1. What can happen to the dollar after the reserve decline in October and early November? 2. What happens to inflation after the announcement of rate hikes and price controls? 3. Will they be able to recover their salary? 4. Is there a major fiscal adjustment with the Budget? 5. Is the pesos debt sustainable?
Ricardo Delgado, Analytica.
1. In recent months, the fragile balance that Sergio Massa reached three months ago is at stake. In particular, given inflation which is unlikely to fall significantly, the stability of the financial and blue dollar may begin to suffer. There are no significant flows of foreign currency in these months, so to avoid a significant devaluation, the option is to reduce the outflow of dollars from the Central Bank.
2. Inflation can hardly drop to levels of 3-4% per month on a steady basis. The devaluation of the official exchange rate and the adjustment of fuel, energy and transport prices mark a minimum level for the coming months.
3. Growing up with inflation already installed in the order of 3 figures per year is a pipe dream. Basically because there is no evidence that real wages can be recovered with high inflation. Over the past 75 years there have been 41 where real incomes have improved, but in 28 of these 41 inflation has been below 30%.
4. A clear adjustment of primary expenditure is underway. We do a weekly follow-up of items representing reductions of the order of 20% in real terms compared to a year ago, in all areas. Mass policy is contrary in fiscal and also monetary matters.
5. It is evident that an ever higher nominal value forces yields to increase so that investors, including banks, remain in pesos, but at the same time this generates a substantial increase in the remunerated liabilities (debt) of the Central Bank, which today they are equivalent to 25% of its assets, the highest level since 2018. Equities make it difficult for those excess pesos to instantly unbalance the markets.
Paula Gandara, Adcap
1. Today the devaluation of the official exchange rate is 6.5% per month, while inflation would be close to 7% in October. The last thing the government would do would be to make a decent jump in the exchange rate. However, devaluation pressures will continue.
2. Price agreements are fragile short-term measures. We do not see that measures to contain or lower inflation will be successful, at least not until the causes of inflation are resolved. The low is close to 6.0% for the next few months and we could also see a near 3-digit number in 2023.
3. Generally, in election years, governments try to apply expansionist policies to improve purchasing power. And the next government should implement the long-awaited plan that manages to anchor expectations.
4. The government reached its fiscal target for the third quarter with the IMF, thanks to the impact on the harvest of the soybean dollar. Thus, the annual target of 2.5% of GDP can be achieved. However, the objective of further fiscal adjustment cannot be achieved to the extent desired by the IMF.
5. The Government absorbs the demand for available financing and cannot reach it. The problem is that the demand for these funds is captured in the financial market, limiting access to other sectors. This also suggests that funding sources will be exhausted, which could once again cause a disruptive situation in the market, similar to that of June. Therefore, in the coming months it is essential that he manages to extend the deadlines after the elections. We expect some sort of transaction in the coming weeks.
Fausto Spotorno, Ferreres & Associates
1. This is not so much what happens with the reserves, the most important thing is the devaluation rate they are putting on the official dollar, 6%, as a result of inflation. We have to see what happens with the large supply of tourism dollars going to the blue, around 200 million a month, now we will see this new dollar scheme for tourists. I tend to think they should also rise and correct with inflation.
2. There are ever more substantial wage increases, 100% per year, the dollar is rising and wholesale prices, which are the costs of companies, are increasing between 5.5 and 6.5% per month.
3. The priority of the Mass program is to get enough dollars to avoid a major economic crisis without having to carry out a violent devaluation and if that involves paying growth costs, it will be done.
4. The program with the IMF was born already sinning as a gradualist and today it has become more difficult because even if the objectives are achieved thanks to the early harvest of soybeans, it is not a real reduction of the deficit, but of some accounts and tax tricks to put more into box the accounts. There is an adjustment in education and health, but I do not see a serious adjustment and that is what the IMF is asking for.
5. The government is taking out very short-term pesos loans because all maturities are this year and next, not to mention the huge amount of Leliqs issued by the BCRA. We all know that this debt will be left to the opposition and they are trying to say that they will face it, but if that happens then they will have a big problem to deal with. This makes no one want to make long-term loans to the Treasury today.
Lorena Giorgio, Balance
1. The outlook points to a “Hold Plan”, with the official dollar advancing more or less in line with inflation, which would allow the current levels of the real exchange rate to be maintained thanks to global inflation. Import controls are here to stay. The big question mark is what will happen to the alternative dollars.
2. We are at a minimum inflation level of 6% and it will be difficult to lower that level. The official exchange rate hike advances beyond 6%, unions reopen parities and close adjustments around those levels, and regulated game hikes are pushing inflation even a little higher. It is unlikely to drop below 100% in 2023.
3. The availability of dollars to import will be less, it will be necessary to generate additional incentives for the agro-export sector during the heavy harvest and inflation will be a burden on wages, which at best equalize.
4. Except for some creative accounting aspects, this year it will be difficult to achieve the fiscal target agreed with the IMF. And in 2023, if the government again grants extraordinary bonuses to restore the purchasing power of the most vulnerable sectors as part of an electoral strategy, those savings will shrink.
5. The deadlines set for 2023 already exceed 13 trillion pesos, or 7.5 points of GDP. Almost half of this amount expires in July, August and September. This pesos wall is a serious threat to financial stability if the Treasury fails to redeem it and starts placing debts due in 2024. We already saw last June that when there is the slightest doubt that the Treasury will be able to refinance maturities, the market moves rapidly towards central stocks or financial dollars.
Javier Alvaredo, ACM
1. The dynamics of reserves in the October-December half-year are structurally negative, and due to the drought that is affecting the beautiful harvest, this year would be even more negative. So far, the government has been betting on limiting imports, which will impact the level of activity at some point. It is a complex dynamic that will have to be followed almost day by day.
2. In addition to regulated price adjustments, the exchange rate will at least adjust to the level of inflation, for which a price control policy is unlikely to be effective in significantly reducing the rate of inflation.
3. So far, the activity level has shown greater resilience than many of us thought. In any case, such a restricted situation does not facilitate the pursuit of very ambitious objectives in terms of income.
4. Massa’s management has significantly improved expectations on tax developments and the approval by the Deputies of the draft National Budget is also a positive element. One cannot ask for much more and if the objectives of the agreement with the International Monetary Fund were achieved, that would be a very good thing.
5. Such a high nominal value and inflation make any arithmetic uncomfortable, even if in terms of output the dynamics of internal debt are not yet explosive. with a shock of confidence the situation could be reversed. The 2019 reprofiling background doesn’t help, but it’s not the purview of the current business team.
Source: Clarin
