In an interview with RFI, the Argentine economist Marcelo Elizondo believes that the Argentine government’s decision to order state companies to sell or exchange bonds in dollars for new instruments in pesos is ‘a bad measure in terms of reputation and the generation of trust ‘ because ‘an attitude of desperation’ is being displayed.
Argentina needs dollars to finance public spending and sustain its currency. The elections are approaching and the option of a broad adjustment could take its political toll. At the same time, the collection of agro-exports has decreased due to the bad harvest caused by the drought. The Argentine government has decided to look elsewhere for dollars: forcing state companies to sell the bonds they have in dollars as savings and buy them in pesos.
With this mechanism, the government seeks to offer instruments with a dollar value to the market, which are highly demanded in the current context of uncertainty and instability. In Argentina, remember, inflation exceeded 100%. The measure will also allow raising funds by issuing new debt in pesos.
But this decision has caused a lot of commotion, especially with regard to the agency that administers the pensions. The opposition estimates that retirees may be harmed. Clarifications with the economist Marcelo Elizondo.
“This topic produces a special awareness because Argentina has historically made many decisions that have been contrary to the respect of contracts, stability and legal certainty. The country has a very bad reputation and that is why it generates considerable doubt. The agency of The administration of the pensions mentioned has what is called a ‘guarantee fund’. These are, in reality, financial investments that are backed by guarantees that are not used for the payment of pensions. You have them like someone who has a reserve that is not used on a daily basis. The securities that (the government) forces to sell come from there. So there is no direct impact on the ability to pay. Where there is a potential impact is that, in the event that there were the need to go to that guarantee fund in the future, which has never happened up to now, that support would probably be less”.
Although pensions are not in danger and we are not facing a “pesification” of the economy, as happened in 2001, because retirements are not being directly affected, the effects of the measure are limited and give a disastrous image.
“This measure will momentarily calm, for a very short term, the growing demand for dollar assets generated by uncertainty and instability. For a while, those who wanted to buy dollars because they feared a certain depreciation or devaluation of the local currency, can buy these assets that are also listed at a very low price in the market and have a dollarized instrument. So this may attenuate the demand for foreign currency and the run against the peso in Argentina. But all this is, I repeat, in a very short time term. It is not sustainable. In the medium and long term, the problem will reappear. In terms of reputation and building trust, it is a bad measure. With it, an attitude of desperation is being shown. Urgent instruments are being resorted to that do not contribute in the least to a good reputation”.
