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Former Economy Minister Domingo Cavallo analyzes the latest economic measures of the Javier Milley government and argues that despite inflation It is showing signs of slowing down and Minister Louis Caputo’s economic plan has several weaknesses.
The former official warned of the possible impact of a recession in an article about the economy shared on his personal blog. economic recessionwhich may exacerbate, Reserve loss Central Bank of the Argentine Republic (BCRA) and Exit Rate This is not going to happen any time soon.
Inflation, reserves and exchange rate delays: threats to Caputo’s second phase
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The economist emphasized Exchange delay This is after the devaluation was registered in December 2023, which occurred as a result of the official exchange rate being updated from the initial monthly increase of 2%. On the other hand, he also pointed out what he considered to be “good news” inflation.
“There has been good news about the evolution of inflation in recent weeks”the former minister said, although he explained that “at the same time There are two side effects of stabilization policy that are questionable about its sustainability”.
In this regard, he said that the two groups of “questionable” side effects are Widening gap the relationship between the implied exchange rate (CCL) and the official exchange rate, and The recession worsens.
“In addition, when analyzing the diffusion index, Confirms that the decline in inflation is more widespreadannual goods and services inflation of about 80% fell in June. In July, early indicators suggest that inflation continued to decline,” he added.
CarvalhoOn the other hand, it also emphasized: “After the official exchange rate depreciation in December, the government decided to maintain a controlled depreciation of 2% per month as a nominal anchor for adjusting price expectations, resulting in AGradual but sustained appreciation of the weighted real exchange rate Trade. “This appreciation now raises questions about its long-term sustainability.”
Likewise, he believes that the declaration zero emissionthis is a “strategic and risky” decision, “Questioning the accumulation of reserves”“The government is betting heavily on the stability of the foreign exchange market and the fall in inflation,” he said.
In one year, the minimum wage increased by 122% and the basic basket price increased by 250%.
In this context, Former Minister He stressed that “one of the most obvious weaknesses of the current anti-inflation program is its impact on aggregate demand, or at least on consumption,” and believed “Key activity indexes suggest recovery is yet to come”.
“The government is also working to convince potential investors to participate in activities based on abundant natural resources. Investment projects are decided and launched within the framework of the Large Investment Incentive System (RIGI) recently approved by Congress as part of the Basic Law,” he later noted.
In this regard, he concluded: “It is important to clarify the process of removing the restrictions that currently affect foreign trade transactions and the capital account of the balance of payments. The latest decisions and statements of the economic team and the International Monetary Fund President Milley himself They show no urgency to remove foreign exchange controls and do not seem concerned about increasing their foreign exchange reserves.which is necessary to eliminate the risk of default, which is still reflected in the size of the country risk rate. “
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