The Central Bank of the Argentine Republic (BCRA) closed April with a total of acquisitions of US$160 million in the foreign exchange market. The balance is positive, it is true, but quite meager if you take into account the goal of net reserve accumulation of $5.8 billion for all of 2022 who fixed the International Monetary Fund (IMF), that I would sue Central total purchases close to US$3.4 billion. In this context, City analysts do not rule out the emergence of new obstacles to the dollar in the coming months.
“To meet the goal of accumulation of reserves with the FMIthe BCRA must urgently begin to accumulate the Dollars harvest,” Ecolatina economist Juan Pablo Albornoz alerts iProfesional. He points out that the most worrying thing is that this is happening in a context in which agriculture has liquidated almost US$1.2 billion more in the first quarter of the year than in the same period of 2021. However, the Central only accumulated only US$1 of each US$100 of the harvest so farwhile “last year, despite the lower contribution from agriculture, it accumulated US$37 of each US$100 of the harvest for this season.”
In this sense, the economist Federico Glustein assures that these days there are four factors together that indicate that “more obstacles and controls might be implemented in the foreign exchange market”:
- The Multilateral Exchange Rate Index is appreciating at levels of October 2014.
- The Banco Central unable to absorb much Dollars of the harvest.
- The official exchange rate appreciates while in other emerging markets it depreciates.
- The US interest rate advances at a higher rate than expected.
But, the great doubt, with all the controls that are in force to this day for access to the foreign exchange market, is what new obstacles or limitations might be established for access to the dollar. Analysts point to three fronts where greater restrictions might be felt.
The BCRA has a strong reserve accumulation challenge for the year.
1. More control of the dollar on the import side
Glustein mentions that, a little less than a month ago, with the decision of the BCRA of intervening in the Comprehensive Import Monitoring System (SIMI), a key step was taken in the blocking of imports. As a result of Communication “A” 7466, established the integration of the entity to the SIMI and ordered that it would begin to assign a “category A” for import licenses that defines whether or not companies can access dollars at official price.
It is worth mentioning that the licenses qualified by BCRA with category A have access to MULC (Single Free Exchange Market) to pay for imports, but, apart from capital goods or inputs, the rest of the importers may transfer (for advance or sight payment) up to US$250,000 before nationalizing the merchandise. Meanwhile, imports associated with a category “C” license have access to the foreign exchange market under the same conditions as those of category “A” when certain conditions are met. And those that fall into category “B” must seek financing outside the MULC.
The foregoing forced many entrepreneurs to seek financing outside that market, which is a great challenge in the current context and unleashed claims by multiple productive sectors (The ones who most recently complained were those regarding plastic and coffee).
And, although in the BCRA they trust that the rule will give them results as the weeks go by, because at the time it was issued there were already many import applications in process that had to continue their course, the question is whether it will be enough so that new obstacles should not be resorted to that allow reserves to be accumulated in the coming months.
The BCRA has been registering a strong loss of dollars due to imports.
In this regard, Glustein warns that it is very likely that “as the noose tightens around the neck, imports and licenses will be further curbed, despite the complexities it may have at the productive level.”
The same holds Camilo Tiscornia, director of CyT Economic Advisors, who points out that “the adjustment variable are the imports and many companies are already complaining regarding the limitations implementeds”, but warns that the problem is that continuing to advance in this direction will cost the Government and the country, in general, several points less in the growth of economic activity.
And it is that, as the economist explains, “if they have to restrict the importsobviously, will suffer the productive activity” Given the A large part of Argentina’s purchases abroad correspond to inputs for the production. These are two variables that are closely related. For example, in 2019, imports grew by 3.34% for every 1% that GDP grew.
However, Albornoz observes that “although it is true that the imports are going strong (particularly energy, for reasons of public knowledge), it is difficult to blame only the external front due to the shortage of Dollars when last year we gave away more than 17 points of foreign exchange competitivenessThus, he points out that delaying the exchange rate for electoral reasons it is not free: today we are paying that bill.
For many months, the BCRA intervened and hindered the financial dollars.
2. New obstacles to financial dollars
Albornoz acknowledges that the BCRA took some necessary measures to alleviate the foreign exchange market: it strongly raised the interest rate and quickened the pace depreciation. But he considers that “it is practically impossible for them to reverse the bad consequences of exchange policy last year, because the dollar it still lags far behind inflation. And foreign exchange competitiveness is anesthetized by international inflation and the appreciation of the Real in the first quarter.”
Thus, he explains that the foreign exchange market adjusts in two ways: by price or by quantity; and evaluates the BCRA is adjusting for price, since it accelerated depreciation. It is worth mentioning that, these days, the level of appreciation of the official dollar it is close to 4% per month (according to its evolution in April).
However, the economist believes that “by itself this is insufficient, since the dollar is running at 4% per month versus a inflation which runs comfortably above 5%, although a part responds to transitory shocks”.
In this point, the limit of access to other markets of the dollar it is a variable that Glustein does not rule out occurring at some point. “I think the monitoring on the MEP/CCL can harden, especially in the middle of the yearwhen the bulk of the harvest has just entered,” he predicts.
Tiscornia does not rule out that there may be news in this regard either. “I think that the issue of obstacles to the dollar it may reappear. In fact, although the Government promised not to intervene in financial dollars, we saw that recently, in an indirect but concrete way, the threshold for informing the BCRA operations with financial dollars“, mentions.
The recent news regarding the controls on the MEP dollar revive suspicions regarding controls in this area shortly.
Thus, it refers to the norm of the Financial Information Unit (UIF) that raised from $56,000 to $120,000 the maximum value from which brokerage houses must report purchase operations of dollar your clients financial because they are considered risky.
Through Resolution 50/2022 of the agency, this new amount was set, which is higher than the one established until now in pesos, but barely reaches u$s600 to the change of MEP dollar from today and it is even below the previous threshold calculated at the price of the moment in which it was last updated (in 2019).
3. More stocks on the dollar is difficult: retaking old measures, an option
Given the little margin that the Government has to further tighten the tourniquet of the stocks to the dollarbathrobe does not rule out the option of repeating some measures that had already been applied in previous years.
One of them may be to require mandatory refinancing of maturities greater than certain amounts. This would be like in 2020, when it forced companies to re-profile their debts.
Another alternative that he sees as a concrete possibility is to re-implement a interruption of the advance of importsas in October 2021.
And, finally, it points out that other obstacles can be implemented that are “less transparent” and do not require new regulations, but can be carried out with the current regulation, such as further delay the approval of non-automatic licenses import.