , on Tuesday at the entity's Monetary Conference.
Milei's prediction about the future of the dollar is a key definition for the future, but the future of this flexible exchange rate policy will have to pass some tests. In the government's ideal scheme, the currency would float freely because there would be no pressure from the surplus pesos in the economy, if the official stabilization program is successful.
The exchange rate gap remains at its lowest level and the country risk remains at its lowest level in five years (REUTERS/Marcos Brindicci)
The intention is generally approved by analysts. “The government's aim of moving towards a flexible exchange rate is correct, as long as macroprudential policies are maintained to mitigate risks, and also the gradual approach to achieving it. The question is how to go about that path and at what speed. The official strategy is summed up in that if there are no dollars, there will be no pesos either,” said Claudio Caprarulo of Analytica.
In its last review of the Argentine program, in June, the IMF raised the need to move toward a more flexible exchange rate and that “eventual currency competition within the regime could resemble the managed floating system that prevails in Peru and Uruguay. Price stability will continue to be a primary objective of the Central Bank, in a context in which individuals are free to save and carry out transactions in the currencies of their choice.”
The future of exchange rate policy will be part of the discussions that the team of the Minister of Economy, Luis Caputo , and the IMF authorities will have next week in Washington at the Annual Assembly. The organization raises some objections about a possible delay in the exchange rate and the continuity of the dollar blend, since the differential exchange rate for exporters serves to keep the gap at bay but implies less income of foreign currency for a BCRA that has negative net reserves of about USD 4,000 million. The zero emission scheme, by which the monetary authority sells reserves in the financial markets to "clean" pesos is also under evaluation.
The economic team points out that there is a mistaken view among analysts and that interventions are not a “taboo” subject for the Fund. They emphasize that the organization will discuss an update of its criteria next week . Broadly speaking, the IMF assures that foreign exchange interventions in times of shock can help economies that experience disruptive situations in the flow of capital, mainly those with floating exchange rates.
