At the moment there are few details about the scope that they could have the new government negotiations with the IMF and how much the agency would be willing to grant in respect of a new modification of the quantitative goals of the agreement closed in March of last year to refinance some 45,000 million dollars.
Although sources close to the economic team mention that there would be an intention of the IMF to avoid any disruptive financial episode Before the presidential PASO on August 13, for now the operators of the local market and Wall Street are waiting for good news.
These include a new reduction in the position of net international reserves (RIN), greater flexibility in meeting fiscal goals and even an advance payment of disbursements before the goals for the first quarter of this year are approved.
Last Friday in a meeting with the Minister of Economy Sergio Massa Within the framework of the Spring meeting of the IMF and the World Bank, the Deputy Managing Director of the IMF Gita Gopinath stated that: “drought is a game changer and the IMF should try to help Argentina in this situation.”
Inflection point
The translation of “game changer” It can be read as a turning point or as a major change in a contract, and that is what Minister Sergio Massa skillfully accomplished with the IMF authorities so that compliance with the new agreement is as flexible as possible for this government.
This new definition of a kind of turning point or changes in the agreement due to the drought, also made explicit by the IMF authorities it is very probable that it will benefit this government but it will leave a very heavy backpack for the next one.
“Game changer”: Sergio Massa’s new strategy against the IMF
The numbers that are known week by week of the drought reflect the critical moment in the field and the soybean agro-industrial export sector which is the main generator of foreign currency in the country and the political climate is increasingly rarefied both from the ruling party and from the opposition where the dissent between former president Mauricio Macri and the presidential candidate Horacio Rodríguez Larreta are being observed with great concern in Wall Street and in Washington.
The soybean crop outlook it dropped to 23 million tons, when a year ago 43.3 million were harvested; In the case of corn, the harvest perspective dropped to 32 million tons when a year ago 51 million tons were harvested.
Soy: worrying data
The agricultural market data show that there would be some 10 million tons of soybeans without a price for the 2021/22 campaign, but according to the data of the specialist Salvador Di Stefano there would be less than 6 million tons in that condition, and according to him, the estimates of 22 million tons are still high and could be somewhat less.
Regarding the evolution of the exchange market, it is likely that the IMF authorities will continue to accept more differential exchange rates like the recent Agro dollar of 300 pesos to get exporters to pay more dollars to the BCRA than they would pay to the official dollar of 215 pesos.
It is a new transitory differential exchange rate for the soybean complex, where the property loss for the difference between buying high and selling low, it will again be covered by a 10-year Treasury bill.
Unlike the previous two programs, the current one also includes regional economies. On this occasion, a exchange rate of $300. This value is greater than that of the previous programs of the soybean dollar of last September of 200 pesos and the soybean dollar 2.0 of 230 pesos. But an important difference is that the level of monthly inflation and the speed of the devaluation of the peso against the dollar are much higher than in those previous stages.
There are few details on what the scope of the new negotiations with the IMF will be like and how much the organization would be willing to concede regarding modifications to the goals.
Differential exchange rates
The incentive of the program is the differential exchange rate. But, while the $300 is fixed, the official exchange rate it continues to depreciate at a rate of 6.5% per month with inflation of 7.7% per month in March and a forecast of 7.5% for April, which deteriorates the purchasing power of the pesos received by the liquidator.
With a rate of depreciation of the peso in the official market like the current one, the difference between the agro dollar and the current official 40% in just one month could be reduced by almost half.
To try to prevent the pesos of the agricultural dollar from putting pressure on the exchange rate gap, the government instructed the BCRA to carry out the “necessary mechanisms so that the result of all currency settlements that take place within the framework of this Export Incentive Program be credited in a special account whose remuneration is determined based on the evolution of the reference exchange rate of the BCRA, within the terms and conditions established by the complementary regulations of said institution.
Until now, the accumulated liquidation of Agro dollar of 5 wheels reaches 861 million dollars and the balance of net sales of the BCRA so far in April has been reduced to around 48 million dollars.
The advance of the dollar in all its segments
The novelty was the new rise in the Dolar blue which reached 408 pesos while the retail dollar closed at 222 pesos and the wholesaler at 216 pesos. Meanwhile, the CCL dollar closed at 414 pesos while the mep dollar It ended at 397 pesos.
The recent measures launched as the exchange of bonds of public sector organizations recently approved by the UBA and the Agro dollar aim to go through a complex exchange rate front, both at the official level and in relation to financial dollars.
The blue dollar broke the psychological barrier of $400
Apparently due to this drought, the IMF agreed to lower the target for net international reserves in the last quarter of last year and will probably also reduce them in the first quarter of this year. It should be noted that the revisions carried out in the last review were the most pronounced since the beginning of the Extended Facility Loan (EFF)) current with the IMF. This is in line with the drastic reduction in the supply of foreign currency due to a climatic shock that the country is facing, such as drought.
A recent work of the consultora Invecq states that: “In annual terms, the IMF eased the objective of accumulating net reserves by USD 1,800 M with respect to the goal previously in force. In relation to the quarterly goal of March, the relief was 4,300 million dollars, corresponding to 2,600 and 1,500 million dollars for the goals of June and September respectively.
First quarter goals were not met
Despite the downward revision Argentina missed first quarter goal this year since Invecq’s stock of net international reserves barely exceeded 2.4 billion dollars at the end of March, placing it almost 1.6 billion dollars below the revised reserve target for that month. Despite this partial non-compliance where Argentina may have to request a waiverwe understand that the logic of the net reserve accumulation goal was transferred to the annual goal.
Invecq’s work also adds that under the current conditions of the program with the IMF the BCRA should show a stock of net reserves of 10,277 million dollars at the end of 2023.
Compared to the values at the end of March, this would imply an accumulation of net international reserves of some 7.8 billion dollars. On the other hand, this year we must begin to return the money to the IMF formally, therefore, the net financing with the IMF considering the net disbursements of principal and interest payments this year will be negative, unlike 2022 where the IMF fund left 5,000 million dollars net.
Therefore, if there are no changes in the current conditions of the EFF, the Argentine government would have to pay more than 4,000 million to the agency M on the disbursements given by the IMF throughout this year.
Despite the downward revision, Argentina failed to meet the goal for the first quarter of this year
The impact of the drought on the fiscal front
The drought is also taking place and will be felt in the fiscal sphere. In addition to its impact on reservations, the ongoing drought will lead to a sharp drop in tax revenue. In February withholdings or export duties fell 45.0% in year-on-year terms and in March that drop was 64% according to the AFIP tax collection report. In the last review of the IMF, the body affirmed that Argentina maintained its commitment to comply with the meta fiscal originally raised in the agreement of a primary deficit of 1.9% of GDP.
But according to the average of rating agencies and banks of the REM of the BCRA in April that project un primary deficit of 3% That goal looks extremely optimistic. Data from the consulting firm Analytica indicate that the maximum primary deficit for the first quarter provided for in the agreement with the IMF is 441,500 million pesos, but in the first two months the Treasury has already accumulated 432,500 million pesos. Therefore, in April, this deficit could not exceed 9,000 million pesos.
The adjustment that the Government should make to compensate for the lower resources seems unlikely in an election year, although the inflationary acceleration will continue to liquefy Social Benefits, which is the main component of primary spending. Regarding future public spending, the IMF staff criticized the recent pension moratorium of the CONSIDERED which would imply an additional expense of approximately 0.4% of GDP. In addition, he again mentioned the implementation of the segmentation of tariff subsidies as a priority issue, particularly those aimed at higher income sectors.
In terms of activity, the IMF review of the last quarter of last year also brought some news. The agency confirmed its growth projection for Argentina of 2.0% per year in 2023; which, in light of the drought and the deceleration evidenced since September of last year, looks quite optimistic. The consultancies and banks that participate in the REM of the BCRA forecast in April for the first time since 2029 a drop in GDP of 3%.
However, less than ten days later, the Fund published the WEO for April, drastically correcting the projections for Argentina: now, the PBI would grow only 0.2% per year. The first indicators available for the second month of the year were not positive as both the manufacturing industry and construction fell.
