The need to accumulate foreign currency by the Central Bank is imperative given: I) the limited stock of existing international reserves (net in the red for 11 billion dollars and liquid dollars around 7 billion dollars); II) the sharp increase in trade debt for imports in recent years (the stock exceeds 55 billion dollarswhen at the end of 2021 it wasn’t enough 30 billion dollars); and, III) having reserves is a sine qua non to implement a successful stabilization plan that stops the increase in nominal variables by anchoring the exchange rate.
The Central’s recent proposal to offer a dollar bond (BOPREAL) to be subscribed in pesos by companies that certify that they have made imports but are unable to pay for them, involves taking on said debt in hard currency by recording it on your balance sheet (The BCRA’s peso-remunerated liabilities decline in exchange for its dollar debt.)
We do not know the final amount of BOPREAL that will be subscribed – the first tender was not a good omen therefore the conditions offered had to be improved – nor which deadlines will end up validating the Central – there are 3 series with different deadlines and characteristics -, But It will be critical to the repayment of that debt that the monetary authority sustains the accumulation of reserves over time.
After the jump in the exchange rate and the implementation of a new import regime, the BCRA purchased foreign currency on the foreign exchange market at a high rate (more than 2.5 billion dollars since the beginning of the Milei administration).
Although at a slower pace, the Central Bank is likely to continue accumulating reserves until the release of the bumper harvest (autumn) due to the sharp recession – less activity means fewer imports – expected in the first quarter of 2024 due to the collapse of the purchasing power of a large part of the population and fiscal adjustment.
Furthermore, the increase in the price of the importing dollar was greater than the jump in the official dollar the increase in the Country Tax rate from 7.5% to 17.5% for most external purchases.
Finally, the implementation of the new import system – which eliminates authorization requirements – means in the short term that payments will begin to normalize already from the beginning of autumn (the MULC access quota established for the majority of imports is equal to 25% of the monthly amount).
The large coarse harvest (corn and soy) expected for 2024, the lower energy imports during the winter – thanks to the Néstor Kirchner pipeline which increases the drainage capacity of Vaca Muerta – and The increased external sales resulting from mining (lithium and copper) would allow the process of accumulation of foreign currency from the trade surplus to be supported throughout the year.
The million dollar question is What will happen to foreign currency accumulation when the real exchange rate loses its competitive cushion? earned (this would happen quickly if the BCRA did not change the pace of creeping picket announced of 2% monthly in a context of inflation of -at least- 25% monthly) and/or the level of activity starts to recover (in the best case scenario during the second half of 2024).
With a shrinking trade surplus, The official strategy would be a net inflow of capital in 2025therefore the achievement of financial balance and the deregulation of the economy – battles that the Executive is currently fighting – would be fundamental.
But The inflow of capital for betting is risky, Because, as happened at the height of the Macri administration, these are volatile and tend to cause currency crises when they plummet.
Lorenzo Sigaut Gravina, Director of Equilibra Macroeconomic Analysis
Source: Clarin
