Argentina is heating up: dollar raises, Prices raise, Salaries drop

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By: Tomás Lukin / Resumen Latinoamericano / The Dawn / December 17, 2015.- The market sets the price of the dollar, even though the government will push it above 14 pesos. To accelerate the elimination of the restraints in operations in US dollars, the government will go into debt with banks, dollarize the swap with China and produce a strong currency transference to cereal exporters.


Minister of Finance, Prat-Gay showed confidence: “rest assured, none of the doom prophecies made [by the opposition] during the electoral campaign will become true”. “I come to announce the end of the restraints on exchange. Anyone who wants to buy dollars will be able to do so without restrictions”. With this formula, Prat-Gay announced the dismantling of the administration scheme of exchange market in Argentina, where, since 2011, the government of Cristina Kirchner had restricted the acquisition of dollars through several dispositions, and a black market had originated.

The measures announced by the Macri administration will be accompanied by a devaluation of the Argentine peso. Prat-Gay claimed not to know how much the exchange rate between dollars and pesos will grow, and he avoided specifying the value that the government desires but he offered an estimate: “fourteen and something”. “Today, the conditions are apt for eliminating the restrictions, and we have done it as fast as we could”, the head of the Finance Palace indicated when he talked about the promises of currency income the party had made to the agro-export sector and the proposals of financing from international banks that they are negotiating to guarantee the availability of currency.


Once banks implement these changes, the only limitation for people and companies with pesos available to buy foreign currency will be the monthly maximum —restored to its former value— of two million dollars. The rest of the tools created over the last four years will be eliminated: the requisite of pre-approval by the Federal Administration of Public Revenues (AFIP) will disappear, as will the taxes added to the Income Tax for purchases outside the country and for savings.

With the goal of renewing the unrestricted flow of dollars for importers, Minister Prat-Gay indicated that companies that accumulate pending payments for shipped imports will have two options: they will be able to either buy currency according to a pre-established schedule, or use mechanisms with government bonds to meet those payments in advance.

Additionally, the new economic team announced the flexibilization of the controls for the income of speculative capitals that were in force since 2005.


“I wish we could know how much is the dollar going to cost. There is no magic number, let’s not get confused. This is returning to normalcy”, said Prat-Gay yesterday when asked about the price in pesos that the dollar will reach. He was accompanied by Vice Minister Pedro Lacoste and Secretary of Finance Luis Caputo. The new economic team is convinced that there won’t be an important impact of the jump in the exchange rate on inflation, and they think this is a kickstart for the reactivation of economic growth.


From their perspective, devaluation is already present in the prices paid by the businessmen, and any raise in prices for the population will be responsibility of the previous administration. The dynamic in the supermarkets and the historic experience contradict this premise and allow to predict a contraction in the real value of salaries. “The logic behind this announcement is that we are eliminating obstacles for you workers, micro-entrepreneurs, creatives, teachers, to do what you have to do without a State that tells you what you can and can’t do”, was the liberal maxim that Prat-Gay, former head of the Central Bank between 2002 and 2004, used to explain the measures.


“The exchange rate will fluctuate, but the Central Bank will have the tools to buy if it thinks the price dropped too much or sell if it went too far up”, promised Prat-Gay.


Green promises


“We discussed that we needed an additional income of 10,000 million dollars to confidently eliminate the restrictions on exchange. Agro-industrial exporters committed to bring to the country 400 million a day for three weeks, which totals 8,400 million dollars. This effort in international reserves will be complemented, according to Prat-Gay, with a contingent financing operation by a group of foreign banks, for approximately 8,000 million dollars. This mechanism will be implemented through the Central Banks to bypass the extortive actions of the vulture funds.


The third part of the plan is the negotiation with the Bank of the Popular Republic of China to convert a part of the yuans of the swap agreement made last year to dollars. The Central Bank informed that 3,100 dollars will be available for different operations. “It is with that security that we dare to eliminate the restrictions, had the case been different, of course we would have not been able to do so”, affirmed the Minister.


“The goal is that imports and exports can be freed”, expressed the Finance Minister. The system of anticipated sworn declarations of imports will be eliminated, and the exchange market for payments of goods imports and services will be liberalized. This is a new step in the process of the economic opening of the country planned by the new government. They will probably have no difficulties in accessing the currencies of those who must do “payments for previous imports endorsed by credit cards of local banks or official credit organisms”. From the Central Bank it was announced that, in order to regularize pending payments for shipped imports, which amounts to approximately 5,000 million dollars, a schedule will be made to pay until the middle of next year. As an alternative, mechanisms via government securities will be implemented to meet those payments in advance. “The greater goal is to get the wheel to start spinning again. No one has full certainty. This is a work in progress that we will measure step by step”, concluded Prat-Gay.

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