Argentina's Dollar Debate: Economists Divided on Need for Higher Exchange Rate

A debate has resurfaced among Argentine economists regarding the necessity of a higher exchange rate to stimulate the country's productive sectors. Roberto Frenkel, an economist and former professor of President Javier Milei, asserts that Argentina requires a stronger dollar to enable the development of industries beyond traditional exports.

Frenkel's remarks have reignited discussions about whether the current dollar valuation is appropriate or if a higher rate is needed to boost sectors facing growth challenges. However, economists consulted by La Nación tempered expectations, suggesting that a currency devaluation alone may not be a panacea. Emmanuel Álvarez Agis proposed that any devaluation would only be effective within a comprehensive economic program. Salvador Di Stefano emphasized that growth hinges on investment rather than the dollar's value, while Fausto Spotorno cautioned that under the current exchange system, a devaluation might increase inflation without significantly improving competitiveness.

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To correct this program, you have to go through the unpleasantness of raising the exchange rate and accelerating inflation. And that is necessary. I know this sounds very unpopular. You need a higher exchange rate to give some viability to activities other than primary export activities.

In a streaming interview, Frenkel challenged the notion that devaluation inevitably leads to inflation. He attributed the current trade surplus partly to a sharp contraction in imports, a consequence of low economic activity. "To correct this program, you have to go through the unpleasantness of raising the exchange rate and accelerating inflation. And that is necessary. I know this sounds very unpopular. You need a higher exchange rate to give some viability to activities other than primary export activities," he stated.

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Devaluing and inflating prices to fix the economy is like burning your house to avoid being cold in winter. This man's 'unpleasantness' is destroying the worker's salary to save his usual friends. The fetish they have with eroding wages is already psychiatric.

President Javier Milei reacted swiftly to Frenkel's comments, reposting a message from the head of the Chamber of Deputies, Martín Menem. Menem criticized the idea of devaluation, comparing it to "burning down your house to avoid being cold in winter." He accused proponents of devaluation of wanting to "destroy the worker's salary to save their usual friends" and called the obsession with devaluing wages "psychiatric."

Álvarez Agis agreed that a standalone devaluation could worsen the economic situation. "My position is that economic policy tools should not be discussed in isolation, but within a program, as happens in most countries. It is clear that this exchange rate is not even competitive for sectors with international productivity, such as agriculture or Vaca Muerta. However, a devaluation can improve the competitiveness of those sectors and many others that generate employment, but at the same time it depresses domestic demand because inflation would again hit a real wage that is already low," he explained.

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My position is that economic policy tools should not be discussed in isolation, but within a program, as happens in most countries. It is clear that this exchange rate is not even competitive for sectors with international productivity, such as agriculture or Vaca Muerta. However, a devaluation can improve the competitiveness of those sectors and many others that generate employment, but at the same time it depresses domestic demand because inflation would again hit a real wage that is already low.