2023-05-20 04:30:34
The maximum objective that the economic team is currently considering for 2023 is that inflation does not exceed the 150 percent and that GDP does not fall more than 3 points. The combination of a disruptive phenomenon such as droughtwhich took 20 billion dollars from an economy that was already suffering from a lack of foreign currency, with the electoral uncertainty In a three-thirds scenario, in which two of them anticipate a sudden devaluation or dollarization directly, it puts the government on the ropes.
The accumulation of challenges has an impact on the expectations of economic agents, who tend to take refuge or speculate with the dollar, causing tensions to feed back. The same goes for prices. Inflation in May will be between 8.5 and 9.0 percent, according to the latest projections of the economic team. Officials admit that rather than lower, the IPC has a new floor of 8 monthly points and for the next semester they glimpse the continuation of the upward trend. His calculations are more pessimistic than those of the market, which at the beginning of the month estimated that inflation for the year will be 126 percent in the Central Bank (REM) survey.
A main reason for this process, once more, is the relative insufficiency of dollars to meet a growing demand. He agro dollar It contributed 3,050 million dollars until this Friday and might bring regarding 1,000 million more until the end of the month, so it would be below the initial claim of adding 5,000 million until May. The problem is that from June and until PASO the flow of exports to be liquidated will decrease for seasonal reasons and because there will be a withdrawal of operations pending the results of the elections.
This situation affects the currency gap between the official price and the financial ones. The Minister of Economy, Sergio Massa, ordered the intervention in the exchange market to contain cash with liquidation and the MEP, so that the gap does not widen, but this led to the generation of speculative businesses with arbitration between the different bonds. To cut this “loop”, the Central Bank ran off the board on Thursday and let the MEP dollar climb up to 30 pesos in one day. It was a message to speculators that they too can lose, but at the cost of widening the gap and increasing pressure for a devaluation of the official dollar.
without anchors
Until July of last yearwhen Martín Guzmán resigned in a bad way as Minister of Economy, the Government’s strategy to face the mission was not easy to overcome the legacy of indebtedness and crisis left by Mauricio Macri, the devastating effects of the pandemic and the inflationary impact of the war between Russia and Ukraine was to show a gradual macroeconomic orderinghand in hand with the renegotiation of the debt with private creditors and the agreement with the IMF.
The main objective was to anchor exchange rate expectations. In other words, keep the dollar under control, add reserves, narrow the gap and from there promote the growth of the economy with unorthodox measures to stimulate and protect productive activities, especially industry. This plan, which presented achievements and failures, was contested by a substantial sector of the Frente de Todoswith Cristina and Máximo Kirchner at the helm, for understanding that growth was left to four alive and that the Government had a passive attitude in the bid between capital and labor.
The political fights in the ruling party became exacerbated following the agreement with the IMF, to the point of triggering the resignations of Guzmán and Matías Kulfas, the two main economic references of Alberto Fernández. From then on, the flimsy structure collapsed and when the government was trying to rise from the rubble, with a new agreement between Kirchnerism and the Renovation Front, with a more orthodox profile due to exchange rate tensions, the drought arrived and devastated everything. Inflation jumped from 64 percent YoY in June 2022 to 108.8 percent April 2023, while the parallel dollar rose from 238 a 488 weights, respectively.
The agreement with the IMF stopped being promoted as a road mapwith the reserves, monetary and fiscal goals not met due to the drought, plus the procyclical orientation of the same agreement by demanding the containment of public spending, the rise in interest rates and the increase in tariffs.
China, IMF, Brazil
The government’s new strategy is to cover the hole in dollars as much as possible in different ways. As mentioned above, the agricultural dollar will contribute regarding 4,000 million -Massa’s team makes every effort to add something more-. The Central Bank, the AFIP, the CNV and the UIF try to cover the cracks to avoid speculative and fraudulent maneuvers that extract foreign currency with foreign trade, the CCL and the MEP, and at the same time encourage exporters and industries that have dollars in the abroad to use them to finance or pay for their imports.
The other sources are external. At the moment the greatest possibilities to strengthen the reserves are provided by the expansion of the swap with China. Massa would carry out the mission at the end of the month, going from the equivalent of 5,000 to 10,000 million dollars of free availability. Negotiations are well advanced, officials say.
Instead, discussions with IMF staff are stuck. The technical managers of the organization are inflexible in the face of non-compliance with the goals and discharge the responsibility of loosening the demands of the agreement on the political authorities of the Fund. In the Government they trust that the efforts of the president before Joe Biden and of Massa before Kristalina Georgieva will be positive to unlock disbursements for 10,000 million dollars, but they admit that these funds would be reserved to meet the maturities with the agency itself in the coming months and there would be no authorization to add them to the essential arsenal to intervene in the market and stop devaluation pressures.
In that case, the arrangement would be a kind of waiver for the unfulfilled goals, it would keep the refinancing of the debt with the IMF afloat, but it would not provide firepower to neutralize runs once morest the peso.
Regarding the conversations with Brazil, from the national government indicate that the political will of Lula da Silva to support the country with a scheme similar to the one negotiated with China clashes with the position of the Central Bank authorities, identified with Bolsonarismo, contrary to taking that step. Therefore, they consider that help from that side can hardly materialize.
The Miley Risk
In this situation of currency asphyxia, The fact that Patricia Bullrich and Horacio Rodríguez Larreta anticipate a strong devaluation in the event of becoming president aggravates the situationbecause it increases the purchase of foreign currency by companies and individuals. Worse still is the attitude of Javier Mileiwho directly intends to eliminate the national currency and adopt the dollar instead.
If Milei gets to enter the ballot, there is a risk that investors and savers will massively cancel fixed terms or funds in pesos to run once morest the dollar. With the interest rate at a level as high as the current one, the margin of action to contain a rampage is little. “In a week a run can spiralize that exposes us to a de facto dollarization situation“, they warn in the economic cabinet.
There are less than three months left for the PASO. It is the time the Government has to master a situation of maximum complexity.
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