The countdown to Minister Luis Caputo -and for him dollar– seems to have been tied to the fate of the draft of the future Bases law. Why does the Government look so closely at what is discussed in Congress?
Because not only does it need a political signal, the general approval of the project, but it also immediately requires that the markets – and all economic actors – think that the Central Bank will not lack dollars in the future. For that, he would buy time if the laws are approved. The fiscal chapter, the RIGI, money laundering, are all open items that could lead to the arrival of dollars. The Government could thus reduce the growing speculation of a devaluation that returns it to the starting point, which would lead one to think of a new cycle of inflation, rearrangement of relative prices and social conflict, with the chance of once again generating a deterioration in presidential credibility.
Everyone in the discussion about the dollar and reserves
That discussion, that of Congress, exceeds the framework in which any parliamentary debate should take place. The entire Government seems waist-deep in the fight. It thus constitutes a watershed, a kind of milestone that can promote or drag down the most bizarre expectations linked to the economy and finance. The period that Minister Luis Caputo requests from President Milei to be able to be evaluated in the economic result is six months.
But it is an additional six months, forward, aware that, until now, everything has been a work that aimed to mark a change in the relative prices of the economy – dollar, salaries, rates, interest rate -, while self-generating high inflationary waves because that would allow it to liquidate part of public spending and better maneuver the BCRA’s liabilities. Today, the collateral damage of this policy is what constitutes a question and keeps a good part of observers in suspense. Will there be dollars to pay the debt carried by the Treasury? What will happen to the increase in currency and deposits? What kind of impact will the budget continue to receive as more significant portions of resources must be allocated to debt repayment?
Luis Caputo’s request: investments, dollars and a call to the IMF
As said, there is already talk of the “second semester” as the supposedly necessary battering ram for the economic program to finish taking shape. President Milei’s management and the fortunes of the dollar seem closely linked. At the LatAm Forum, and in the presence of businessmen, Minister Caputo said that he was not going to talk about the economy. The minister went out to ask locals and strangers for what he believes will get him out of a dangerous trap: investments.
Yesterday he did the same. The economist confirmed that the IMF board will analyze the latest review of Argentina this week and confirmed that negotiations are beginning on a new program that will mean more funds. For many, it was a kind of breakthrough, explicit request for the IMF to come out, once again, to calm the markets.
In recent days, and with the exception of Monday, the balance has been a fall in sovereign bonds and a rise in country risk: the worst news for the Government, which aims as a desperate race, to reach the goal of refinancing debt to the markets and for that it needs a much lower risk premium. However, the malpractice of Luis Caputo himself had occurred hours before, when he promised to lower the PAIS tax if the Bases Law was approved, something that led to thinking about a devaluation to compensate for the potential demand for dollars that the BCRA was going to receive. and he has not.
The cycle we want to avoid: a new devaluation and more inflation
Okay, again, repeat the question. Why does the Government look so closely at what is discussed in Congress? Let’s go with the answer: because not only does it need a political signal, the general approval of the project, but it also needs to immediately make everyone think that it will not lack dollars in the future. That is why Minister Caputo talks about the IMF, about investments. When the minister thinks of “investment”, he is clearly not talking about the need to fuel economic activity. The Government maintains that the induced recession has been quite useful in lowering inflation and taking pressure off the BCRA’s reserves. At the Treasury Palace they know that in the next six months the arrival of dollars to the reserves will no longer depend on the current account, and will begin to require huge income of dollars from the financial account. For analysts, this may come in the form of investments, additional IMF drafts or Treasury debt.
The mystery of the BCRA reserves: why it doesn’t add up
Why will the checking account stop contributing dollars? Because the purchase of dollars has grown and will continue to grow. Not only in the financial dollar market: also in the MULC. Yesterday, the Central Bank (BCRA) sold reserves for the third consecutive round, ending its intervention in the exchange market with a negative balance of US$31 million. In this way, since last Friday it lost almost US$70 million. They are signs.
This sharp drop in the BCRA’s ability to keep foreign currency It was not due to lower settlements by agro-exporters, which have been liquidating about US$120 million daily. As said – but they try to hide it – There is an increase in the demand for foreign currency from the rest of the sectors, which in recent weeks have become demanders of dollars..
However, the rise in prices and the widening of the gap above 40% raise doubts from now on. To what extent is the evolution of agricultural liquidation beginning to stagnate and could it become a problem for the immediate future? So far, very slowly, field sales are holding up. It must be considered that prices lost momentum compared to last year and that, in 2024, a part of those dollars enter through the “blend” dollar. Therefore, there would be a jump of 16% versus 2023 and a 40% jump if the blend dollar is added to the equation.
That is to say, the sectors of the economy that exclude agriculture began to demand dollars instead of supplying them. The key is not only in payments derived from imports, but also in the appreciation of the exchange rate and the reset of economic activity, added to the payment of the energy bill. All this has pushed the following hypothesis that will have to be kept in mind: June will be a month with a sharp drop in BCRA purchases (which could be helped by the IMF injection).
Seen in this way, the famous “second semester” would start a path with a strong propensity to cut the BCRA’s reserves, which would see this propensity increase to the extent that public sector debt has to be canceled. To this would also be added the payment to international organizations, which would return to zero the ability of the BCRA to have added a huge amount of dollars to face the months of greatest difficulty. That is why the Government needs the Bases bill to be approved today, at least. To cover up some of the inconsistencies that are beginning to emerge on the financial front.
Source: Ambito
