The partner and director of Invecq Consulting thoroughly analyzed The causes from the financial level but still paying attention to the consequences on the real economy. Assures that this time “The market made the decision not to be the last to leave Argentina” But he believes that A payment guarantee of the next maturities could bring some relief. However, he warns: “In terms of activity, The worst did not happen “, Contracting the statements of President Javier Milei in National Chain last Monday.
Santiago Bulat: What is happening in the economy is that the foundations that the government tries to show, how the fiscal and current account surplus in August are decoupled with the flow. There is a moment in the economy in which flows are much stronger than the stock that is or that the foundations. The flow kills the foundation. And I think that is a little happening.
SB: I would say that today there are two clear punishments on the market. I put myself on the side of the investor. The first is when the government stops accumulating reservations and decides executively, there the country risk begins to stop down. And the second would tell you that it is from the departure of the Lefis that was a defrost, clearly a “timing” error. From there you also see that political inmates grow and that it is not well known who is the one who really makes the decisions or how the management will be rearranged. And then you have a very bad electoral result in the province of Buenos Aires. Well, the market has many places to invest in the world, if you see Argentina has a lot of risk, it goes.
Q.: What is that risk that is perceived?
SB: Today the main question is what the January and July bonds will be paid by the year, the reservations that did not accumulate previously are consumed. I believe that today the market made a decision not to be the last to leave Argentina. And that’s why I believe that the government is going out to look for some kind of solution that could be this US Treasury loan that is being talked about.
Q.: If the government gives a payment signal of the maturities of January and July, the bleeding of the Central Bank stops?
SB: I think so, when the bonds come to quote around 40%, which is how they are now, it is a scenario where the default is very present. That you will let you know that there will be money so as not to defaul, automatically you have to paste a rebound in the bonds. Because there are people who are very willing to assume a risk for the amount of return it has. So, perhaps it is not the most desirable investors who enter, but investors enter those prices. Although I do not think he can hold the high parity of the bonds we had at the end of last year, I do not see it without a new exchange scheme.
Q.: Do you think a new exchange scheme is coming?
SB: I imagine a new scheme whatever happens, whether or not there is loan from the US Treasury. It can be a shift of the bands, some kind of accumulation of reserves. Something that leads you to a higher equilibrium exchange rate, which can play a bit in the inflationary, but that is much more credible in the long term and that is recovering the ability to pay. We are always talking about the day after the choice, not before.
Q.: Impossible before?
SB: It is an excellent question, because I know that the Minister of Economy, Luis Caputo, is saying that he will sustain themselves, but if they will continue to take them out with the speed they are taking them out, I do not know if they will not be encouraged to make any shift before. I think no, and that it will be the strategy of sustaining it and I imagine that if they announce something of the repayment of the bonds it will be an ad, but it will not necessarily be executed. What I mean is that they will try to improve expectations to stop the sale of dollars, and in that case the band could continue to be sustained, but I even believe that after October they will have to say we change the scheme the same.
Q.: And the new balance will require a higher exchange rate?
SB: I tell you something more structural of the real exchange rate, which is the issue that the Government likes the most. But the roof of this band, which is $ 1,475 today, when we had bands with the IMF in 2018, the floor was a dollar of $ 1,700. They told you, it cannot be cheaper than $ 1,700 for Argentine accounts to close. And it was 2019, at a time when the fiscal deficit was small, the rates had adjusted. It seems to me that what crosses a bit today is that you are wanting to support an exchange rate that is structurally in the low zone. It is in the area that or I need exchange controls or I need a lot of capital entrance. And when you don’t have that, the one who balances is the exchange rate a little more up. I think that is structurally what is happening in the exchange matters. You are wanting to hold a low exchange rate that only closes you if you have a lot of capital entrance.
Q.: What can change the electoral result?
SB: The Government does or yes will win benches in deputies and the Senate, but in no case, even if it goes well, it will reach it to sanction laws alone. With which, there or yes, it will need an opposition that dialogue, if you want. And you will have to sit with governors, because much of the deputies and senators that there are, respond to the demands of the governors, who for now accompanied you, but in politics, when someone smells blood, they will attack. Then, somehow, if you see that the government needs you, you will start asking for things.
Q.: Is the worst already happened?
SB: No, I think not yet. It seems to me that in fiscal terms the strongest adjustment has already become Argentina. Obviously that hurt people in terms of economic subsidies, in retirement and transfers to the provinces. In what has to do with the most structural fiscal adjustment, if you want. In activity it seems to me that it is still ugly. Then I would tell you, in prosecutor I think the worst already happened, in activity it seems to me that the worst did not happen.
Q.: Can the volatility of the last week give rise to a new round of stress in rates?
SB: I think so, for two reasons. One, that banks for what I understand are starting to stop giving credit. Just last Friday, Mora’s data came out and rose again. Then, you are with a high default, with very high interest rates and with deposits below. In addition, when the government sells dollars, pesos are withdrawn from the economy, when pesos are withdrawn from the economy and if it draws the credit, what will happen is that those weights that are available are going to sell more expensive. With which, the interest rate will eventually be somewhat more expensive. Anyway, I think we are in a very outdated rate of macro foundations.
Q.: A kind of consensus has been generated in which Argentina must have discipline in the fiscal level: should that same consensus be generated for the exchange issue?
SB: At one point it was said “if Argentina won competitiveness devaluing we would be the most competitive country in the world”, but I see it on the other side and say, what Argentina always does is appreciate, everyone tries to appreciate. I think Argentina today, given its level of productivity and trust, needs a higher exchange rate. Argentines for a more time will continue to demand dollars, that requires a very high offer that the world is not willing to give you or is only willing to give it to you for a little while.
Source: Ambito
