Definitions are expected from Washington and also from politics. Will Cristina Kirchner empower the minister so that she is the candidate of the ruling party?
By Claudio Zlotnik
14/05/2023 – 15,15hs
The next two weeks will be decisive for Sergio Massa and the direction of the economy, ahead of the presidential elections. After the announcement of the new package of measures that was made this Sunday, there will be political definitions in the ruling party, which will surely seal the future of the Minister of Economy. And, perhaps more relevant, the decision of the Monetary Fund: Will the agency accept an immediate advance of the disbursements scheduled for the second semester, or will the uncertainty continue?
Until now, in recent weeks, Massa has been more aware of the dollars in the Central Bank’s reserves than of the evolution of prices. The minister never imagined this scenario, where food becomes more expensive at a rate of 10% per month.
The official projections give an even worse scenario for this month, with rate increases having an impact on the index, and an undisguisable statistical drag.
Some of the food companies have already sent their lists with increases of 10% for this month. And even some have already announced a second batch, especially from the dairy plants.
In this context, the Central Bank once again raised interest rates, to align them with inflation. It is the third adjustment in less than a month. Worse would be the risk that fixed terms in pesos are dismantled to dollarize part of those savings, causing an exchange tremor and -even worse- a crisis in the financial system.
Dollar: waiting for the Monetary Fund
Despite the fact that the week ended with a purchase of US$101 million by the Central Bank, the reserve situation is suffocating. From the Palacio de Hacienda they assume that during the second half of this month at least US$2,000 million should enter. A possibility that would only materialize if the Central Bank can sustain the precarious stability of the exchange rate gap.
The reserve situation is critical and fuels uncertainty.
The last time the inflation surprised investors a currency run was triggered. It happened last month, when the 7.7% in March -also disclosed on a Friday after the markets closed- overheated the exchange market.
At that moment, Sergio Massa made the decision to intervene directly in the dollar market and terminate the agreement with the Monetary Fund, which precisely prohibited this tool.
The Minister of Economy has just vindicated that decision, in his speech before leading businessmen at Amcham, the chamber that brings together US-funded companies in Argentina.
What has been said above, the Central Bank also aligned expectations and raised interest rates; I had already done it in the previous weeks.
One of the keys for these next days is if the FMIfinally, lift the barriers and accept the advancement of disbursements scheduled for the second semester.
It would be a bailout to avoid short-term disruption, but it’s also unclear whether those funds would ensure a clear path at least until the end of the year. IMF disbursements are SDRs that are not used to finance imports or to intervene in the exchange market. They are not hard cash dollars. But that gesture would help stabilize expectations.
It is not at all clear that this signal materializes in practice. Not even on the economic team do they think the possibility seems close.
In Economy they expect a gesture of the IMF: the advance of disbursements.
Policy Definitions
For the first time since he took office as minister, Massa had political definitions in the last week. He made it clear that he does not want the Primaries to define the ruling party’s candidate. he wants to be the representative by consensus of the Frente de Todos.
A clear difference with Alberto Fernández.
The question, at this point, is what Cristina Fernández de Kirchner will think. Will you enable the minister to assume that responsibility? Will he provide him with her political capital?
There are too many doubts about it, and from the ruling party itself they deny that chance. Even though Massa today appears as the guarantor of stability. Precarious but stable at last.
This political question will also be defined in the next two weeks. The economic and political scenarios mix and feed back, at the gates of the campaign and the presidential elections.
From Wall Street they watch the dynamics very carefully.
Until here, the economic activity and the employment level They also contribute to social stability. Even though accelerated inflation is an undeniable nuisance for a society hit by the loss of purchasing power, those two key variables have been working as a social anchor.
This issue will also be settled in these coming weeks. And you have to pay maximum attention to them.
