There is a consensus among both local financial operators and those on Wall Street that the Argentine economy is increasingly weakened by the effects of the drought on the exchange market and the level of activity, the macroeconomic imbalances that are becoming more evident every day and a inflation which is difficult to control.
As they get closer three key dates The operators maintain that the foreign exchange and stock markets are likely to show great volatility as a result of what is called in the market the “three electoral countdowns“.
The first is the one that goes to June 26th when the lists of candidates for president, senators and deputies that will appear in the presidential PASO on August 12 are closed, for which there are about 90 days to go.
The second extends from that date to the STEP of August 13 where the first electoral result of the year will be known, which may or may not mark a trend.
While the third countdown, perhaps the most transcendental, is the one that goes from August 13 to October 22 where it will finally be known who will be the next president of the Nation and which party or political alliance will govern between 2025 and 2029.
The specialist Salvador Di Stefano maintains in this regard that “once the result of the PASO of August 13 is known, the Market it will begin to discount who could be the favorite candidate to win the elections and in the event that a rational candidate appears with ideas of changing the current economic course, everything suggests that both Argentine bonds and shares could start a bullish rally, but that will be a long way off.”
Inflation and the fall in dollar reserves worry the Government ahead of the PASO of August 13
Dollar and debt swap: financial market countdowns
The last week shows that the BCRA continues to sell dollars in the official and free exchange market (MULC) where no change has been observed for the moment in the exchange scheme like, for example, a expansion of the exchange rate that allows him to stretch out the agony first until the PASO elections in August and, then, until the presidential replacement in December.
In this short week of only four days, the BCRA sold 261 million dollars in the MULC on Monday, 99 million on Tuesday, 140 million on Wednesday and 88 million on Thursday, totaling sales of 588 million.
This means that in just four days the BCRA consumed 85% of the 680 million dollars that the Treasury received from international agency disbursements the Treasury last Monday.
With these sales, the red accumulated net sales for the month reached u$s1,467 million dollars becoming the biggest sale for a March with exchange rate.
So far this year net sales reached 2,549 million dollars Up to now, it has been the largest outflow of dollars since the convertibility plan came out at the beginning of 2002.
If this trend continues, it is probable that the stock of net international reserves will continue to decline, although at a slower rate given that the flow would slacken from 04/12, until the more than scant liquidation of the first lots of soybeans. In short, during April it could be observed in the worst case a scenario of zero or slightly negative reserves where it will be necessary to see the results of the forced exchange of debt in dollars of the public sector organizations in case it materializes.
The blue dollar reached the border of $400
The price of the blue dollar and the financiers
Two days after the announcement of the measures, it was observed how a positive balance blue dollar crash which closed at 389 pesos and a drop in alternative financial dollars where the CCL dollar ended at 388 pesos and the MEP dollar at 380 pesos. While the official dollar ended at 212 pesos.
Before the announcement, the CCL dollar had exceeded 400 pesos and dragged down the rest of the prices, such as the free dollar that reached 394 pesos and the tourist dollar that reached a record of 425 pesos that day. The negative reflection result in the fall in dollar debt bonds and the increase in country risk that reached 2,500 points.
The sequence that the director of the consulting firm M&S Rodolfo Santangelo envisions regarding the future behavior of the market in the event that the forced exchange takes place is as follows: ANSES and public sector organizations they will sell those bonds in dollars at some price. Then, with those pesos that it receives from the Treasury, it will subscribe the new bond in pesos that that organism will place and the Treasury receives the pesos to be able to finance the expense.
For its part, the BCRA will have to buy the bonds in dollars in the secondary market because You will not be able to participate in the tenders that the Treasury will make and a kind of paper handrail will be set up, but ultimately the one that ends up putting the pesos is the BCRA with monetary issue.
The Central Bank, for its part, has to buy the bonds in the secondary market because it cannot participate in the auctions. According to Santangelo’s opinion, there is no possibility that the market will finance the Treasury the pesos that it lacks to finance the expense and he states that if the BCRA does, the only thing that can be expected is higher inflation.
At the moment it is observed that after the measures announced by the Minister of Economy Sergio Massa, the exchange has not yet been effectedthe bond market did not respond as expected by the government and there was also a warning from the IMF.
The IMF expressed its opinion on the latest measures taken by the Minister of Economy, Sergio Massa
The debt swap and the IMF warning
On Thursday the director of communications for the IMF, Julie Kozlack, stated that the agency was aware of the operation and stated that “from the point of view of the agency prudent debt management is necessary to improve the functioning of the domestic market and the foreign exchange market, but it must be carried out in a way that does not add vulnerability to the future and must also be accompanied by strict and consistent macroeconomic policies”.
While the Secretary of Finance, Eduardo Setti, stressed yesterday that the announced measures aim to continue rearranging financial assets, especially those denominated in foreign currency, within the National Public Sector.
“There are agencies of the National State that have bonds denominated in dollars, both with local legislation (AL), and with foreign legislation (GD), without this being necessary for them to comply with the objective or purpose. The measure aims to manage prudent but also efficient management of financial assets, while preserving the objective and destination of the different bodies and jurisdictions subject to the measure,” Setti explained.
In this, he pointed out that, through the Decree published in the Official Gazette, “it seeks in particular to maximize the result of financial operations in the capital market, using reliable and transparent procedures.” “In this way, the Ministry of Economy, in coordination with the Central Bank, will have the capacity to act in the financial dollar market without affecting the reserves, to stabilize them avoiding high volatility,” he added.
Setti said that it is expected to absorb excess pesos that otherwise put pressure on inflation; reduce debt in dollars with foreign legislation; lift some exchange restrictions, as a first step towards a principle of normalization; generate instruments to stabilize the financial dollar market without affecting reserves; concentrate the management of these instruments in the Ministry of Economy, in coordination with the Central Bank; help reduce the volatility of the financial dollar market in particular, and of the capital market in general, thus avoiding its impact, among others, on inflation.
Both Global Bonds and Bonares ended Thursday in the local market with broad falls in the last two days, reaching an average of 5%, while emerging market bonds recovered after the announcement by the United States FED that it raised only 25 basis points the short-term income rate that is now located in a range of 4.5% to 4.75% per year. Consequently, the fall in the prices of Argentine sovereign bonds in the last two days is explained by the local factor.
In this regard, we must mention that in the last debt tender in which the Treasury managed to refinance some 425,000 million pesos within the bonds that were offered post-elections, the DUAL Bond to February 2024 (TDF24) obtained more relative attention with respect to the Pure DUAL bonus (TV24).
In an adverse international scenario, where the United States Federal Reserve (FED) raised the short-term interest rate by 25 basis points, with a staggering American and European banking system, where the future consequences of the drought will be lower exports of the agro-export sector and a reduction in the collection of AFIP withholdings, the context is very complicated to carry out a forced exchange whose main consequences could be the pesification of the pension system savings.
The reduced supply of dollars from the agricultural export sector, the abusive demand for dollars from the import sector, the increase in the exchange rate gap, the bad fiscal numbers for the first two months and the excess of pesos will also exert pressure in the future.
