The flight of dollars in the days before the elections and the payment of the IMF in December will leave the reserves at a low level that would cause “more exchange gap, more inflation and fewer exports.”
The Central Bank of the Argentine Republic (BCRA) had to face a greater demand for foreign currency in recent weeks and maintains a short position, setting a record with the $ 298.8 million sale last October 29. This was stated by the Eco Go consultancy based on the information provided by the BCRA itself. Economists analyzed the situation in dialogue with PROFILE.
The evolution of the price of assets responds to two facts: the distance or proximity of reaching an agreement with the IMF, and the fall of the ruling party in the elections that analysts venture. In this sense, the dollar continued with an upward trend, which increases the exchange gap, while the treasury continues to depend heavily on monetary issuance in order to fill the financial gaps.
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The four causes of falling reserves
The first cause is the exchange gap, which usually arises together with the exchange controls exercised by the National Government. This difference between the official price and the MEP dollar or the blue dollar has widened notably in recent weeks, and this Wednesday it reached 100%.
“This year the State had a higher trade balance and received SDR from the IMF. Part of this money was used to intervene in the breach, which is basically lto purchase bonds with dollars from reserves to calm the financial exchange rate. The normal thing was to disburse 2,100 million North American currencies, but a few months ago this figure rose. For example, in September it was 414 million foreign currency ”, he explained. Sebastián Menescaldi from the Eco Go consultancy.
The second cause is drop in exports. As the financier explains Christian buteler, since April 2018 the markets have withdrawn from Argentina, and this led to borrowing from the IMF in order not to have negative reserves. Added to this situation is the non-agreement with the Monetary Fund and the pre-electoral phenomenon where there is a lack of confidence and uncertainty.
This combo means that “with the different values of the dollar, prices do not suit exporters and they prefer not to liquidate. The offer is withdrawn and there is an imbalance in the official exchange market ”, explained the economist Menescaldi.
For private consultants, inflation in October was again around 3%
This phenomenon brings about the third cause which is the rise of the import, that is, importers try to “withdraw as much as they can.” “The high exchange rate gap is a sign that the cost of reconditioning a product will be higher. It is an incentive to import as much as possible. That way they buy at the official exchange rate and sell at a price closer to the parallel dollar”, He explained Guido Lorenzo, director of the consulting firm LCG.
The Minister of Economy, Martín Guzmán, assured that in December the IMF loan amortization payment for USD1,892 million, which would further weaken the BCRA’s position. This is the fourth cause, and as the financier Buteler explained “it implies that the SDR that the country received to beat the economic crisis of the pandemic, are used to pay the debt to international organizations ”.
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From the Eco Go consultancy, they point out that “The request for a deferral of payments would have been bad news, further indicating the distance between the tips to close a deal. To which it would be added that the chances of reaching a consensus -and going through a Congress without majorities- a program of extended facilities before March when the maturities of dollars and pesos are concentrated looks less and less likely ”.
All the specialists agreed that the economic forecast for the future is not encouraging. As they explained, the reserves are used for “stress situations”. The problem is that when these are not enough. So the extreme scenario would be that cannot be imported, prices rise and products are missing.
While midterm elections are key, there is more than one cause that will come into play and everything will depend on how soon an agreement is reached with the IMF. Meanwhile the Central Bank continues to sell dollars and lower its reserves.
LR / ds
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