Soybean dollar, a new trading step

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Carlo Antonio Perez

Director Coordinator of the Capital Foundation

The recent Necessity and Urgency Decree (DNU) 576/22, is indeed a new “soybean dollar”, with a limited duration (until the end of September), it gains time by improving the stock of international net reserves, although it is not conducive to the net dollar income stream. The size of the dollars that will go into the Central Bank’s net international reserves (BCRA) is no less of an issue, which is why the $ 5 trillion target is important. Prior to this DNU, the monetary authority owed many pesos (monetary liabilities), 11 trillion, with net international reserves close to zero. After DNU 576/22 and throughout September, monetary liabilities will continue to grow, but as they say: “what does another commercial do to the tiger”. However, and despite being the same amount (5,000 million dollars or 1 trillion pesos), the increase in net international reserves, in proportion, would be considerable, and that explains the decrease in exchange rate tension, mainly in financial dollar quotes. The monetary issuance from soy dollar purchases can also produce some inflationary distortion, of less importance than the exchange rate peace of mind provided.

The impact analysis of DNU 576/22 (considering exclusively September 2022), at best, it is fiscally neutral. If we assume that the possible $ 5 trillion would not have entered without this incentive of the current soybean dollar, then what is lost by exchange rate difference (by paying these exports at $ 200 and by selling imports at $ 140), is recovered by what is collected in concept of withholdings obtained from these additional exports. Beyond the bill in dollars, with which the National Treasury would compensate the BCRA (for the exchange difference), it would further increase the excessive indebtedness of the national public sector (over 90,000 million dollars) with the BCRA.

And what can happen from October?

If the current “soybean dollar” returns to the official dollar value starting in October and with a higher reserve stock, the flow of dollar inflows and outflows in the official foreign exchange market it will play against the necessary accumulation of international reserves. Perhaps it can be offset by the entry of financial dollars, such as increased swap activation with China, loans from international organizations or “repo” with foreign banks, even if this is a temporary measure.

In addition, in the first 7 months of this year, actual imports exceeded those paid by $ 7.5 billion, and these are lower future international reserves. If the soybean dollar ends on September 30, the detailed reading of international reserves makes sense again; less than 37 trillion in gross reserves, with $ 30.5 trillion in swaps with China and dollar deposit reserves, which are not available, and another 6 trillion in loans and facilities, which cannot even be considered as net reserves. And with negative cash reserves in dollarssince there are more than 6,000 million dollars in SDR and gold.

The union of the exchange rate delay (especially in 2021) and the very high exchange rate gap is back it is almost impossible to accumulate genuine dollars in international reserves.

Another possibility is that the “current soybean dollar” will be maintained from October, a feasible time and sectoral extension over time. But then various problems start to arise. fiscal accounts would already be frankly in deficit and pressure from other export sectors would increase also have a special dollar and the IMF would have something to object to this new exchange disorder.

And it finally appears as a possible decision a modest devaluation, never desired but often unavoidable in the country. Devaluation today explicitly excluded by the economic authorities. Initially, a devaluation reduces the lag of the exchange and also reduces the gap between the financial dollar and the official dollar. But you have to be careful with an isolated devaluation, since in that case it would feed a growing and dangerous nominality of the iterative inflation-devaluation process that Argentina has experienced for more than a decade.

The agreement signed this year between Argentina and the IMF is of dubious consistency, given the exchange rate delay of 2021 and an exchange rate gap that does not fall below 70%. there was not preventive and almost simultaneous devaluation With the agreement (as happened in other countries), not even afterwards did a real fiscal order (with an immediate decrease in economic subsidies) and a monetary policy of positive real rates that was really effective in the fight against inflation have been achieved. The opposite happened. That is why a potential discreet devaluation should be accompanied by a “strengthening” of the agreement with the International Monetary Fund, so that the support from the IMF offsets the moderate jump in the exchange rate in expectations official, in order to moderate the insurance transfer to inflation and minimize the risk of advancement of the financial dollar.

This strengthening of the agreement with the IMF should be immediately accompanied by a monetary and fiscal policy that curbs the growing inflation suffered by Argentina and especially by low-income citizens. In this sense, monetary policy should not alone guarantee positive interest rates in real termsIt would also be ideal if it were with a suitable and autonomous Central Bank Board of Directors and with parliamentary agreements, to carry out a task that goes beyond next year’s elections.

The opportunity is near, as more than half of the Monetary Entity’s Directors will have to be appointed on 23 September. On the side of fiscal policy, the distortion of tariffs for public services is a problem that should find a prompt resolution, since economic subsidies account for most of the primary budget deficit and the economic authority took that initiative. And if it comes to dreaming, it would be fantastic a fiscal rule that limits public spending (as a percentage of GDP), sanctioned by the law and that alleviates the tax burden.

Conclusion, given the decision to use the “soy dollar” step, it is important to take care of the dollars that can be obtained for international reserves in September and, on the other hand, of the speed of execution times if they are to use the scale of devaluation.