In a scenario with a critical level of net reserves due to the impact of the drought and the weak dynamism of the agricultural dollar that makes it difficult for the Central Bank to accumulate foreign currency, the Minister of Economy, Sergio Massa, faced the redefinition of the agreement with the IMF in search of that the international organization advance the disbursements scheduled for the rest of the year for an amount of around US$10.800 million. But For economists, it won’t be free, and it could come with new exchange rate requirements.
In the market they argue that if the renegotiation with the IMF only implies the advance of disbursements, it serves to improve the “photo” of the reserves but does not change the root problem, which is the lack of dollars, for which the expectation is whether the agency will grant fresh funds.
An IMF spokesman commented this week that the teams of the international organization and the Ministry of Economy “continue working constructively to strengthen the program supported by the Fund in the context of the very severe drought.”
In turn, Massa, speaking on Tuesday at a meeting organized by the United States Chamber of Commerce in Argentina (AmCham), assured that the IMF understood the drought as a “game changer” for which goals and objectives are being discussed of the agreement within the program so as not to have to put together a new one and go to Congress to have it approved.
IMF dollars: what conditions will there be in exchange for disbursements?
Economists affirm that if the IMF grants advance disbursements to strengthen the reserves, it will be in exchange for new conditions, and in this context, some believe that the organization could demand a change in the current exchange scheme to stop the drain of foreign currency.
In this regard, an analysis of Consultation evaluated that the IMF would “hardly” approve an advance on disbursements “to sustain an exchange scheme that under any optics looks unsustainable.” In his view, “In some other way, the current exchange scheme -with an artificially appreciated real exchange rate- will have to be modified”.
For the market, the IMF will ask to modify the current exchange scheme as a condition for advance disbursements
“It is to be expected that the decision to advance disbursements will be accompanied by some extra conditionality with regard to the exchange rate regime.” And they stated that “in the menu of options there is an exchange rate unfolding, perhaps the least bad solution in the short term, although we do not rule out that a moderate devaluation is requested either”.
Also, the consultant EconViews He maintained that “the staff would only agree to an advance of disbursements against some previous actions” and considered that “The rate hike announced this week is in the right direction, but probably not enough”
“The staff wants to ensure that, if they put the cash, those dollars are not sold at a bargain price. If the Fund opened the wallet, it is not clear how much it would advance and how it would ensure that Argentina does not deliver those reserves since it does not have others to pay the commitments that expire later in the year and for which he should use that money that the IMF could advance him. That is why a devaluation could help in the margin”, he evaluated.
However, the consultancy argued that “it is not that a devaluation without a plan could be saving” given that “inflation would rise immediately and the external improvement in the short term would be marginal.”
For his part, Martin Polochief strategist at Cohen Aliados Financieros, told iProfessional that “I don’t expect the IMF to change the current exchange scheme, I think that in the absence of dollars they will seek to ensure that the exchange rate does not lag far behind inflation.”
IMF dollars: will the agency ask for a devaluation?
Juan Pablo AlbornozInvecq economist, emphasized that “net reserves are negative” with which “the situation is critical”, and judged that “the IMF should consider that the drought is not anyone’s fault and that the adjustment in the supply flow of currency responds to an exogenous shock that neither the Fund nor the Government control”.
The government seeks advance disbursements to strengthen net reserves that are negative by US$1,000 million
“I am inclined to think that They will ask the government to commit to the fiscal goal and some exchange measure. I do not think they will ask for a devaluation of the official exchange rate, it is the only policy that the Government has always maintained and everything indicates that it would be the measuredand last resort”.
in tune, Alejandro Giacoia, economist EconViews, agreed that “the government will try at all costs to avoid devaluation, but something is going to have to give way, if it is not on the side, it will be on the prosecutor’s side.”
In turn, the consultant FMyA He considered that “the rumors that the IMF is asking for a discreet devaluation in exchange for early disbursements do not sound credible, devaluing at a floor of 7.5% inflation and without anchors, is throwing kerosene directly“
of equal vision, Martin Kalos, of the consulting firm Epyca, assured that “devaluing the official exchange rate in the current scheme does not make sense, because it does not solve the problems, because as long as the exchange rate is maintained, it would quickly increase all other exchange rates as well, such as the dollar card ”
“A devaluation does not solve anything, it only basically increases inflation. The point of a devaluation or not is a question of diagnosis of what is the necessary starting point for a stabilization plan that yes or if it has to undertake a government with a medium-term horizon and capacity for political execution, something that will have the next government, not this one”he founded.
For his part, the economist Federico Glustein speculated that “the IMF makes its goals more flexible in the face of a scenario of galloping inflation, so it is likely that it has decided not to accelerate the crawling peg, for example, or to avoid a greater incidence of China, to advance the disbursements, without changing what exists and without asking for deep changes, at least to this government management”.
Some economists foresee that a new tightening of the stocks
Is doubling coming, exchange rate simplification, or more stocks?
Para Glustein, “it is probable that once the agricultural dollar runs out, we can move towards a unification of certain exchange rates, closer to the CCL, especially those linked to tourism and superfluous expensessuch as streaming platforms, online consumption abroad via web pages, which are a permanent outlet for foreign currency”.
However, the economist admitted that this measure could “not be sustainable, since there is usually an increase in the demand for dollars for hoarding prior to elections, for which reason it could require deterrent tools or a full electoral exchange rate unfolding directly.”
Bathrobe agreed that “most likely the IMF will ask that progress be made in some simplification of the multiple exchange rates they have, something to alleviate the price distortion that exists outside the official market”.
In addition, Polo argued that “the government does not have the time or plan to change expectations, which is why We expect a strengthening of exchange controls, with greater control over importstolerating more recession and negotiating some type of financing -short and expensive- with other countries”.
“The central objective of the government is to reach the October elections without an exchange rate jump, although that does not prevent it from arriving with a very deteriorated and fragile macro. It is a base scenario, but the probability is reduced as the days go by and the BCRA fails to rebuild international reserves,” he warned.
For her part, the economist Natalia Butterfly commented that “I don’t see that today the government accepts a devaluation that would be the most recommendable, so I estimate that the unfolding will be what the IMF will ask of the current administration”.And he added that “of all the instruments in his possession today it is the most feasible” but “the issue is which sectors will have access to a lower exchange rate to import inputs and which to a higher one, these delimitations are always difficult to carry out” .
The market believes that Massa will avoid accepting a devaluation at all costs
On the other hand, the economist asserted that “any split is a disguised devaluation, and part of it is going to be transferred to prices, whether for consumer goods or tourism,” while explaining that “if exporters are going to access a With a higher exchange rate, there will be more pesos injected into the economy, which accelerates inflation, and that in an electoral context of great uncertainty is counterproductive”. she reasoned herself.
Does the Hold Plan arrive?
Massa’s objective is to reach the elections without a discrete jump in the official exchange rate. The consultant FMyA cree “Massa has tools to comply with his plan to hold out until STEP” and that it anticipates that given the worrying dynamics of the reserves “there will be new measures: more debt, eventually a 4 soybean, more exchange rate, or even some new dollar (unfolding)”. And he clarified that “we say it not as the ideal, but it is what sounds most credible within the ‘Hold on plan’ until Paso”, he added.
In that sense, in EconViews They stressed that the current situation “is a very complicated game of chess, with the sole objective, almost capricious, of reaching the STEP without devaluing”. But he stressed that “even in a successful case, the question would be how to get to October without devaluing; the costs are not going to be easily affordable.”
“More tourniquets for imports or passing tourism to the MEP are some of the things that the government can do. But that is not free and of course it generates more demand of the Dollars market. There are no more options to solve problems without creating others. In the case of tourism, the MEP would rise and tax collection would be lost, which would require more issuance, “he analyzed.
“By December we believe that The government will remain firm in its idea of avoiding a devaluation at all costs. If throughout his entire term he always leaned towards appreciating the exchange rate, it is hard to believe that he wants to generate a real depreciation a few months before the elections. Likewise, this does not mean that we rule out the scenario where a discrete jump occurs. It is one thing what the government wants and another what it can, but for the moment we assign a higher probability to a success of the plan to arrive“, he reasoned.
