The Dollar: Unnecessary Hysteria
Published in La Nación
(Argentina) on 6 June 2012
by Martín Lousteau (link to original)
(Argentina) on 6 June 2012
by Martín Lousteau (link to original)
Translated from
by Karen Posada.
Edited by Gillian Palmer.
Once again all eyes turn toward a known economic indicator: the value of the dollar. Just like in the past, there are also various prices for the U.S. currency. First, the official value is tightly controlled and trades at $4.50. In this context, its microscopic daily fluctuation gives us very little relevant information about the future. On the other hand, its parallel value is about $5.90 these days, a difference of about 30 percent from the trading value. This gap varies mainly because of present uncertainty and the severity of the controls that make it risky to access currency through these means. This is a truly tiny market that moves an average of $3 million daily. Lastly, there is the so-called cash-settled value, which is the price of the dollar outside of the country traded even higher, at $6.10. Naturally, only a privileged few have sufficient funds at their disposal and the foreign accounts to carry out this kind of operation. In fact, the transactions are equivalent to $40 million a day.
The low volume of the two unofficial dollar markets raises certain questions. The first one has to do with how the governing party interacts with the portion of the population that buys the famous greenback, estimated to be about 10 percent. In a country where the formal salary is an average of $4,500 after taxes, it’s not strange that only a few people are capable of saving. However, that doesn’t mean that in light of our past, many of our citizens view the value of the dollar as a marker, however inaccurate, of what is happening or will happen with the economy.
Since past experiences, this behavior isn’t any less surprising. This is not because many Argentines are foreign to the obsessive compulsion to think in dollars, as Chief of the Cabinet Abal Medina said during his visit to the senate. The reason is quite the opposite. The measures that the national government has been taking have unnecessarily led some segments of the population to worry about this subject.
The Central Bank currently has more than $47,000 million in international reserves. Not counting the loans from the Bank of International Settlements (BIS) and accounting for dollar reserves (technical matters not worth developing in this small space) or the reserves to transfer to the Treasury with the objective of cancelling all debts in dollars, the firepower from BCRA (Argentina’s Central Bank of the Republic) reaches $31,000 million. It is strange, then, that those tiny markets have become so worrisome.
Sometimes nervousness brings us to projections based on the recent history of our country. Previous episodes are analyzed to see what could happen between the formal market and the parallel, in splits with multiple exchange rates and/or costly mega-devaluations. Points of reference include ‘70s (Rodrigazo), the ‘80s (debt crisis and hyperinflation) and the end of the ‘90s (convertibility of terminal state). However, today Argentina has 10 times more reserves than it did shortly after the restoration of democracy in 1989, and 50 times more than in 1975. Similarly, exports are 30 times higher than in the year of Rodrigazo, and 10 times higher than in Alfonsin’s government, with a trade surplus that is also significantly superior. And any indicator about the magnitude of the current debt in dollars shows that today it is three times smaller than during the end of convertibility.
All of this implies that:
a) The economy has enough dollars accumulated
b) Growth is continuing
c) It has less need of dollars to face its financial compromises than in the past.
Then why does the government insist on generating this evitable hysteria of the dollar?
Perhaps the succession of statements from Senator Anibal Fernandez about this subject helps bring us closer to an answer. His statements about an alleged illegal agreement between Secretary of Commerce Guillermo Moreno with currency exchange centers about the value of the dollar reveal no knowledge about the subject, along with a lack of internal communication. The statements were also criticized afterward by executive branch officials. In addition, Fernandez said that selling dollars at $4.49 would be “stupid” and used the supposed pact to reassuringly estimate the parallel exchange at $5.10, as if that was the lowest price the public would believe. Wouldn’t it be easier to recognize explicitly that, with soaring and rising inflation, the dollar has officially been declining and continues to do so at great speed?
The low volume of the two unofficial dollar markets raises certain questions. The first one has to do with how the governing party interacts with the portion of the population that buys the famous greenback, estimated to be about 10 percent. In a country where the formal salary is an average of $4,500 after taxes, it’s not strange that only a few people are capable of saving. However, that doesn’t mean that in light of our past, many of our citizens view the value of the dollar as a marker, however inaccurate, of what is happening or will happen with the economy.
Since past experiences, this behavior isn’t any less surprising. This is not because many Argentines are foreign to the obsessive compulsion to think in dollars, as Chief of the Cabinet Abal Medina said during his visit to the senate. The reason is quite the opposite. The measures that the national government has been taking have unnecessarily led some segments of the population to worry about this subject.
The Central Bank currently has more than $47,000 million in international reserves. Not counting the loans from the Bank of International Settlements (BIS) and accounting for dollar reserves (technical matters not worth developing in this small space) or the reserves to transfer to the Treasury with the objective of cancelling all debts in dollars, the firepower from BCRA (Argentina’s Central Bank of the Republic) reaches $31,000 million. It is strange, then, that those tiny markets have become so worrisome.
Sometimes nervousness brings us to projections based on the recent history of our country. Previous episodes are analyzed to see what could happen between the formal market and the parallel, in splits with multiple exchange rates and/or costly mega-devaluations. Points of reference include ‘70s (Rodrigazo), the ‘80s (debt crisis and hyperinflation) and the end of the ‘90s (convertibility of terminal state). However, today Argentina has 10 times more reserves than it did shortly after the restoration of democracy in 1989, and 50 times more than in 1975. Similarly, exports are 30 times higher than in the year of Rodrigazo, and 10 times higher than in Alfonsin’s government, with a trade surplus that is also significantly superior. And any indicator about the magnitude of the current debt in dollars shows that today it is three times smaller than during the end of convertibility.
All of this implies that:
a) The economy has enough dollars accumulated
b) Growth is continuing
c) It has less need of dollars to face its financial compromises than in the past.
Then why does the government insist on generating this evitable hysteria of the dollar?
Perhaps the succession of statements from Senator Anibal Fernandez about this subject helps bring us closer to an answer. His statements about an alleged illegal agreement between Secretary of Commerce Guillermo Moreno with currency exchange centers about the value of the dollar reveal no knowledge about the subject, along with a lack of internal communication. The statements were also criticized afterward by executive branch officials. In addition, Fernandez said that selling dollars at $4.49 would be “stupid” and used the supposed pact to reassuringly estimate the parallel exchange at $5.10, as if that was the lowest price the public would believe. Wouldn’t it be easier to recognize explicitly that, with soaring and rising inflation, the dollar has officially been declining and continues to do so at great speed?
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