A Soft Transition to the Elections: The Calm That Precedes the Storm?
I. Can anything go wrong before the elections?
It seems that the government has enough instruments to maintain key economic variables under control until the elections. The official exchange rate should be manageable and avoid a steep devaluation, the government should be able to rollover the domestic debt, inflation could remain within predictable bounds and economic activity is likely to recover in the third quarter reflecting the larger mobility as the population gets vaccinated and the government relaxes the lockdown. It seems that the government can avoid a crisis on the way to the elections, which, by the way, are not going to be irrelevant.
II. Outline: Towards a weaker peso
At first glance the current level of the exchange looks right. The multilateral real Exchange rate, one measure that is generally used to indicate problems, is now reasonably close to a long-term average. The occasional observer could think that this means that Argentina is closed to an equilibrium level. More so, considering that Argentina is marching towards a second year in a row of a current account surplus. But it is not so simple.
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