Does it rise for the season or artificial devaluation? Contrary views between importers and exporters

The appraisal last August 1st of reference by the Bank of Guatemala (Banguat) was of Q7.72, but in this week it reached Q7.82. In the banks of the system, the reference for the sale is Q7.95 and for the purchase Q7.65.

Jorge Briz, president of the Guatemalan Chamber of Commerce (CCG) and Amador Carballido, general director of the Guatemalan Association of Exporters (Agexport), offer their vision to Free Press on the behavior of the currency.

Monetary authorities reported last week that this is normal behavior in the market that occurs every year, and called on economic agents not to be alarmed.

Jorge Briz: “It is an artificial devaluation”

How have you analyzed the behavior of the exchange rate?

In recent weeks it has been devalued, to the point that today (Monday) it is put up for sale in some of the system’s banks for Q7.95 for US$1, and it has been said that the exchange rate has been devalued like a seasonal phenomenon. I would like to clarify that this topic is not true.

For what reason?

When analyzing the exchange rate and, for example, in September of last year, the central bank reports the exchange rate was at Q7.73, and in September of this year, it was at Q7.73 again.

Additionally, the merchants who mostly import their products by the end of the year have already paid for them, because these goods will have to enter the market in October or at the latest at the beginning of November, because otherwise the products could not reach the wholesalers. and after consumers.

In addition, there is an issue of the more than US$20 billion in International Monetary Reserves (IMR), and the central bank can buy foreign currency in two ways: either by participating in the exchange rule or buying by accumulation through monetary reserves.

What are the findings?

There we establish that when it is the participation of the central bank in the foreign exchange rule, it is a general rule, it establishes clear rules for all the participants; when the rule is triggered to buy or sell or, when the currency devalues ​​or depreciates by certain percentages. And that is a rule of knowledge of all market participants.

Now, when the central bank intervenes due to the accumulation of international monetary reserves, it does so not by applying a rule, but in a discretionary manner and often at its discretion.

It has been established that by applying this RIM accumulation system, the central bank bought US$455 million in 2018, US$734 million in 2020, US$1.5 billion in 2021, and so far this year it has bought US$1,396 million, which means that it has withdrawn a large amount of resources that should be available in the market.

The fundamental question is what would happen in the foreign exchange market if only this year the central bank had not discretionally withdrawn the almost US$1.4 billion, and the answer is that the quetzal had not been devalued to the extent that has occurred in this month, and if those dollars remain in the market, to be used by economic agents.

In your opinion, what is the importance?

Every time the currency is devalued artificially and given a merely discretionary and arbitrary aspect, this impoverishes Guatemalans and generates inflation. For example, if before you could buy dollars for Q7.70 and today they cost you Q7.95, it means that purchasing power has been lost between 2 to 3%, and that also generates inflation, because it makes products more expensive in the market, and It takes away the purchasing power of the population.

What have you analyzed about participation in reserve accumulation?

This was approved by the JM, it should not intervene in the market, arbitrarily, and discretionally, but with a clear and transparent rule, because this is capricious. When the central bank establishes without any basis that it wants to continue accumulating reserves, what is generated is a shortage of dollars, when what has to be strictly applied is the participation rule with the exchange rate rule.

So when the other mechanism is established, the exchange rate is being manipulated in some way. The currencies that have been bought by the accumulation of reserves on the market should be returned, and it is very clear, because this devaluation that occurs in September is not due to greater demand, and what sense should more than US$20 billion in reserves have? keep accumulating more reserves.

According to you, and without this participation due to the accumulation of reserves, how much should the exchange rate be?

It is very difficult to establish, it would be necessary to have a series of analyzes and mechanisms; but what is clear and evident, only in what has been accumulated so far this year of US$1.4 billion, we would not have the devaluation that has occurred in this last month, which is clear and evident. But if we add that of 2021 that was withdrawn in the market, it could be that the exchange rate was placed at Q7.55 to Q7.60.

What is the request of the commercial sector?

It is very clear, and we do not want the exchange rate to be subsidized, nor do we want exports to be privileged with a devalued currency, and what we want is a real exchange rate that obeys market conditions. We do not want inappropriate foreign exchange purchase interventions that do not obey the reality of the market.

In addition, that the central bank stops buying foreign currency in a discretionary and somewhat arbitrary manner due to the accumulation of monetary reserves, and they must intervene in the market exclusively with the participation of the exchange rule.

Amador Carballido: “It is something temporary and very punctual”

How have you analyzed the behavior of the exchange rate?

We are seeing a slight or slight upward devaluation of Q7.80 in the last three weeks, which has caught the public’s attention. It’s been a while now, and although there are seasonal effects, there are also other elements that explain the devaluation, which is small, but had not been observed for some time.

What situations do you think have now arisen?

There were two elements: the seasonal one, which is correct, it is not a high season for export foreign exchange at this time, and the high season is in November or December and a lot of foreign currency enters through foreign sales.

The second element that is clearer, and that has been observed, is a slowdown (lower growth rate) in foreign exchange from remittances. When reviewing the growth rate, and I am not saying the total volume of remittances, it is observed that there is a certain reduction in the dynamism of transfers.

That in some way may be causing a temporary greater demand for foreign currency, and that we have a slightly devalued exchange rate.

Is it a strong trend?

It is our impression that it is something temporary and very punctual, that according to the flows of exports and remittances, especially for the end of the year that rise due to Christmas holidays, the exchange rate returns to the levels that have been observed around Q7.70 which was what was observed in the other years.

There is another factor that could have some effect, but that we have not yet deciphered, is the increase in the leading interest rate, because, at the end of the day, what the increase in the indicator has done is that it is about withdrawing market liquidity to reduce inflationary pressures, although the liquidity that can be obtained from the market may be more in quetzales, but we have not seen it that way.

There are positions that the central bank has made, for the purchase of foreign currency in the institutional market they have not had a response or from the usual buyers.

How does the sector interpret it?

Temporarily it is positive, because it is logical that in the face of a devaluation the competitiveness of exports improves. However, it is a very punctual phenomenon, in a low export season, so the effect on the exporter’s flows is not going to be greatly affected, and we do not see it remaining at the same levels for the rest of the year. The reverse effect should be seen.

What could be seen in the future and in the short term?

That the exchange rate begins to return to its normal course, and we would be thinking that it would be in November, since the high season for exports begins in that month, and for remittances. We believe that, in October, the dollar could pass relatively undervalued.

The leading rate can have the opposite effect of revaluing it, and if it begins to feel that the withdrawal of liquidity is materializing, then, it would have an inverse effect, because quetzales are withdrawn there and the value effect is reversed.

Do you think there may be a slide to benefit the export sector, as the importer says?

They can say it, but it doesn’t make sense, because it’s not high season for exports. It would not make sense that they are now benefiting us, and apart from the fact that when analyzing the intervention figures by the central bank they have been minimal, I mean an intervention in the sense that it can cause a devaluation, and they would be incorporating much more dollars to the economy, and it is not being seen.

As it is not in high season for exports, the argument falls apart. There is no sense, because the central bank is not intervening and it is not in high season.

According to you, how much should the exchange rate be?

It is difficult to establish a real value. In principle, one is based on the balance of payments, income/output of foreign currency, and today the country manages a fairly strong balance in foreign currency. However, due to the rise in fuel and other goods, the need for foreign exchange increased. As a result of these two things, you could have a revalued currency value.

Fuels, raw materials, and other products in the world are more expensive, and the demand for foreign currency for imports increases as a percentage.

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