Caputo says dollar doesnt float due to fear of communism

Argentine Economy Minister Luis Caputo justified the use of a currency band scheme for the peso-dollar exchange instead of allowing for free floating on the grounds that the Peronist opposition is “communism.” He also said that the government is looking to implement a labor reform aiming to facilitate layoffs, but that changes to the tax system will have to wait. “We cannot expect to float when our political alternative continues to be communism. Excuse me, but that is not serious,” Caputo said on Wednesday at the annual conference of the Latin American Economic Research Foundation (FIEL, by its Spanish acronym) in Buenos Aires. What is Caputo calling “communism”? Caputo was responding to critics who posit that the peso is artificially overappreciated and that the exchange rate should float freely. According to his explanation, the rate has to be managed due to fears over the return of Kirchnerism, the main sector of the opposition that the minister accuses of having “communist” tendencies. Always according to Caputo, the current scheme gives people “predictability and peace of mind,” whereas the free-floating system could end with the peso plummeting and a devaluation. In his theory, as Argentine history shows that political turbulence inevitably impacts the economy, the mere possibility of a Kirchnerist comeback in the October midterms was enough to make markets go haywire. Since April, the dollar has been allowed to float between AR$931.75 and AR$1,501.5, and the Central Bank can only sell dollars to manage the exchange rate if it reaches the upper limit. You might be interested in: Who are the Argentine ‘far left’ Donald Trump described? Caputo offered no explanation as to why he considers the opposition specifically “communist.”   “If we want to be taken seriously as a country, we have to start offering rational political alternatives,” Caputo said. “There is no problem with there being a centrist or left-wing alternative, but we all have to be on the same highway, as in any normal country.” The minister insisted that the peso is not overvalued, saying that exports are hitting “record” numbers, something he claimed is incompatible with an overvalued currency. “The [exchange rate] bands are well calibrated,” he emphasized, adding that a free-floating system is a “luxury” Argentina does “not yet deserve.”   The upcoming reforms Caputo also said that three government offices are working on the labor reform President Milei has been adamant he wants to pass ever since coming into office. The ministry’s proposal has three points, one of them being a way to ease the way in which companies handle layoffs.  The main instrument would be the creation of a mandatory severance fund, which employers could resort to instead of having to pay upfront the amount required by law. “This would make it much easier for companies to deal with layoffs, both in terms of cost and litigation. We believe this will really help formalize the economy,” he added. The ministry is also analyzing how to “significantly” increase income tax deductions for individuals, which he claimed will also encourage formalization. Caputo’s team is also considering “a new incentive scheme for new employment,” although no further details were made available. As for the tax reform, he said the ministry intends to eliminate “the most distortive taxes,” which, he said, make the country relatively uncompetitive. For the time being, however, he said that they “raise a lot of revenue” and that the government could not afford to abolish them. “These are all things we cannot afford to do today, because in the short term, it would mean breaking the fiscal anchor,” he said.