As usual, the last month of the year comes with a strong deficit in public accounts and at the same time with more assistance from the Central Bank to the Treasury. According to estimates by private consultants, in December the BCRA will have to issue no less than $ 250,000 million to face the hole in the public accounts, given the difficulties that the Government has to obtain voluntary financing in the markets.
Such an amount of pesos that will be poured into the market represents a danger for the exchange market. November ended with strong sales by the Central. Between Monday and Tuesday they already added more than USD 200 million and throughout the month close to USD 1 billion would have arrived to satisfy the demand for foreign exchange.
The good news for the BCRA is that December always presents a higher seasonal demand for pesos, for the payment of a half bonus and vacation. Therefore, it is assumed that most of the money that will be turned over via issuance will remain in the pockets of people and companies. This means that such an expansion of money would not generate pressure on the dollar, but only in the very short term.
Since mid-January and during February, the head of the Central Bank, Miguel Pesce, will have to go out with the vacuum cleaner to get pesos from the market to avoid an increase in the demand for dollars and the consequent inflationary impact. The government’s objective is to gradually narrow the exchange rate gap, but it would seek to achieve this with a gradual increase in the official exchange rate. It is estimated that after the end of the year the devaluation rate will begin to accelerate, which is currently barely 1% per month, despite the fact that inflation averages over 3% per month.
The estimate is that this year the primary fiscal deficit will end at around 3.5% of GDP, below the goal of 4% that had been established for this year. Now Martin Guzman It proposes reducing it to 3.3% by 2022, but the Monetary Fund considers that it is an insufficient fiscal effort and asks for more. A good part of the discussion in these hours goes through this point and to what extent the Government is willing to take the adjustment beyond these levels.
Half of the total deficit for the year, explains the economist Fernando Marull, is concentrated in November and December, approaching 1.8% of GDP. In October – the month before the legislative elections – the fiscal red was stretched to $ 200,000 million.
Nonetheless, the issuance of pesos had a strong moderation so far this year. While in 2020 there was a record figure of 2 trillion pesos issued by the BCRA to meet the expenses of the pandemic, until November 23 of this year it had not yet reached a trillion pesos. While the BCRA financed the Treasury’s fiscal red for more than 3% of GDP this year, the intention is to lower it to 1.8% of GDP next year, based on less deficit fiscal numbers.
The monetary expansion in December could put more pressure on the exchange rate. The good news for the Central is that the demand for pesos is also increasing, which should play in favor of balancing the market. In November, the BCRA sold almost USD 1 billion to balance demand
The Monetary Fund, however, considers that these are insufficient goals and that the fiscal effort should be substantially greater to prevent a new financial and exchange crisis. The low level of reserves and the high distrust of investors merit, according to the agency, a more austerity program, something that Vice President Cristina Fernández de Kirchner clearly resists.
In addition, another of the challenges facing the Argentine economy is a less favorable international context and now threatened by omicron, the new strain of Covid-19. Possible restrictions on the movement or closing of borders would generate the fear of a relapse of the global activity and Argentina would not be exempt. For now, investors’ search for refuge has hit the price of bonds and also local stocks in recent days, which still have not found a floor despite the very low valuations.
Yesterday was another negative day for global markets, given the warning of the head of the Fed, Jerome Powell, about the need to accelerate measures to lower inflation. This means that there will be less bond buybacks and fewer dollars will be injected into the economy, causing a widespread crash on Wall Street. Argentine bonds suffered further falls and the country risk reached 1,900 basis points. However, stocks showed a bit more resistance and some stocks ended up on time, such as Supervielle (6% rise in dollars), while YPF gained 4.6%, while Macro ended slightly higher. All this was striking in the midst of a very negative climate globally.