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Strength builds as the adjustment continues, and the bet against the dollar remains strong


Feb 10, 2024

Javier Miley is pleased to have Luis Caputo as part of his team, and as a minister, he also believes that the President allows him to act. One of the most controversial aspects of the adjustment was the minister’s decision to eliminate subsidies for urban transportation in the provinces. Milei took immediate action by withdrawing the Omnibus bill from Congress because he believed it would not receive specific approval and that cuts to various items would occur immediately. Caputo was responsible for the message that none of the political failures of the ruling party would cloud the process of adjusting public accounts to achieve a financial surplus.

Stock prices fell, and bonds decreased, but not to the extent expected. This may indicate that the market believes the Minister, and that the fiscal surplus objective has absolute priority, regardless of the political costs. In the economy, there are quiet celebrations for the moderation in the pace of price increases that are expected in February. However, the cost of living may still increase around 18%, driven by rising electricity, gas and gasoline rates, as well as prepaid bills and school supplies.

The adjustment, based on a significant reduction in pensions, salaries, and fixed-term deposits in pesos, has entered a new stage different from that which characterized the Argentine economy since 2023. This new cycle is generated by the sharp drop in sales since the beginning of the year in response to the price stampede after the December devaluation.

Companies and businesses have left behind the concern of not losing the rebranding race and are now prioritizing attention to quantities sold. Some businesses report sales drops of up to 50%, especially in shopping mall businesses, while the textile, construction, and medication sectors reported drops of 20-30%. Discounts of 50-70% are now evident in various businesses, including supermarkets and for retirees, representing the new stage of downward trend in quantities sold.

Economists predict a strong adjustment for families, and the key question revolves around how much recession will be necessary to lower inflation due to the current deregulation of prices. The Central Bank has purchased US$ 6.8 billion since the devaluation, which is expected to maintain the fixed exchange rate policy. However, some market operators and analysts consider a possible exchange rate jump in April necessary.

Devaluating to encourage more dollars to enter or not doing so to prioritize moderation in price increases will be next month’s dilemma. The political future after the failure of the Omnibus Law approval in Congress will also be a key factor.

By Editor

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