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The trident: Lebac, dollar and inflation.

The dollar is more of a psychological effect on Argentines....

Politics and Economics
How do you see Argentina's economy today? Since December 2017, the economy has suffered a blow to the country's credibility. It is true that the international context worsened from the beginning of the year but this only showed that some assumptions on which the economic plan was based were very weak. Suddenly, the euphoria over the October election victory was replaced by the mistakes that caused the government to pay a political cost and led to a loss of credibility in President Macri's ability to continue with his reform plan. It is not that the economy had no problems, but since then the same variables that were being controlled began to generate negative consequences. The Dollar began a bullish trend as a result of capital outflows. Inflation, which was already projected above the original 15%, took the Central Bank's target, which could not control the rate of devaluation, and had to set the reference interest rate at 40%. With the glass half full I would see that today the government is taking note of the situation and with the dollars that will come from the agreement with the IMF, the new measures adopted by the central bank and the cabinet changes are trying to stabilize the economy. But with the glass half empty I would see the impact of the devaluation on prices that generates an inflation expectation of over 30%, the problems of financing SMEs, salaries losing purchasing power and the sword of Damocles de las Lebacs and debt. What happened to the Lebacs in recent months and what could happen in the next renovations? If we analyze what happened in the last few months we will see that the bet was the dollar against Lebacs. Those who bought Lebacs in April at a rate of 26.5% had a yield of approximately 2% while the dollar went from 20 pesos at the beginning of April to 25.5 pesos by mid-May, a yield of 27%. In May the central bank raised the rate to 40% but again the devaluation of the dollar from 25.5 pesos to 28 pesos was above the monthly yield. The Dollar clearly positioned itself as an asset that adjusted its lag against inflation, while the Lebacs rates could not prevent the Dollar from running out of steam. Rather, the banks were vital in sustaining and renewing the stock in May in contrast to the June renewal that covered 60%. There is consensus on eliminating the Lebacs and therefore it is expected that in the next renovations a gradual process of liquidation will begin, which was already agreed with the National Treasury. The idea is for the central bank to change the bonds it has in its portfolio, which are not quoted in the market, by the funds that enter the National Treasury from the Monetary Fund and with that to dismantle the Lebacs and their effect on the price of the dollar. What does the economic future hold for us? The economy enters a new phase? Well, after this crisis, what I think is that the Argentine economy is going to enter a phase where some variables are going to accelerate, with a faster rate of inflation growth and, on the other hand, it is entering a more marked rate of economic growth deceleration. This may have an impact on poverty and unemployment rates. What can we do in the face of an inflationary scenario? People are more concerned about protecting themselves against inflation because after a period of several years with double-digit inflation rates the economy becomes nominal and it is very difficult to assign a real value to what we consume. Moreover, when the variables start to move uncontrollably, there are always some live variables that unjustifiably increase the prices of the economy. I believe that one of the things that can be done is to plan expenses and thus not validate increases that have no justification. Now, the government must do the same, it must reduce spending and not validate excesses of monetary issue that end up affecting inflation that hurts people. Should we be concerned about the dollar's rise? More than worrying, I think the dollar has a psychological effect on Argentines, but worrying is more about inflation. People struggle daily with inflation, not with the dollar. Now the dollar does have a mechanism in Argentina that transmits its increases in prices, and therefore people tend to look at what happens to the dollar but the real impact is felt in inflation. But the dollar, as I told you, plays a fundamental role because in Argentina it has always suffered from the impact of devaluations in prices. For the people to understand, the problem of Argentina is structural and no government could solve it. But what behavior can we expect from the dollar? It seems to me that the government is betting on stabilizing it around the current price to show that the crisis has been overcome. However, the fact is that the

Publication Date: 10/07/2018

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