Despite the fall of the omnibus law, the growing conflict with the governors, the adverse court rulings and the worsening of the socio-economic situation (sharp decline in activity and loss of real labor income), the government closes February with significant improvements in the relevant indicators .
1) Core inflation is slowing at a faster pace than expected: it rose from 28% in December to mid-February, according to Equilibra Inflation Advance.
2) After more than a decade, the national government reached a financial surplus in January.
3) The BCRA continued to buy currencies in the MULC ($2.35 billion in February).
4) Financial estimates it fell nominally in Februaryreducing the exchange rate gap by over 20 percentage points which at the end of January was around 45%.
5) Country risk fell more than 200 basis points (1,950 to 1,730) throughout February.
The nominal double-digit decline in financial prices It’s the most notable figure of the month. Despite the nominal reduction in the monetary policy rate and the continued purchases of foreign currency by the BCRA in the MULC, much of the narrowing of the gap is explained by the strong monetary tightening faced by the economic authorities and the export liquidation mix. , composed of 80% MULC-20% CCL.
The BCRA’s monetary liabilities have accumulated a 30% decline in real terms since November due to the monetary policy interest rate reduction, banks’ migration of debt paid in pesos from the BCRA to the Treasury, and the buyback of its debt by the Treasury in pesos into the hands of the Central and the placement of BOPREAL for commercial debt for imports.
Another significant element is the sharp decline in activity which, through the destruction of jobs and the collapse of salesseems to contain the race in prices and wages generate significant losses of income for economic operatorslimiting their ability to save/purchase hard currency.
The falling price of blue This may indicate that households and/or SMEs have had to sell dollars (or buy fewer) to cope with a greater than expected deterioration in their income.
Finally, the confidence of the main economic/financial operators improves. It is no coincidence that financial contributions and country risk have decreased significantly. It seems that the double surplus (external and fiscal) obtained in January has revived expectations: if the public sector result improves and the BCRA accumulates dollars, the ability to repay the public debt in both local and foreign currency increases.
The million dollar question is how sustainable the government’s economic policy is. The shock measures (exchange, fiscal and monetary) applied at the beginning of the administration generated a socioeconomic deterioration, which led to poverty affecting half (or more) of the population.
The political strategy of confrontation with the “caste” helps to preserve the presidential image but makes it difficult to support the initiatives of the ruling party, which has little territorial and legislative power.
Finally, The economic strategy does not yet include a stabilization plan and the correction of fiscal and external imbalances relies on factors that are difficult to sustain over time.
On the fiscal front, the national public sector made no transfers to Cammesa in January, despite the cost of electricity production increasing significantly after the devaluation and without changing the tariffs paid by users.
Something similar happens with the accumulation of reserves: CIF imports of goods reached $4.6 billion in January but, due to the deferral of payments in 4 monthly installments of the new import scheme, the BCRA only paid $1.1 billion, accounting for Central’s entire net purchase amount in the month’s MULC ($3.3 billion).
This benefit – read accumulation of trade debt – would expire in mid-April because 25% of the import amount of the last 4 months will be paid (the system started in mid-December).
Furthermore, at the end of February the real exchange rate reached equilibrium levels according to the IMF, thus continuing the decline of the official dollar to 2% with double-digit monthly inflation. It would involve starting a new exchange rate delay process.
Source: Clarin
