2023-12-13 13:03:00
The government will look at the fiscal anchor The idea is to lower public spending and increase income to achieve a fiscal surplus, with a mix of measures that have to do with lowering subsidies and increasing withholdings. On the side of the Central Bank, will work on placing a bonus to financial entities in order to clean up the balance sheet of the Central Bank, It would also provide a bonus in dollars to importers. Debt issuance alert.
The government is committed to reducing the fiscal deficit by 5%thanks to a a 3% decrease in spending, and a 2% increase in public income. It is not just a chainsaw plan, it is also a fundraiser.
Luis Caputo’s 10 measures: what economists think regarding the “emergency package”
Regarding imports A registry will be opened with debt from abroad, to find out if said debt is canceled or not. If it were canceled, importers will not be given access to the dollars.s. If everything is correct, The Central Bank will offer importers a bonus in dollars, to contract the amount of pesos in the economyand that obligations can be fulfilled later.
The economic plan seeks to remove pesos from the economy, get private parties to sell dollars, and try to keep inflation as low as possible.
The dollar in the Milei era
The dollar rises to $800, but the importing dollar would have a country tax of 17.5%, which implies a dollar of $940.
Meanwhile, the export dollar will be a blend of 80% wholesale dollar and 20% CCL that would give $860.
The dollar card would be $1,320, which contains 30% country tax and 35% advance income tax. This price temporarily puts a ceiling on the blue dollar.
Imports accumulate US$64,000 million in 2023
The rates remain at 133% per year for fixed-term placementsbanks will charge a rate of 133% annual leliq and 100% in repos.
This is momentary because they are working on the exchange of leliq and passes for treasury bonds. The Central Bank will update the value of the dollar at a rate of 2.0% monthly, which at first glance seems very small.
The balance sheet of the Central Bank
The balance of Central Bank has assets of US$ 219,254 millionMeanwhile he liabilities total US$ 184,335 millionand this results in a passets of US$34,919 million.
If we measure the Central Bank’s assets with bonds at market prices of around 35%, we would have a real asset of US$134,228 million.
If we remove the leliq and the repos from the Central Bank’s liabilities, to give them a treasury bond, said liability would be US$113,364 million.
This would result in a net worth of US$20,864 million, that would be real and would give stability to our currency.
If this happens, be careful, because alternative dollars might be calmed by these measures. To this we should add that the recession will force everyone to sell dollars.
If the leliq and passes are exchanged for a treasury bond, this would be generating a greater supply of securities in the market, and might be bearish for the price of the securities. However, If Argentina manages to capitalize the Central Bank with this measure and has a fiscal surplus in a short period of time, this might be very bullish for securities..
The future of bonds
He AL30 bond is trading around 37% and might trade around 45% to 50% in a short period of time. Selling at values between 40% and 45% to take profits would not be bad.
Bank stocks would not be preferred by investorss, actions linked to exports would probably have a longer run than those linked to the domestic market.
Another interesting topic to analyze is the strong rise in reserve requirements so far this month of November and December, This will increase the cost of money, less business for the banks, and probably reduce profits. Reserve requirements went from $1.4 to $2.8 billion from October to date. If we add to this the probable defaults due to the market recession, it would seem that banks are not a good investment option.
What does Milei’s plan seek?
- There is no coordination of prices between prices and salaries, they are working on a sharp drop in expenses, an increase in income via taxes, absorption of pesos, a sharp rise in inflation in December, and they expect a future drop in prices due to the great recession of these measures in the months of January and February. We might have inflation from December to March of 100% if we are optimistic.
- The government believes that the fiscal adjustment and monetary contraction will be very large, therefore, the recession will put a brake on inflationary dynamics. I am not so sure that this will happen, 50% of the workers are in the informal sector where prices will be flexible. Careful.
- The plan does not contemplate productive aspects, we still have a higher import dollar than the export dollar, and this brings serious problems to the economy.
- The government will send to Congress an omnibus law where they will propose money laundering, a moratorium, and might advance the payment of personal assets for subsequent years with a lower rate.
- For now, the plan falls short with the interest rate, and does not contemplate a wage-price relationship. It seeks to cut the dynamics of pension updating, and must confront Congress with fundamental laws. Many open fronts, the blue dollar at the opening will seek to be close to the card dollar at $ 1,320.
- Those who followed our advice and took on debt to buy assets, today have their debt liquefied. The correct dynamic in the companies was debt in pesos, savings in dollars, the strategy was a success. With this government we will continue to find room to make money financially, while they make mistakes in the plan to be developed. We work only for you, not for politics.
* SDS Economic and business advisor
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