MercoPress. South Atlantic News Agency

Contradicting messages from Batakis herald split devaluation

In this scenario, newspapers in Buenos Aires already speak of Batakis as a “transition minister.”

Argentine Economy Minister Silvina Batakis has been reported Friday to be evaluating several possible scenarios, all of which involve some forms of devaluation of the local peso.

Batakis has said she “felt comfortable” with the current exchange rate, so a sharp devaluation was not to be expected. However, market observers sensed some contradictions in the minister's behavior and are foreseeing a series of differentiated devaluations, which are quite likely to happen in a country already riddled with exchange rates that include the informal (or black market) ones in every day's newspapers.

The minister said she would tackle Argentines traveling abroad, because -she claimed- it harmed local production. So far, charges in foreign currency on credit cards of Argentines were to be liquidated at a combination of the official exchange rate coupled with the “PAIS tax” which nevertheless remained a lower price in pesos for a US dollar than that charged on the informal (“blue”) market. Hence, some adjustment is to be expected in this regard through a change in the conversion scheme, which, according to reports, would mean a 27% variation. Such a measure would also affect users of e-commerce platforms.

From Batakis' angle, the way things are right now means a subsidy to expenditures abroad while dollars are denied to businesses needing to import industrial inputs. All Batakis reportedly cares about is the over US$ 3 billion in PAIS tax not collected under the present scheme.

In addition to that, Argentines are demanding to buy US dollars at the same pace they did under former President Mauricio Macri when there was an open, unrestricted market

The minister also called for a speedier liquidation of “soydollars” at the current official exchange rate. Her announcement that there would be no further export duties did little to encourage producers who at the end of the day collect in dollars far less than those in the agrifood business in other countries, despite rising global market prices. In other words, when soybeans were trading at US$ 608, the Argentine producer only received US$177, thus disincentivizing an activity, which would in the short run result in even fewer tax collections and more domestic stagnation.

In this scenario, farmers will not liquidate their exports, pending a more favorable scenario. In other words, Batakis will need to meddle with the current scheme if she wants those dollars. The exchange rate will also need to accommodate current inflation indexes. So far, the devaluation pace managed by the Central Bank (BCRA) has been, on average, at two-thirds of inflation: in the face of inflation already over 35% this year, the US dollar has only moved 20% up. In other words, Argentina has had a “dollar inflation” of 12%, after having registered 26% over the past year. Even if these figures are corrected for U.S. inflation, this implies the accumulation of an exchange rate lag of 6% so far this year, on top of the 17% in 2021. How much longer will the Minister validate these exchange rate delays?

With July's CPI already forecast at around 10%, something will need to be done about the exchange rate. A devaluation seems inevitable and the farthest away from next year's elections the bigger chances of people having forgotten by then. Social unrest is nevertheless always around the corner.

All in all, the new “tourism dollar,” looks inevitable. This would make travel abroad more expensive, as Treasury reserves keep falling. Argentina continues on the path of fiscal deficit, aggravated by a political crisis of unknown dimensions, where the permanent rumors in the bosom of power make investments remain absent in the economic scenario.

After the agreement with the IMF, inflation is heading towards 3 digits, peso bonds are no longer an interesting investment, and the State is unable to finance itself in any currency, resorting excessively to monetary issuance.

Trips abroad will decrease, however, the AR$ 280 / US$ 1 parity will not prevent the ABC segment from traveling, they only stop the middle class from going abroad, those who were planning to travel to the World Cup will do it anyway, and the bleeding will not stop.

The government will keep imposing restrictions instead of working to reduce the fiscal deficit, which seems to be out of the question.

In this scenario, newspapers in Buenos Aires already speak of Batakis as a “transition minister.”