Central Bank seen seeking weak peso under Fernández

[MilHojas]

Central Bank seen seeking weak peso under Fernández

Fernández has promised voters he will revive the economy from its slump. He now intends to make the Central Bank a centrepiece for that strategy.

www.batimes.com.ar

President-elect Alberto Fernández is preparing to task the country’s Central Bank with trying to boost the crisis-torn economy through a weak exchange rate, according to two people with direct knowledge of the strategy.

 

[TheDonald]

Here's an interesting excerpt from a Bloomberg article this morning:

"Argentina’s economic woes began long before Macri took office. Since 1950, Argentina has spent 33% of the time in recession, second in the world behind the Democratic Republic of Congo, according to the World Bank."

 

[MilHojas]

Since 1950, Argentina has spent 33% of the time in recession ...

Random economic quote of the day?

But seriously, I'll quote myself (sorry )

When China artificially devalues yuan to make their products more competitive, it is believed to be a clever economic strategy. And at the same time Argentina somehow always suffers from peso devaluation.

How do all these posts complaining about Macri and what he did to peso look now? When the new government says that weak peso is good for the economy and there is no point in supporting the peso.

 

[jblaze5779]

can someone explain this to me? I've read the article a couple times now. Does this mean F will want to make the peso go past 60 into the 100 or so range? I thought F wanted to reduce or stop inflation.

China exports finished products to the rest of the world. Argentina just exports crops (right?). It doesn't seem right if argentina thinks they are the same as china. Is the increased sales of soy enough to fix Argentina's economy?

 

[FallenAngel]

Does this mean F will want to make the peso go past 60 into the 100 or so range? I thought F wanted to reduce or stop inflation

The goal is not to target a certain value. It means that 1) government will quit subsidizing the peso by spending down reserves 2) the government will build reserves this means selling pesos to buy dollars

The end result of these two actions has a weakening effect all things being equal. The actual direction and magnitude of the peso depends on market forces though this is just one among many forces that push the peso. Theoretically the peso could become stronger if the economy improved greatly (haha!).

Realistically the peso will likely see 100. No idea on the timeframe, but it will likely get there.

China exports finished products to the rest of the world. Argentina just exports crops (right?).

Argentina does not export finished goods because the peso is too strong. In addition, Argentina labor laws are not competitive. Fixing labor laws and weakening the peso could make Argentina's export market more attractive. They will need to cut a lot of worker protections, cut the unions, and reduce wages. In the short-term it will mean lower quality of life but in the long-term it will mean higher quality of life. Can Argentine stomache this tradeoff? Probably not.

Is the increased sales of soy enough to fix Argentina's economy?

No, agriculture will not save Argentine's economy this time, IMO.

 

[Rich One]

Maximo K President 2023..! Don't Cry for me Argentina.

 

[jblaze5779]

The goal is not to target a certain value. It means that 1) government will quit subsidizing the peso by spending down reserves 2) the government will build reserves this means selling pesos to buy dollars

The end result of these two actions has a weakening effect all things being equal. The actual direction and magnitude of the peso depends on market forces though this is just one among many forces that push the peso. Theoretically the peso could become stronger if the economy improved greatly (haha!).

Realistically the peso will likely see 100. No idea on the timeframe, but it will likely get there.



Argentina does not export finished goods because the peso is too strong. In addition, Argentina labor laws are not competitive. Fixing labor laws and weakening the peso could make Argentina's export market more attractive. They will need to cut a lot of worker protections, cut the unions, and reduce wages. In the short-term it will mean lower quality of life but in the long-term it will mean higher quality of life. Can Argentine stomache this tradeoff? Probably not.

I honestly don't think they'll fix anything. Ultimately, the changes required are not going to be comfortable and will require more than 4 years to fix. I have only been here one year but, IMO and from my experience interacting with locals, any changes that require discomfort or long term commitment are not in the Argentine nature.

 

[Weyland]

How do all these posts complaining about Macri and what he did to peso look now? When the new government says that weak peso is good for the economy and there is no point in supporting the peso.

The problem is Macri burned billions in reserves trying to prop up the peso. It weakened despite all their efforts.

Just because the new government says their policy is good for the economy, doesn't necessarily make it so. It could temporarily revive the economy but hyperinflation beyond what we are seeing now is certainly a possible outcome.

 

[MilHojas]

The problem is Macri burned billions in reserves trying to prop up the peso. It weakened despite all their efforts.

Macri just wanted to attract foreign investors and tried to maintain at least some appearance of economic stability. Reasonably stable national currency was a part of this play. And it didn't work out so well, as we all know.

... Argentina labor laws are not competitive. Fixing labor laws and weakening the peso could make Argentina's export market more attractive. They will need to cut a lot of worker protections, cut the unions, and reduce wages...

This is very unlikely to happen with peronists in charge.

 

[sts7049]

Random economic quote of the day?

But seriously, I'll quote myself (sorry )



How do all these posts complaining about Macri and what he did to peso look now? When the new government says that weak peso is good for the economy and there is no point in supporting the peso.

it won't matter. i can hear the arguments now... "if it weren't for what macri did we wouldn't have to do this. so it's still his fault"