Energy and Emissions Matrix
An Alternative for Argentina
Carlos Feu Alvim
"A posteriori" elucidation
The ideas grouped here were elaborated before the crisis that resulted in the substitution of the president and and the call for moratorium. Many ideas remained valid or are being imposed by circumstances
Convertibility Plan or S Plan
It has been considered that psychological binding to the dollar in Argentina would make inflation explode if the exchange would be changed. In order to break this dependency in countries used to inflation it is normally necessary to create an intermediary reference.
This maneuver was made In Brazil by creating a variable currency (more or less linked to the dollar) called URV (Unit of Reference Value). In Argentina it already exists and it is the Peso.
There is an international consensus that the Argentine currency must be devaluated. The main resistance of the Argentine society to this devaluation is the loss of the dollar as the reference value and that there will be a new hyperinflation.Several countries, including ours, maintained internal currencies overvalued for a large period by centralizing the exchange. Presently China adopts this centralization and even permits a certain internal dollar circulation. Turkey and Indonesia, among other countries, recently followed this practice which is not free from problems but is effective in the medium term.
The Inverse Parity
The convertibility program was based on the dollar anchor in order to stabilize the economy. For 10 years the 1 peso = 1 dollar equivalence was maintained although some internal prices have had substantial increases. The possibility of maintaining the convertibility was taken to extreme limits. Interest rates, increased in order to retain external and internal creditors, built up the deficit.
The recent measures regarding money drawing were taken in order to avoid a rush to the banks to get convertibility or even to draw deposits that would liquidate part or all of the banking system. Actually no country in the world could resist to such massive attack.
Our suggestion is to adopt for the whole internal economy the inverse convertibility. For all internal contracts the values in dollars should be converted to pesos. Some compensation could be considered for the remuneration differential of the application in peso and in dollar (preferably lowering all of them to the level of operations contracted in dollar).
The exchange would be centralized and the official exchange rate would in principle be maintained as 1 peso = 1 dollar (with buy/sell differential). Other measures regarding centralized exchange would be taken such as export and import licenses, limitation of dollars for foreign travels. External remittances would be controlled. Draconian prohibitions regarding internal transactions in dollar which would be considered as crime against the national economy. Those having dollars would be invited to exchange their currency. Contracts in dollars, from the day of the establishment of the plan on would be illegal except for import and export transactions. Advertising and price tagging in dollars would be considered a misdemeanor (the plan should establish punishment).
Part of the internal debt would be converted to bonus that could be used to pay taxes.
The convertibility plan 2 (it could be so called) would maintain the reference acquired along the time of that of peso to dollar. The official exchange would maintain the parity flame but with no legal obligation.
In order to compensate the loss of competitiveness of the Argentine currency, part of the exports could be paid with bonuses of the Argentine external debt. The percent of acceptable bonus would be variable according to the product. For example, in petroleum imports the percent acceptance of bonuses would be zero.
A reference currency would be created with a value corresponding to the Argentine external debt bonuses. As a suggestion it could be called sul (plural sules). In transactions involving sules, 1 peso = 1 sul = 1 dollar in bonuses of the long term Argentine debt.
In a situation where the commercial value would be 80% of the face value of these bonuses, they would be commercialized with the value corresponding to dollars or any other international currency. The equalization mystique would be once more maintained since the country would be accepting 1 peso as 1 dollar of the government bond face value.
Import surcharge on some products would compensate the eventual expenses of the Treasure with exports. ThroughAgreements with other Mercosul countries the transactions of goods coming from Mercosul member countries could be made using this currency whose emissions rights would be regulated by a common financial organism. The idea would be to facilitate the exchange of goods among countries. ( Some limitations concerning the nationalization of products would perhaps be necessary).
It would be necessary to have internal consensus and a solid juridical support.
Persuasion measures and, whenever necessary, legal coercion should be foreseen. Some days of banking holiday could be necessary until the population would be familiar with the plan. Large volume draws could be temporarily limited or made using bonuses of medium term expiration.
Advantages and Possible Problems of the System
Advantages: The parity mystique would not be broken what would favor the stability of internal prices. Competition conditions within the Mercosul would be established with a mechanism of self- regulation when the confidence on the country would be re-established. The acceptance of government bonds as part of payment for exports would place creditors as natural agents of the Argentine external trade.
Problems: There would be a rupture of the social contract, which needs internal acceptance without important objections from the legal and legislation powers. The procedure implies export dumping and regional favoring. The compensation is the effective capacity of paying the debts.
Graphic Edition/Edição Gráfica:
Tuesday, 11 November 2008.