The difficulties encountered by the Central Bank to add dollars to reserves in the months in which it was supposed to do it with intensity gave rise to a new barrage of versions regarding what Martín Guzmán and Miguel Pesce might do to manage the situation, with its correlate of speculative movements in the financial and exchange markets in search of anticipating scenarios that are viewed as increasingly complex.
The abrupt drop this week in titles in pesos indexed by CER, with the rise in financial dollars as a counterpart, stirs up the demands for a strong increase in the Central Bank’s reference interest rate. Guzman refuses. They ask him for an increase of up to 4 points and for now he is only willing to adjust in the margin. Next Tuesday there will be a key tender for debt in pesos by the Ministry of Economy. There it will be seen to what extent the minister maintains his position of not making sudden movements, not letting himself be pressured by the market and continuing along the path that he has patiently traveled since he began his administration.
Guzmán calls it the normalization of the economy, a challenge that was already enormous with the legacy of crisis and indebtedness left by the Cambiemos government, and that since the pandemic and now the war in Ukraine has acquired historical dimensions. Despite this, the minister rules out shock actions, which are demanded of him by the left and by the right, to curb inflation and control the devaluation arm wrestling. Bet on the gradualness of the macroeconomic order, dialogue and surgical actions such as the unexpected income tax.
The key question being asked in the Frente de Todos is whether it will have enough time to show results that will allow it to win the next elections. Many believe not and knock on the doors of Alberto Fernández so that he instructs the head of the Treasury to rush an agenda that is not his.
The departure of Roberto Feletti from the Ministry of Internal Trade and the empowerment of Guzmán by the President indicate that for now the Government is playing the same game as its head of Economy: normalization or death. The opposition, on the other hand, stirs up ghosts and suggests that at the end of the road there will be a redefinition of titles in pesos, as Hernán Lacunza did in the Macri government.
Reserves and IMF
According to the roadmap outlined in the agreement with the IMF, between April and June the Central Bank should incorporate 2.9 billion dollars into reserves, of which at this point only 350 million go. In the third quarter the account should grow by 400 million, while for the last quarter there are 1.3 billion more, although most of these last currencies would be contributed by loans agreed with international organizations.
Guzmán maintained that the breach of the current quarter will be compensated in the second half of the year. He assured that the current difficulties are a direct consequence of the war in Ukraine, which altered key variables such as the price of energy. The national State was forced to disburse more dollars to pay for gas and fuel imports, compressing the foreign exchange margin that the monetary authority was able to capture.
In May, the energy account grew by more than 1,000 million dollars compared to usual and so far in June, more than 500 million have already been used.
“There is an excess of pessimism in the market because they are looking at the historical seasonality of the incorporation of reserves and this is a different year because of the war. Right now there is greater demand for foreign currency to anticipate imports, not only of energy but in most items, but in the coming quarters that will tend to decrease and the rate of entry of reserves will be higher than what we saw in other years”, evaluates the economist Sergio Chouza, director of the Sarandí Consulting, giving credit to Guzmán’s explanation. In any case, Chouza agrees with the prevailing opinion among his colleagues that it will not be easy for the Central Bank to meet the annual reserve target.
That is what the majority of financial market operators consider and they advance with hedging actions. The run that broke out in the middle of the week once morest titles in pesos indexed by CER is part of that dynamic. The downside of disarming positions in these instruments was the rise in financial dollars (counted with liquidation, MEP and parallel), a process that still has some way to go to the extent that the authorities fail to reverse expectations.
The closest “solution” for this is the increase in Central Bank rates and Treasury debt issues. But Guzmán believes that if this instrument is abused, if it is poorly calibrated, it will run out of firepower for later in the year and will only feed market speculation. In addition, the rise in rates enlarges the debt account in pesos due to higher interest and refinancing in 2023, he warns, will be even more complicated due to the electoral scenario.
And the growth?
The tight situation in terms of reserves might lead to the imposition of limits on purchases abroad. An eventual brake on imports might slow down the progress of the economy. Faced with these speculations, in the Palacio de Hacienda they assure that none of this will happen and that the productive activities will have enough foreign currency to guarantee growth.
Another of the speculations in dance is that some measure be taken to discourage tourist trips outside the country. The authorities anticipate a jump in foreign exchange demand for the winter holidays. In the Palacio de Hacienda, once more, they maintain that the objective is to normalize the economy and not generate additional noise.
GDP growth this year will be above 4 percent, they maintain in the economic cabinet. It will be the second consecutive year in expansion. In any case, they recognize that the second semester will have a somewhat lower level of activity than that of the first half of the year. By 2023 they also anticipate growth, taking new steps in the “normalization plan” that Guzmán is playing for.
