Former Minister Domingo Cavallo: Navigating Argentina’s Economic Tides under President Javier Milei

In his latest analysis, former Minister of Economy Domingo Cavallo evaluated the economic situation in Argentina under President Javier Milei. While he pointed out positive developments in financial indicators, Cavallo raised concerns about the possibility of a significant reduction in inflation and warned of a looming deep recession. He also cast doubt on the feasibility of successful exchange rate unification in the near future.

Cavallo’s analysis focused on financial indicators, exchange rates, and prices. He acknowledged that while there have been favorable financial indicators such as the reduction of the exchange gap, it is important to interpret them with caution as they do not necessarily indicate imminent significant reduction in inflation. Cavallo highlighted that prices demonstrate strong inertia due to real salaries and pensions hitting their bottom, suggesting that they will need to increase monthly to keep pace with inflation. Additionally, he noted a deep recession evidenced by dramatic declines in activity in sectors like construction during the first two months of the year.

When considering these factors together – declining inflation, economic activity, and rising dollar prices – Cavallo emphasized the importance of closely monitoring the real exchange rate in the official market, the evolution of dollar deposits in the banking system, and the flow of dollars into the local capital market.

Cavallo expressed skepticism about successfully unifying and liberalizing the exchange market by mid-year and urged caution and strategic decision-making to avoid potential failures. He recommended adjusting the pace of devaluation of the official dollar in line with inflation rates and implementing measures to foster exchange reunification in a structured manner by 2024.

In conclusion, Cavallo stressed that achieving macroeconomic stability is crucial before attempting to unify and liberalize