Negotiations with the IMF to ease reserve requirements set out in last year’s deal come as a relief to the government. The official expectation is that the change in targets will reduce pressure to meet the schedule and allow it to continue receiving dollars from the agency to ease tensions ahead of the election. However, making the arrangement more flexible does not solve the fundamental problem of the lack of foreign exchange, which will continue to affect the economy.
It was announced this weekend that an agreement had been reached with the IMF to make net reserve targets more flexible, meaning that the central bank it was expected to be $7.7 billion by the end of March, when it’s down by at least $3.5 billion. Between Monday and Tuesday the institution will formalize this change, which gives oxygen to the government in the short term and avoids the political blow of asking for an “exemption” for failure to achieve the objectives.
Faced with the exchange rate gap and the impact of the drought, the government will have to look for other sources to shore up reserves. Therefore, the alternatives at stake are a REPO credit with foreign banks for $1 billionseek funds from multilateral organizations such as the recent World Bank disbursement or new transfers from the BID, and launch a 3 soy dollar. Exchange with China and financing from Brazil are also targeted.
Negative balance
The data on the foreign exchange market are worrying: the Central Bank started 2023 with the worst result in nearly 20 years. It sold nearly $30 million last Friday and went into the red for six weeks straight has accumulated a negative balance of US$ 1,130 million in the year, in its worst start since 2003. “As a result, net reserves according to IMF methodology show a decline of more than $5,000 million for the year,” Ecolatina estimated.
As early as January, the government raised the repurchase agreement rate and repurchased dollar debt with reserves to contain the pressure on parallels. The measures moderated the exchange rate gap, but the lack of foreign exchange was compounded by the poor clearance of agricultureproduct of the impact of the drought on the grain harvest, the increase in exports in December and the sector’s incentive to hold back pending a favorable change.
“It asks them to adjust the reserve target and manage to make no net payments to the Fund and something is triggered by the exchange with China, there is a REPO and scratching the bottom of the pot gives them a chance to reach the end of the year , the situation is equally unbalanced due to the natural tendency to deaccumulate reserves given the official exchange rate and the high exchange rate gap“said Carlos Pérez, coordinating technical director of the Capital Foundation, which he co-founded with Martín Redrado.
In the midst of the negotiations in Washington, Minister Sergio Massa suggested possible changes of objectives, ensuring that “the consensus with the IMF is that it is better to adjust the work planning of the year from the beginning to give predictability and not having to make sacrifices during the year”. And his team maintain that “the idea is that the reserves continue to accumulate and grow, but taking into account the drought and the war”.
For the moment, the decline in activity for the fourth consecutive month in December and the decline in exports in January mark an increasingly marked deterioration. “The BCRA will have to decide whether to sell the few reserves it has left ($4.2 billion; and if it doesn’t want to, it will have to further adjust imports with SIRA, making the business even worse, putting more pressure on the parallel dollar and the inflation,” noted an FMyA report.
Looking at the “box” that comes from the estimate of dollars in and out, Economists expect a red this year of between 6,000 and 10,000 million US dollars. Until 10 days ago, the exchange of goods compensated for the deficit in services and the payment of private commercial debt. But the chill in soybeans has added a stressor to the expected currency outflow due to debt to private bondholders and a shift in IMF flows in 2023.
It happens that from the end of March, when Argentina receives 5,300 million dollars to meet the December targets, the country will begin to deal with “net payments” with the agency. Therefore, even if the quantitative objectives are achieved, the disbursements of the Fund will no longer be sufficient to cover the maturities of the capital, as occurred in 2022. And it will be necessary to add interest, which will amount to 2,900 million dollars.
The exchange rate will be another challenge. The BCRA accelerated the official dollar’s rise to a monthly average of 6.2%, higher than January’s 5.1% average and in line with February inflation forecasts, but it would not be enough. “It will be a difficult year to face if the exchange rate policy is not correctedthey will manage a constant shortage And no matter how much they soften the goal, we will experience the consequences of the soy dollar every time there is a revision,” said Matías de Luca, of LCG.
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Source: Clarin
