The Government will still gain time by scoring Reservations. The measure will keep the program with the IMF afloat and continue to receive funds from the organization to refinance the debt, but it will not prevent the economy from suffering from stress In a difficult year due to rising rates in the US, the shortage of dollars and near 100% year-on-year inflation hitting consumption in an election year. In summary: there will be (expected) a waiver for the reserves target but there will be no dollars, which is ultimately what will set the pulse of the market and economic activity.
In fact, the Fund has warned about the continuity of the “high” risks. for Argentina in an unfavorable global context and due to the difficulties posed in the agreement signed in March 2022. In Washington they believe that a greater global stunting or a greater tightening of the financial situation could generate a negative impact, also on raw materials and obligations, which in part have begun to materialise.
“There are different sources of tension: the increase in interest rates, which apparently will continue, the conflict in Ukraine continues and the side effects are not known, but above all the trade tensions between the United States, China and other countries, and all this affects the flow of emerging markets and it creates some debt problems in some countries, like Sri Lanka and Pakistan,” he said Daniel Marx, former finance secretary and head of Quantum.
According to Bank of America, the US Federal Reserve could raise interest rates to nearly 6% to bring down inflation. This variable which determines the cost of money went from 3.65% in January to 4% in February. The market was expecting a level between 4.75% and 5% for March, but the latest data on the US economy led the market to speculate a hike that would take the rate from 5.25 to 5.5%, with local repercussions.
“Now we see the risk of a rate hike, the rebound in global inflation makes you put more pressure on rates and this generates capital outflows (from emerging markets) and affects Argentina. That’s what happened in February, after the markets rebounded in January, the whole rebound in bonds stopped due to higher inflation in the US, so we’re starting to price in another rate hike.” economist. Fernando Maul, director of the FMA.
In February, the economy showed a marked deterioration, with prospects for higher inflation, stagnation, higher fiscal imbalances and lower reserves at the Central Bank. for signature CoenThis backdrop, coupled with the poor performance of emerging market bonds, meant that sovereign bonds ended the month down 10%, despite their recovery over the last week, and country risk returned to around 2,000 basis points.
With all, the “drought” of dollars with a high exchange rate gap is considered the main danger. Without the help of the soybean dollar, the central bank parted with $1.1 billion in the foreign exchange market, its worst result in 20 years. “Lack of dollars is the greatest risk due to drought, you will be counting beans all year round, and if you tighten inventories, you will exacerbate the recession due to lower imports, and if you do, you will increase CCL and inflation,” said Marull.
After raising the CPI by 6% in January, price escalation is the other biggest threat. A decline is not expected in February and increases in services in March will add pressure on income, poverty and spending. “Inflation will depend on Kicillof paritiesif this generalizes, it goes to costs and affects the budget, it is one of the most important protagonists of the coalition”, he assured Javier Alvaredo, director of the MCA.
Finally the elections they are also seen as a risk to the economy. “If a scenario of moderate contenders consolidates it will be positive, if there are two crack contenders, like Macri-CFK, it will be negative,” Alvaredo explained. “The uncertainty associated with political change tends to be more important than in other countries and this can delay the liquidation of currencies and investments,” agreed Marx.
Source: Clarin
