Exhaust valves to increase pressure

Many challenges await the Argentine economy in the year that has just begun. However, the chronic shortage of dollars or its flip side, the glut of pesos, is the most immediately obvious factor in the prices of different currencies; This, in turn, is a symptom of the multiple underlying imbalances. Throughout January, alternative exchange rates experienced a variation of around 10% in the case of informals and 8% in the case of financials.

Among the factors underlying this specific movement, we can cite: the increase in the seasonal demand for holidays, given the restrictions on supply and/or the associated fiscal cost; the drop in supply from the informal market compared to the establishment of the possibility for tourists to buy with a card at the MEP dollar rate or the seasonal expansion of the monetary base in December.

Throughout the month of January, alternative exchange rates experienced a variation of around 10% in the case of informal and 8% in the case of financial.

In this context, the Government has taken a series of measures aimed at decompressing the situation. The Central Bank agreed to activate part of the swap currencies in force with China, which will make it possible to pay for imports from that country without affecting net reserves. In addition, the instrumentation of a 366-day forward import financing line between Banco de la Nación Argentina and Banco do Brasil was announced, and the purchase of $1,000 million of debt in the secondary market was announced. been announced.

This last measure, given the immateriality of the amount involved in relation to the total debt and the fact that it is not a net reduction, suggests that it is more aimed at influencing the prices of financial dollars. (via the impact on the prices of the instruments used for this purpose) than the start of a deleveraging trajectory. It seems that none of these measures indicate the fundamental aspects that cause the shortage of dollars and/or the abundance of pesos. As for the peso, even if the commitment with the IMF on the budget deficit and its financing has been kept, budgetary domination is far from having been broken. The outstanding debt in pesos – fiscal and “quasi-fiscal” – and the subordination of monetary policy to exchange rate policy – ​​“soybean dollar” – suggest a monetary dynamic that increases expectations of higher nominality. The exchange carried out in January, which, although it had some success, managed to carry over some two trillion pesos in the vast majority with maturities that do not exceed the months preceding the elections. This means that the problem has not been resolved, but postponed.

The stock of debt in pesos and the subordination of monetary policy to exchange rate policy suggest monetary dynamics that increase expectations of a higher nominal value

On the currency side, the drought that is raging in Argentina for the third consecutive year has affected wheat production and, despite the relative relief of recent rains, it also strongly affects soybean and maize crops. This panorama is not the least, if we consider that they are the main generators of foreign currencies in our country. Part of this drop in income could be offset if the gas pipeline that will link Vaca Muerta production to the main consumption centers is completed. Even so, the declining export and import balance will be negative and import controls need to be maintained or strengthened.

Sovereign bonds issued in foreign currencies deserve a separate paragraph. To the extent that the market expects the government that emerges after the elections to correct the imbalances in the economy, by making debt sustainable which is not perceived as such today, this could generate a flow of foreign currencies to take a position in said assets whose listed values ​​would be penalized by the current context and would thus finance the transition.

Apart from this last point, which is based on the assumption of a future correction of macroeconomic imbalances, the measures taken so far tend to be safety valves on imbalances whose pressure will continue to increase until they are resolved.

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