Although renowned Tucumán economist Ricardo Arriazu—a regular speaker at business forums and advisor to international organizations—said yesterday in a virtual event that he disagreed with the band or with a devaluation, and Mario Blejer—former president of the Central Bank and a key figure during the post-convertibility period—had expressed a similar position last week, the Argentine government decided to move forward. Despite these warnings, it decided this Friday to begin dismantling the currency controls and move to a system of bands between $1.000 and $1.400, the maximum level at which it will sell dollars obtained through the new agreement with the IMF.
The dollar blend—an IMF requirement—was also eliminated, which means that exports will now be settled entirely in the official dollar, and no one can guarantee how much it will be on Monday or throughout the week. And as usual, uncertainty complicates exports. We estimate it should be higher than $1.096 (the official dollar), although on Friday it settled at 80% at the official dollar and 20% at the dollar exchange rate, something like 1.150 pesos. Therefore, for the new scheme to be an advantage for exporters, the exchange rate should be higher than that amount starting Monday.
Payment deadlines for importers have been modified. Under the new measures, operators will be able to pay from the day of import registration (previously 30 days after), while those with MSME certification will be able to pay from the date of shipment at origin, or, in the case of China, up to 50 days before import.
For ordinary citizens, the limit on dollar purchases has been eliminated, as has the tax that made access more expensive. However, the tax burden remains on card purchases and tourism. More than $2.000 billion a month went this way in January and February, and this so-called "card" dollar could go as high as $1.820.
Devaluation means more inflation
If the dollar opens above the current level on Monday, it would clearly represent a devaluation, which would imply an improvement in the exchange rate for exporters, who were suffering from a lagging exchange rate. In recent days, many of them had halted their liquidations, hoping for a jump in the exchange rate, and this could improve liquidations. In the medium term, this could increase exports and liquidations.
Although a higher exchange rate improves both the competitiveness and domestic prices of Argentina's exports—such as meat, corn, wheat, wine, honey, and much more—the truth is that devaluation in recent history has been accompanied by a surge in inflation. The announcement also comes on the same day that an inflation rate of 3.7% was released for March, marking an upward trend compared to January and February.
A dollar closer to 1.400 could lead to the liquidation of agricultural dollars and the sale of held soybeans in anticipation of a better price. In the case of imports, if the dollar were to remain around that value, it wouldn't represent a significant change because many companies were already importing at a MEP dollar value close to that value.
Trade War
The international context indicates that the trade war is here to stay, although for now only the two major players in the ring are in the spotlight: the United States and China. Even if this confrontation is limited to these two countries, a decline in global trade and a weakening of exports and imports are expected. The worst-case scenario, in this regard, would be to remain with a lagging dollar, while China needs to sell its surpluses that it can no longer sell in the United States market.
Conclusions
Much will depend on the market's reaction next week. Breaking out of the currency controls—something that exists only in countries with poor growth and prospects—remains essential to normalizing the economy. We must somehow break out of this system, which exists in only a few countries in the world.
The other issue is that the dollar is lagging and hampering exports, promoting imports. Correcting this disparity would require an increase in inflation, a cost that would have to be borne. In short, it involves two actions at once: easing the currency controls and improving the exchange rate, although this will mean higher inflation and a hit to the public purse. The final outcome will depend on other actions, such as the global outlook, maintaining surpluses, and market reactions.
The author is a Specialist in International Trade and holds a Master's degree in Tax Administration and Public Finance, with a solid academic background and extensive experience in foreign trade and customs policies. He teaches at the National University of Córdoba (UNC) and the Catholic University of Córdoba (UCC), where he lectures on courses related to international trade and trade facilitation. He is also an accredited expert of the World Customs Organization (WCO) and a specialist in trade facilitation.
