Multiple Exchange Rates

[toongeorges]

Lately there was a post wondering what the next move of the government would be.

Apparently they are considering multiple exchange rates:

http://www.cronista.com/economiapol...os-de-cambio-diferenciales-20120515-0059.html

http://online.wsj.com/article/BT-CO-20120515-714300.html

"Deputy Economy Minister Axel Kicillof's economic team is looking at giving manufacturers and importers of capital goods access to U.S. dollars at a more favorable exchange rate, while assigning a more expensive exchange rate to non-essential items like financial transactions and tourism, the paper said, without citing sources."

 

[AndrewWoodward]

I'm not much of an (or any) economist, but you wonder how long things like this can last. Maybe in a booming economy you could get away with it, but Europe looks on the verge of a collapse next month, the US is dysfunctional and in an election year, and even China has run into issues lately that has everyone taking a second look.

Plus you have Brasil starting to push back a bit. For a country that survives off of exports, that seems, from my uninformed place in the world, to point to troubles. Eventually won't they just run out of dollars?

 

[Johnny]

Lately there was a post wondering what the next move of the government would be.

Apparently they are considering multiple exchange rates:

http://www.cronista.com/economiapol...os-de-cambio-diferenciales-20120515-0059.html

http://online.wsj.com/article/BT-CO-20120515-714300.html

"Deputy Economy Minister Axel Kicillof's economic team is looking at giving manufacturers and importers of capital goods access to U.S. dollars at a more favorable exchange rate, while assigning a more expensive exchange rate to non-essential items like financial transactions and tourism, the paper said, without citing sources."

Further along down the road to Venezuela.

 

[Matt84]

Further along down the road to Venezuela.

Or to old Cuba where some have access to pesos convertibles (dollars) and others have banana peel money.

Maybe this gov is deliberately doing this to ban forex altogether allowing only a connected elite (in the forming) to trade with the outside world.

The only obstacle for such a plan were the farmers, but they got taken care of some years ago, (2009?). After the retenciones on soy the farmers already have to ask the gov ratified permission to exchange their product for foreign currency.

If that's the case and the gov pretends to either control (communism) or incorporate (most likely case, the essence of peronism and fasc...) all exporters importers, then,

au revoir

but no, they wouldn't be able to ban currency. I forget that in Argentina evil plans suffer the same fate as well-intended plans.

 

[el_expatriado]

I'm not much of an (or any) economist, but you wonder how long things like this can last. Maybe in a booming economy you could get away with it, but Europe looks on the verge of a collapse next month, the US is dysfunctional and in an election year, and even China has run into issues lately that has everyone taking a second look.

Plus you have Brasil starting to push back a bit. For a country that survives off of exports, that seems, from my uninformed place in the world, to point to troubles. Eventually won't they just run out of dollars?

The problem right now is the current system favors importers and not exporters. With the unofficial dollar much more expensive than the official dollar, it makes locally produced goods way too expensive and favors imported goods because it makes them way cheaper.

They need to do something to help exporters. Three weeks ago I stopped exporting until they do something about this exchange rate issue. I am not going to export and get paid $4.45 for the official exchange rate if the real rate is 5.60. And I'm sure I am not the only one who feels this way.

Once they start to pay me a fair rate, I will start exporting again. So, I think this is a step in the right direction. Ideally they would just take the whole economy to 5.60 and let the market set the exchange rate, but that is going to create a whole lot of inflation. They are trying to micromanage the rate to make the economy more competitive without generating a huge inflationary spike.

 

[AndrewWoodward]

but that is going to create a whole lot of inflation.

Wouldn't want that!

I take your point, although I think a lot of people would laugh if you told them Argentina favors importers. But yes, Argentina needs to find some way to increase exports, so I think you and I are saying the same thing.

 

[solerboy]

Wouldn't want that!

I take your point, although I think a lot of people would laugh if you told them Argentina favors importers. But yes, Argentina needs to find some way to increase exports, so I think you and I are saying the same thing.

They are already well at work improving the prospects for Argentine Exporters !

http://mobile.reuters.com/article/idUSBRE84D11W20120514?irpc=935

 

[jimdepalermo]

Actually, this is nothing new for Argentina. As I pointed out in http://baexpats.org/expat-life/21606-will-argentina-return-system-multiple-exchange-rates.html, the country operated with multiple official rates of exchange from 1931 until rather recently. I believe they were abandoned only when Menem fixed the exchange rate to the dollar in 1991.

There is an interesting NBER study from 1986 at http://www.nber.org/chapters/c7672.pdf that discusses multiple rates of exchange using Argentina's experience as an example, including this chart of exchange rates from 1949:

Note that the trade rates varied by up to 112%, and that the free market rate was 269% of the rate available to exporters of meat and grains. It's a great example of Peronist progressive tax policies at work against old-money elites (the wealthy land owners of Buenos Aires province)!

While this is undoubtedly extreme, it succeeded in closing import markets and greatly improving short-term prospects for working Argentines. During the early Perón years when this table was in effect, the distribution of income for the populace at large improved dramatically, although overall economic growth was only moderate.
​

 

[jimdepalermo]

The problem right now is the current system favors importers and not exporters. With the unofficial dollar much more expensive than the official dollar, it makes locally produced goods way too expensive and favors imported goods because it makes them way cheaper.

They need to do something to help exporters. Three weeks ago I stopped exporting until they do something about this exchange rate issue. I am not going to export and get paid $4.45 for the official exchange rate if the real rate is 5.60. And I'm sure I am not the only one who feels this way.

Once they start to pay me a fair rate, I will start exporting again. So, I think this is a step in the right direction. Ideally they would just take the whole economy to 5.60 and let the market set the exchange rate, but that is going to create a whole lot of inflation. They are trying to micromanage the rate to make the economy more competitive without generating a huge inflationary spike.

I understand that importers are now paying an average 8% of net values to buy import rights from exporters who would otherwise have exported their goods anyway. So the net exchange rate to exporters is around 4.8. Conversely, import prices have certainly suffered an equivalent increase to compensate importers for the need to obtain permits matching import-export dollar volumes.

I won't attempt to quantify the cost of the exchange market itself - matching importers and exporters, or the administrative cost of obtaining permits. or the time value of import investments idling in the port awaiting customs approvals. I assume these costs are all embedded in the price of imports at wholesale.

All-in, these numbers are significant and will almost certainly increase with time. We should all just forget about imported goods for now.

 

[el_expatriado]

I take your point, although I think a lot of people would laugh if you told them Argentina favors importers.

The government doesn't WANT to favor importers, but the economic reality favors imported goods by having a dollar that costs 4.45 when I want to buy something abroad. I am buying goods for less than the true value of the dollar (5.60 as of yesterday on the open market).