In dialogue with Diario RÍO NEGRO, economist Melisa Sala, from the consulting firm LCG, addressed some of the salient issues of the Argentine macroeconomic situation.
QUESTION: The real multilateral exchange rate is already at the same level as before the devaluation of August 14.
ANSWER: It is true that the decision to have established a crawl of 2% on the official exchange rate when inflation runs at 2 digits has dramatically eroded the competitiveness gain achieved from the December devaluation. and that is reflected in a TCRM that today is at levels similar to those of last August. However, in our report “Is the exchange rate behind? Will it be behind in a short time?” “In what magnitude?” of 4/16, we try to demonstrate that the TCRM indicator at this time is not completely representative for different reasons.
Q: Why questions?
R: Before the devaluation, the export sector faced an exchange rate different from the official one based on the sweeteners offered with the different versions of the soy dollar and the blend dollar, so the improvement represented by the honesty of the official dollar was significantly lower for the sector. Furthermore, to adequately measure competitiveness, the cost dynamics of each sector must be considered, and the TCRM summary indicator may have its limitations if there is a strong disparity in cost prices, given that companies face different structures. More specifically, given that the evolution of energy, fuels, wages and the dollar has been so different in recent months, it is possible that the CPI is not a good indicator to deflate the dollar and measure the competitiveness of companies. It will depend on the cost structure of each one.
To adequately measure competitiveness, the cost dynamics of each sector must be considered.
Melisa Sala, economist.
Q: So what do you expect to happen to the official dollar in the short term?
R: In our report we conclude that 1) for the “export sector” the exchange rate competitiveness is below the levels of November 2023. But the same does not happen with the sector that competes with imports, where the exchange rate rose more and increased the Country tax; 2) if from April to June all prices average a monthly increase of 8% and the official exchange rate remains at 2% increases, the loss of competitiveness compared to December 2023 will be approximately 40%; and 3) unemployed As of June, with real wages at minimum levels, the labor-intensive sector and the one that competes with imports will have even greater margins compared to moments of obvious exchange rate delay such as November 2017 or November 2015. The same does not happen with agriculture, whose Costs are more concentrated in dollarized products and fuels. Although high margins in many sectors could give the government air to delay a new exchange rate adjustment, the situation in agriculture and the need to accumulate reserves may exert greater pressure. But it is possible that a specific solution will be sought for this sector, either through tax relief (withholdings), lower tariffs for its inputs (in the style of what was recently announced by Minister Caputo), or eventually a different blend, as already mentioned. did in the past.
Q: The depreciation of the Brazilian real impacts Argentina. Do you consider that this situation makes any point of the economic program weaker?
R: In line with the above, the depreciation of the Brazilian real will put greater pressure on the sectors that export directly to Brazil (outside the automotive industry that is governed by flex) and will relieve those that compete with the entry of products imported from there. . But we understand that the effect is marginal in relation to the real appreciation derived from the exchange rate policy chosen by the Argentine government.
The agricultural situation and the need to accumulate reserves may exert greater (exchange) pressure.
Melisa Sala, economist.
Q: The LCG inflation progress report shows a significant slowdown in food and beverage prices. Can we expect single-digit inflation in April, despite the increase in public service rates?
R: Our inflation projection for April is around 9%. LCG’s weekly price survey refers exclusively to food. It reflected a marked slowdown in March and in the first two weeks of April (our measurement is carried out on Wednesdays) but it stopped this week with an increase of 1.5%. With this, the accumulated inflation in the month amounts to 2.1%. If it closed at 6% monthly, it would contribute 1.9 pp to general inflation. On the other hand, the increase in regulated prices, with increases in gas and water (in the AMBA area) leading, would add 7.2 pp to the monthly variation. This without considering what was announced regarding the reversal of the increases in prepaid payments, which is not yet clear if they impact from April or with the beginning of May.
Q: From LCG, how necessary and possible do you see the dismantling of exchange controls?
R: We understand that the dismantling of the restrictions that operate on the exchange market is necessary to consolidate the entry of foreign direct investment. But we also see that without the accumulation of reserves such that it can cushion the effect that the migration of pesos that are still surplus in the market could have, this becomes very risky. Partly for this reason, the Government continues, in a context of stocks, focused on liquefying the stock of savings in pesos, trying to limit the power of a possible run when releasing the restrictions.
9% April inflation projection from the LCG consulting firm.
Q: The Government has said that the objective is to go to a system of currency competition, including the Argentine peso. What do you think of this? And what does the current de-dollarization process imply in that sense?
R: We understand that currency competition is nothing more than letting the exchange rate float freely, beyond enabling foreign currency as a generalized means of payments. In this scenario, it is worth asking what the Government’s ultimate objective is for the weight in this competition, what will it win or lose? Bastardizing the peso with nominally lower rates in a context of high inflation has short-term effects by liquefying the stock of wealth in pesos, but it will also have long-term effects by imposing a slow recovery in the demand for money. And in that currency competition scenario, the Peso would start losing not only due to past history but also due to recent history. The current de-dollarization process responds exclusively to the dismantling of positions in the face of the need for pesos imposed by the drop in real income in the case of families, due to excess coverage in the previous one in the case of companies and by an expectation of sustainability of crawling at 2% monthly in the short term that enables the carry alternative (with rates of 5.8% monthly).
PROFILE
Melisa Sala
Melisa Sala has graduated with a degree in economics from the Universidad Argentina de la Empresa (UADE).
He has a postgraduate degree in economics, completed at the National University of La Plata (UNLP).
Currently, he holds the position of Principal Economist of the consulting firm LCG (Labour, Capital & Growth), recognized nationally and internationally for the quality of its economic forecasts.