However, since the beginning of 2022, the BCRA has recorded a net balance in favor of US$891 million, a difference of 15.4% compared to what was obtained in the same period last year. In the current month, which barely registered three business days, the situation does not seem to improve enough: on Wednesday, the BCRA sold US$15 million, on Thursday it bought US$10 million and on Friday it bought another US$2 million. Therefore, the first week begins in negative performance with sales at US$3 million.
With this panorama, a kind of epic begins. Although the Government is confident that it will go through the first revision of the IMF the hardest part starts now. The body led by Fish It will have to make purchases of around US$2.3 billion (a sort of US$115 million on each business day) to reach the Net Reserves compliance agreed with the IMF (US$2.9 billion) in the second quarter, according to Delphos Investment. For the consultant, private debt payments are one of the three obstacles (in addition to energy imports and the deficit in services) that the Central Bank faces “despite the high prices of agricultural exports.”
The private debt debate
The process of external indebtedness in the period from December 2015 to December 2019 also affected private sector companies, which increased their debts abroad by US$19,000 million.
During 2020, the Central Bank provided for companies that debt maturities must be refinanced with their own resources by 60%, in order to access financing from the Central Bank for the remaining 40%. The measures taken sought to give sustainability to the process undertaken by these companies to get rid of debt, within the framework of the availability of foreign currency to guarantee the functioning of the economic activity.
From the Central it was clarified that the outflow of foreign currency due to financial debt is less, since the loans made by local banks, even when they are denominated in dollars, are converted to pesos, which makes them have a neutral effect on reserves. The BCRA maintains that the outflow of foreign currency for the concept of private debt was US$6,180 in total since the new regulations were approved in 2020 and that, thanks to this regulation, savings were achieved in the demand for foreign currency. But what happens in 2022?
At the end of May in a radio interview, Pesce alluded to the issue: “Debts with parent companies are not allowed and there is strong control in this regard,” he asserted, noting that the “cessation of payments” by public companies and for not accessing those dollars “would have very negative consequences.
In any case, the president of the BCRA considered it necessary to “develop the local capital market as a state policy” so that firms can be financed in local currency. Nevertheless, In light of events and the impossibility of accumulating reserves, this route through which foreign exchange escapes takes on greater importance.
Sebastián Menescaldi, Associate Director of Eco Go consulted by Ambit He referred to this: “with the current gap, the national sport is to get as many dollars as possible from the BCRA (and prevent any dollar generated from falling into it in the case of exporters of goods and services). So today, both for companies and provincial governments, it is better to be able to cancel as much of the debt in dollars as they can, given that the effort required today is less than on another future occasion.”
Last week on AM750 Martin Guzman picked up the gauntlet of criticism for the Central Bank’s difficulty in purchasing foreign currency. The Minister of Economy referred to the debate that took place within the Government after the debt swap with private creditors completed in 2020. There he implied that he proposed at the time an alternative to restrict access to BCRA dollars. According to his word this implied a kind of exchange rate split. Something that, in principle, as Ámbito learned from official sources, would be impossible for two reasons: first, because it would involve a very complex system to apply, and second, because it is not approved by the International Monetary Fund (IMF). The second available alternative is to restrict the access of dollars, something that -for now- is ruled out.
“When that was discussed privately, there was a proposal to have a formal market for the issue of financial debts in foreign currency so as not to affect the accumulation of reserves in a context of great demand for dollars from the BCRA to repay private debts. And no one said to go that way,” explained Guzmán.
“Despite that, the problem was so great that there was a lot of outflow of dollars. We knew that they were going to take that debt and that the companies were going to capitalize to have more productive capacity at the cost of fewer reserves. It was decided to go that way, ”he specified. In some way, what Guzmán mentions responds to a decision similar to the one made in the management of the pandemic: take care of the financial stability of companies in pursuit of economic growth. But the line is very thin: if economic uncertainty due to the lack of reserves comes into play, the estimated growth number for 2022 will inevitably fall.
Heading to the Weiver?: loans from international organizations
According to Consultatio, “the Fund’s new Resilience and Sustainability Trust (which will represent US$1.3 billion “from heaven” for Argentina) is estimated to come into force in October, so it will not be able to help the goals of June or September.
“But this is not the most challenging. Although the June target is shaping up to result in a moderate breach, if we think in the medium term the December target could have an exponentially greater margin of error. This is due to the fact that the BCRA is expected to add net reserves of US$1.7 billion in the second half of the year, not counting the fact that, in the average of the stock years, the BCRA had to incur average sales of US$3.7 billion. million due to the negative seasonality of such periods”, they say. Could the Central Bank have an ace up its sleeve?
According to official sources consulted by Ambit, it is trusted that the entry of multilateral loans that should arrive at the end of June (and that run with delay) will be able to compensate the dollar goal. On this point, Menescaldi affirms: “Until April, US$357 million (debt base) were received by IFIs (excluding the IMF) and other countries. According to the agreement, they expect to receive up to US$700 million in June. If the amount is less, due to the shortfall, the reserve target can be reduced by that value up to US$500 million. If the amount is greater, the requirement for net international reserves rises. Then => if the amount is less, the NIR (Net International Reserves) objective is reduced, but an insignificant amount compared to the needs. With which I do not think that the disbursements can cover the missing purchases.
For the economist, Argentina will necessarily have to adjust the goals, but it will have to be “marginal”, given that “although the demand for commercial currency rose, the supply did so by a similar amount. The case of the fiscal result would be different, where the effect is more significant, given that the increase in the subsidy account is greater than that of the income from export duties”.
The Central Bank must make a decision: “Now it is the BCRA/Government that must take the corrective actions to meet the reserve target and take responsibility for the consequences, otherwise the plan with the IMF will unravel and economic uncertainty will grow”, concluded Menescaldi.
“The accumulation of defaults will have costs in the future for the government and for the IMF (which sooner rather than later will have to take a position against them). For the revision of goals for June, an almost certain waiver request (accumulation of reserves) and another probable (fiscal deficit) are already in sight, while, if firm changes of course are not imposed, the December review will present much more severe breaches (and much more difficult to forgive). As we stated, these costs are already beginning to be paid for the economy in the form of greater macro uncertainty and an exacerbation of imbalances”, says Consultatio.
The latest report of Ecoviews seems to hit the two key alternatives to solve this crossroads, both with an impact on the real economy. “With the current exchange rate delay and the high gap, there are no exports that can last. Reducing the exchange rate gap and delay today looks more important than ever”. More restrictions, or devalue, that is the question.
Source: Ambito
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