Thursday, July 18, 2024

ECONOMY | 05-12-2023 16:40

Milei minister hints new exchange rate of 650 pesos per greenback

Economists react with caution, doubt and criticism to incoming Interior Minister Guillermo Francos’ declaration that peso should be at between 600 and 650 per greenback.

Days before president-elect Javier Milei's inauguration, incoming Interior Minister Guillermo Francos has stated an official exchange rate of between 600 and 650 pesos per greenback would be “reasonable.”

Argentina’s currency is clearly overvalued and its value is protected by interventions by the Central Bank in exchange markets. However, Francos’ remarks indicate that the incoming La Libertad Avanza government could be leaning towards a significant devaluation of the peso from the current official exchange rate of 378 per greenback.

"When you look at the history of the last few years, it could be at 600, 650 [per greenback], it would be a reasonable value. I'm not saying that's what it's going to be. I think a reasonable value would be more or less that, making a projection of the cost of inflation and the value of the previous dollar," said the former president of the Banco Provincia during an interview with Luis Majul on the LN+ television news channel.

News of the remarks sparked debate among economists and political experts.

Consulted by Perfil, finance specialist Andrés Reschini said that if the real exchange rate is taken into consideration, the value proposed by Milei's main political sword "would be neither high nor low in historical terms, but in the current circumstances it would be appropriate to achieve a higher level through a dollar at 700, 800 [pesos].”

In Reschini’s opinion, these figures would allow for the "optimising the trade balance, improving the net international reserves position, regularising the debt for imports and facing  sovereign debt payments.”

At the same time, the expert predicted that "there would be more inflationary pressure." Nevertheless, he remarked that the prevailing state of affairs so far "cannot be endured much longer as it has led us to a level of negative net reserves in the order of minus 10.5 billion [US dollars] and serious supply problems with very high inflation."

Exploring this line of argument further, Reschini differentiated between a scenario of high inflation "during a period of fixing imbalances" and a situation of soaring prices "accumulating imbalances.”

Hernán Letcher, the head of the Centre for Political Economy (CEPA) think-tank, said that a dollar at 650 pesos "would make all imported inputs more expensive in a direct way and would generate greater inflationary tension.”

Argentina’s currency was devalued by the government in the wake of the August 13 PASO primaries, leading to a new spike in inflation – prices rose 6.3 percent in July to 12.4 percent in August and 12.7 percent in September, the highest level in more than three decades.

In Letcher's view,a devaluation at the pace proposed by Francos "would not have the effect of linking local prices with international prices because it is not very different from the value at which they are exported today.”

Economist Roberto Cachanosky said that it is not so easy to glimpse what level the dollar should be at: "I don't know what a reasonable dollar price is, the dollar has a price like any other product in the economy. If we start putting a reasonable price on things, we're toast."

"In these conditions we have today, a dollar at $650 would be very cheap," he explained on Canal E, postulating that various factors influence the value of the North American currency.

At the same time, financial analyst Carlos Maslatón harshly criticised Francos' statements, stressing that "they perfectly express the mistaken idea of a country that believes that the government issuing a currency can fix the price of that currency in the market.”

"Not even Milei's 'liberals' dare to let the peso float, like all the world's currencies. Milei is transmitting through the horrible economic team that he appoints that he will not even allow the free functioning of the exchange market from 11/12/2023," he posted on X.



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