Paying it would not affect net reserves, but they warn of a lack of financing to cancel it

Paying it would not affect net reserves, but they warn of a lack of financing to cancel it

The first week of June was characterized by volatility in the financial markets, among other reasons, due to the possibility that Argentina lacks the political ability to resume ties with China and thus renew the currency swap. Economists in dialogue with Ambit They assure that a possible cancellation would not affect net reserves, but they also do not see the possibility of obtaining external financing to cover the payment of the tranche for US$5,000 millions.

The national government does not issue a signal in this regard. From the Central Bank (BCRA), neither. From the trip made at the end of April by the chancellor Diana Mondino, Santiago Bausilihead of the monetary entity and Pablo Quirno, secretary of finance, there were no further details.

The president’s missteps Javier Milei with his Chinese counterpart Xi Jinping They delay the definition of the future of the tranche of freely available tranche for 350,000 million yuan renminbi (equivalent to about US$5,000 million) within a general agreement for about US$18,000 million.

The yellow alert has been on for a long time. Already on December 12, in an attempt to quickly rebuild ties with the Asian giant and obtain the US$5 billion renewal, Milei sent a letter to Xi, requesting your support to speed up the process. At that time, the intention was to face maturities with the International Monetary Fund (IMF).

However, both the official statements regarding “have no ties to communist countries”, like Mondino’s visit to Taiwanor the appointment of Suárez Salvia as ambassador, a diplomat who had just held the same position in Trinidad and Tobago, served to redirect the bilateral link in the opposite direction and delay the renewal of the swap.

If a new financing agreement is not reached, Ámbito announced that around June 15 the BCRA should pay at least a first part this month, which is around US$2,000 million and the rest next month.

In this case, from Delphos Investment come with great difficulty access to external financing as a possibility to cancel the debt with the People’s Bank of China (PBPC).

“Who could lend? Eventually some international organization or ask againl Bank of International Settlements (BIS)”, the consulting firm understands.

Bruno Bonfanti, economist at EcoLatina, assures that the currency swap with China is part of the BCRA’s liabilities, which is why its cancellation “would not impact the BCRA’s Net Reserves“, the variable “par excellence” to monitor the firepower of the monetary authority.

Now, the corresponding payments do would reduce the level of Gross International Reserves and liquidity in foreign currency.

Likewise, for the economist, the non-renewal of the Swap “It would mean losing a potential economic policy tool going forward.”. During the past year, the Government used the yuan, both to intervene in the exchange market and to cancel debt with international organizations.

Rumors about the impossibility of renewing this instrument generated turbulence in the market. During the week, the S&P Merval in dollars sank 12.6%. On Wall Street, the papers of Argentine companies suffered weekly falls of up to 18.1% (IRSA).

Meanwhile, the Dollar-nominated bonds sank up to 11% in the last 5 days (including this Friday’s bounce), so the country risk touched the 1,600 units (jumped 20.6% in the week to 1,582 points).

In that sense, for Bonfanti the renewal of the mechanism “would be a positive news for the Government”since it would avoid a new negative signal to the market “in a context in which some rispidities began to appear in the Government’s exchange-financial strategy”.

The same points out Gustavo Ber, from the Ber study, who warns that the possibility of not renewing the swap “is adding concerns among operators”, sensitive due to the climate of political tensions. Asked about the possibility of obtaining external financing, he understands that “it wouldn’t seem likely”.

Added to the eventual cancellation of the Swap, June and July will be challenging months for International Reserves: the authorities will have to cancel payments with International organizations and private creditors for almost US$4,000 million. although there would also be a disbursement from the IMF for about US$800 million.

One month after approving the technical mission, the board of directors of the International Monetary Fund will meet next Thursday June 13to address the report sent by the staff on the eighth review, as published Ambit this Friday.

A month ago, the economy minister Luis Caputo He anticipated: “We are just starting to talk about a new program with the International Monetary Fund”. Finally, Milei will attend the G7 summit that will be held next week, an event from which she intends to return to Argentina with a draft of a new agreement.

Source: Ambito

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