Without sufficient reserves and with a change of targets by the IMF, what will happen to imports and activity

While imports have come to a virtual standstill in the past four months – in January they barely grew by 2.5% year-on-year – expectations for the rest of the year are not at all favourable, beyond that it is an election year and that the government will do the impossible to avoid major plant shutdowns and the impact of employment.

The negotiations that the economic team conducted with the staff of the International Monetary Fund (with a team in Washington and the Minister Sergio Massa at the G20 summit in India) to modify the reserve targets for the year, suggest that the exchange rate situation is extremely delicate and that the adjustment variable, once again, would be imports.

In any case, over the weekend, agency and Economics sources revealed that a substantial reduction in the reserve accumulation target will be announced between Monday and Tuesday, both quarterly and annually, and that the arguments put forward will be the war in Ukraine and the current drought.

Beyond this easing, a third edition of the “soybean dollar” could add some help, although the lack of rains affects the production of soybeans and corn -it has already done so with wheat- which, at the Beyond the incentives, there will be much less crop to liquidate this year. And in a pre-election scenario, with a lagging official dollar, a high spread, and multiple exchange rates, growers who have their backs will avoid selling until they know what the next government will do.

The third edition of the “soybean dollar” could help, but the drought strongly affects the production of soybeans and corn -it has already done so with wheat-

“There are more restrictions on imports and there will be because we are very complicated with the reserve accumulation target for the first quarter. You will have to ask for a to renouncer at the IMF, but we must try to reduce the distance as much as possible so that this front with the organization does not become too complicated,” said an official source before the recent announcement of the change in objectives.

It now remains to be seen – doubt which will soon be lifted – what will ultimately be the reserve target that the government will have to achieve by the end of March and whether this leaves it a large margin of maneuver in an election year. “The IMF is not going to push us over the edge months before the election. Although at this point he likes almost nothing and he doesn’t really have a choice”, admitted the consulted source. For now, however, the Central Bank and the Palacio de Hacienda remain cautious in managing the availability of their own dollars.

At the UIA, they recognize that December and January were difficult months in terms of access to foreign currencies and that is why they held several meetings with the economic team in recent weeks. The president of the entity, Daniel Funes de Riojahe met Sergio Massa; then the Secretary of Commerce, Matias Tombolinivisited the Avenida de Mayo factory headquarters to meet with the entity’s executive committee and discuss this matter.

At the end of these meetings, the participation of the Executive Director of the UIA, Diego Coatzfrom the watch table that works within the orbit of the Secretariat to identify problems and provide predictability to the industry.

“The situation is worrying, especially when we know that the dollars will run out. But we constantly insist with the government that if the industry stops, who restarts it?” said a senior entity official, who added that “the solution is not to invent schemes, but to seek more agreements such as the one being negotiated with Brazil and Uruguay to make payments in local currency, and then a clearing every certain number of days. China and India have also proposed stopgap mechanisms.

The situation is worrying, especially when we know that the dollars will run out. But we constantly insist to the government that if the industry stops, who restarts it? (UIA)

At the manufacturing center, they assure that when cases of companies in critical situation arrive, they are referred to Commerce and finally they end up approving imports (SIRA), but they require permanent work. Currently, in the food and beverage sector alone, there are around 1,000 SIRAs waiting for around $75 million. Either way, companies that don’t have anyone to turn to to speed up the process don’t have the same luck, especially when it comes to small or medium-sized businesses.

The concern of manufacturers is that, on the one hand, negotiations with these countries for payment in local currency are not progressing at the desired pace; and on the other hand, that it is clear that the government has no means of achieving the IMF’s objective and that imports are always the adjustment variable. The novelty of the change in objectives has been welcomed by businessmen, who are now waiting for concrete figures to have a forward-looking vision of how the SIRAs will be administered. No one imagines, anyway, a greater release of dollars than what has happened so far. At most they could be maintained as they are today.

The numbers so far are alarming. At the end of March, the BCRA should have accumulated some 7,825 million dollars in free funds and today it only has more than 3,000 million dollars. Worse, until March, “all that remains is to lose, unless a 3 soybean dollar is advanced and something is settled with that,” another official source claimed. Hence the urgency to change the objective.

At the end of March, the BCRA should have accumulated some $7,825 million in free availability and today it has barely more than $3,000 million.

A report by the consultancy firm Ecolatina argues that the government will continue to be forced, due to the limited margins of action, to implement a contractual economic policy (positive real interest rates, cuts in primary budgetary expenditure), in a context of “limits of reality for expansive spreads within the framework of the objectives agreed with the IMF”.

And he adds, “in addition, the management scheme for rare currencies will be maintained, where import controls will continue (even increase), limiting the potential expansion of production and consumption, via complications in the supply of inputs and final goods”.

Thus, Ecolatina concludes that “2023 will be a complex year for the electoral aspirations of the ruling party, with 0% growth in the economy and an inflation rate of around 100%without improvements compared to what had been highlighted the previous year”