Although the rise in the dollar so far this year is still lower than inflation, the strong rise in recent days increased nervousness in the markets and also within the Government. The Minister of Economy Sergio Massa complained yesterday about the slowness to react to an exchange rate escalation that was gaining temperature with the passing of the hours. Today it will be known if the rumors about his possible resignation have been put down enough to stop the rise in the exchange rate.
There is little Massa can do at this point to tame inflation, which in April could once again be above 7%. All the forecasts failed him, especially when he promised to lower the index for April to less than 4%. Now he only has to gamble to prevent the dollar from getting out of control.
Massa’s complaint after the market closed went through the low volume of official intervention in the bond market. According to the data handled yesterday in Economy, the intervention of the Central Bank was for the equivalent of USD 12 million through the sale of Globales 2030. But that volume was clearly insufficient, judging by the rise suffered by financial dollars throughout the day.
Massa is confident that having already left behind the rumors about his departure from the Government, something that became more than clear after the resignation of Antonio Aracre, the dollars should calm down. But if not, he has already given the order to intervene more forcefully in the bond market.
Therefore, it will wait for today’s opening to evaluate the steps to follow. The order is to go out and intervene with more through the sale of dollarized securities against bonds in pesos to avoid such strong rises in the exchange rate. In just three business days, the cash with settlement increased 7% and the free dollar did close to 4.5%.
In Economy they repeat that they retain significant firepower to prevent the exchange rate from suffering disruptive movements. In other words, that they have the necessary resources to appease market pressures on the price of the dollar.
Beyond the usual interventions through the bond market, the times for the operation announced almost a month ago to exchange dollar securities held by public bodies for bonds in pesos are also accelerating. This would further increase the power of the Central to intervene in the market. According to the estimates circulated by the Ministry of Economy, the dollar titles that they would use to intervene total USD 35,000 million.
However, they are all patches within an extremely fragile financial and exchange situation. On the one hand, the Central Bank almost ran out of reserves and is barely beginning to recover anything due to the introduction of the agricultural dollar, with an exchange rate of $300 for exports of soybeans and regional products.
But at the same time the monetary issue is also accelerating, which puts pressure on the dollar and prices. On the one hand, the fiscal deficit has been growing and it is estimated that this year the primary red will be above 3% of GDP. Such a hole is partly covered with the issuance of new debt, but also with the issuance of pesos.
At the same time, it also puts pressure on the quasi-fiscal deficit, generated by the high interest that the Central must pay for its remunerated liabilities, such as passes and Leliq. The field dollar itself also implies more expansion of money, since the BCRA buys “expensive” dollars at $300 and sells them at the official exchange rate of $220.
The so-called “Plan Llargar” hangs by a thread, but Kirchnerism’s bet is to repeat 2015. Cristina Kirchner handed over the Central without net reserves and with future dollar contracts sold for the equivalent of USD 15,000 million. However, she managed to hand over power without incident, to such an extent that she returned to the Government four years later.
The unknown that now remains to be revealed is whether Massa will be able to do the same. Deliver a weak economy, in clear recession and high inflation, but without a major currency crisis. To achieve this, it will surely require more exchange clamps to close the paths that lead to the dollar and expand the intervention with bonds. Meanwhile, the Government will continue to play with fire, issuing more pesos to soften the impact of inflation on social and retirement plans, as well as granting more subsidized loans to companies to mitigate the drop in activity.
In short, all roads lead to greater imbalances in the coming months, which will be very complex to manage for the government that takes office on December 10.
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