A rush to the dollar accelerated by the government crisis and by inflation

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When the decision of Alberto Fernández after rejecting his re-election bid, Argentine bonds abroad had an initial 3.5% jump abroad. What did the market read?

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Could this decision make the minister’s path more open? Sergio Massa to launch his presidential candidacy? Or perhaps, that the collapse of bonds is historic to the point that they yield up to 50% in dollars due to the maintenance of a default price.

The currency crisis of the week which was reflected in a 12% increase in free dollars against the background of A sharp increase in trading volume in global bonds to carry out cash dollar transactions with settlement, one of the clearest indicators that the hedging process of wholesalers is booming.

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The most compromising fact is that the Government still didn’t get a smooth solution of currencies after implementing the agricultural dollar.

The scheme was announced on April 5, ahead of the 7.7% inflation spread for March. These data dented expectations that $300 could be an attractive exchange rate for soybean producers, and even more so later, as the run on the dollar marked a free exchange rate of $454.

THE brawls between cereals and producers, who refuse to part with their grains, join those in government on grain companies who claim they have no grains to liquidate.

The aggravating circumstance for the Economy is that the former chief adviser to Alberto Fernández, Antonio Aracriexpelled from the Casa Rosada, had told the President that the the agrodollar lacked appeal for producers, even when the field needed to sell the grains to be able to pay debts and inputs for the next campaign.

Minister Massa has had success with the “1 soy dollar” which generated export liquidations of over 7,000 million dollars and also with “soy 2” with over 3,000 million additional dollars, but now “agro 1” (IMF guaranteed) supports cross-effects of the fallout from the drought, the inflationary coup and the political crisis of the ruling party.

To the government he can hardly argue that the devaluation of the agricultural dollar will have been the lasteven as the pressure on the pitch increases.

On the dollar side, the grain companies again reduced their estimate for the soybean crop by 2.5 million tons, which would now reach 22.5 million tons.

Because of the weights, doubts grow about ability of the Central Bank to continue to control the peso market interest rate increase for time deposits and liquidity bills.

With a nominal rate at 81% per annum (the former 78%) the effective return on a fixed term rises to 119% in a context in which inflation settles above 100%. Will the premium be enough to contain the savings in pesos?

It is worth remembering that any increase in the tariffs available to the Central translates into a increase of interest which must pay for the placement of Leliq in banks which, together with the repo transactions, involve the payment of interest on a stock of debt of 12.5 trillion dollars. Emission requirements continue to grow.

The latest report by Abeceb, consultant to former minister Dante Sica, focuses on the deterioration of the pillars of Massa’s “resistance plan”.

And mention it the real exchange rate is 20% behind.that the Central Bank cannot defend the value of weight and where the state has displaced businesses and consumers from available credit: “Private credit has decreased in one year by almost two percentage points of GDP”.

That the State is left with growing portions of the availability of credit runs together with the certainty of economists that wages and pensions will lose the race against inflation this yearbut these days it takes a back seat in the government’s priorities and the instability of exchange rates is at the center of attention.

Massa has an open front with the IMF in the renegotiation of the fiscal deficit target (it must fall from 2.4% to 1.9% of GDP and compliance is difficult) with the aggravating circumstance that Kirchnerism continues to criticize the Fund even when it depends on the organization’s dollars.

But for the minister, the priority will be to get results with the agricultural dollar. Without dollars, the fate of any government is sealed and recent Argentine history is full of experiences.

The ABECEB report concludes by saying: “McKinnon, one of the economists who has most studied the phenomenon of financial repression (dollar arrears, equities, delayed tariffs) in emerging countries, stated that deactivating the repression It’s like walking through a minefield“. We will have to be warned.

Source: Clarin

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