Just a year ago, in the middle of the election campaign, Javier Milei He walked around the television studios saying that he had already agreed A $30 billion loan from a “secret investment fund” to dollarize the economy the first day he took office and close the Central Bank. Almost 9 months after taking office, the money has never appeared, there is no more talk of dollarization (at most, currency competition is mentioned) and the Central Bank remains open. In addition, there is no talk of eliminating the peso as a currency, but of strengthening it. They were all advertisements with no real backing.
Three weeks ago the Minister of Economy Luis Caputo The government met with the stock exchanges and “guaranteed” them that it had secured debt payments until mid-2026. However, it never explained how it was going to do so, as today there seems to be no way to guarantee that. Two weeks later, the government said that it had almost secured a Repo with Banco Santander for US$1 billion. However, once again, the bank did not confirm that this existed and that promise has also vanished. Last week there was talk of seeking another Repo, this time with Saudi Arabia. However, once again, the government seems to have achieved nothing and remains empty-handed.
All these movements speak to us of a desperate Government, which makes announcements and lies to distract, gain time and bring some calm to the markets, But as we approach the payment dates, there are not enough dollars to meet the commitments, so it seems increasingly likely that a bankruptcy will have to be declared. imminent default in 2025. In turn, without dollars and with the distrust of the financial markets, A devaluation that corrects the exchange rate could also occur, unleashing a truly devastating economic crisis.
Let us then analyze the nine signs that portend this:
1) The 2025 maturities. Next year, the central government will have to pay US$23.8 billion, according to the Secretary of Finance (composed of US$11.29 billion to private creditors + US$4 billion to international organizations + US$3 billion to the IMF + US$2.85 billion to China for the swap + US$2.65 billion for provincial debts). Paying that amount of dollars seems totally impossible considering today’s conditions. In fact, the government is not in a position to pay even half of that.
2) The Central Bank has negative reserves. If the IMF’s net available reserves valuation system is used, the government has negative reserves of around 5,500. Although this situation is better than when it took office (since it had less than 11 thousand then), the economic dynamics predict that they will continue to fall and that at the end of the year it could return to the levels left by Sergio Massa in December 2023.
3) Pending payments from 2024. In the last four months of this year, the government faces very high payments. It will have to pay the IMF and other multilateral organizations US$2 billion, 700 million in payments for the Bopreal are also due and it is estimated, due to a seasonality issue, that another 2 billion will be needed for the dollar card and tourism. That is, only in these three items, close to 5 billion dollars will be demanded, although they are not the only obligations that remain.
4) Dollars to bridge the gap. The government has committed to using around US$2,000 of the reserves it has acquired since April to absorb the pesos issued in these purchases. Although the excuse is monetary sterilization to control inflation, in reality this is done to control the gap between the official dollar and the MEP dollar, something it has been doing unbridled in recent weeks. It is estimated that the government has already spent around US$300 million, so it would have to use around US$1,700 million more, which will also debit the reserves in the future.
5) Payments for imports will rise a lot. In the second half of the year, import payments are higher than in the first half. This is a fact. But at the same time, the Government, having shortened the terms for such payments, going from 4 monthly payments of 25% to only two of 50% each, will accumulate many upcoming payments. Thus, in September, 125% of that month’s imports must be paid, the same as in November, but, in addition, in October, payments will be 150% (25% in June + 25% in July + 50% in August + 50% in September). All this will accelerate the demand for foreign currency in the near future, generating great pressure on the exchange rate and on reserves.
6) Reduction of the COUNTRY TAX. Since September, the PAIS tax has been reduced from 17.5% to 7.5%. This implies a 10% drop in the payment of imports. In other words, importing will now be even cheaper. This fact, announced in June, caused many importers to postpone their purchases until September, when they knew they would be even cheaper. Therefore, there was a delayed demand for dollars that will normalize in the coming months, implying a greater sacrifice of dollars by the Central Bank.
7) The value of soybeans is falling. As we know, our main export product is soybeans, but they have already fallen by 25% so far this year and this is expected to continue going forward. In addition, the rainfall regime is not acting as expected, which will imply a smaller harvest next year. With a lower value and a smaller production quantity, the lack of dollars will be strongly felt.
8) This level of country risk will not allow access to new loans. Today, the country risk is around 1,500 basis points. The best-known bond on the market, the AL30, is worth 50 dollars. If the market had guarantees that the January payments would be paid, it should be worth over 70. But it is not. If that bond does not increase in price and the country risk is not at least below 1,000 points, the country will not have access to the capital markets and therefore will not obtain funds to refinance the debt that matures in 2025. Thus, default seems to be the highest probability.
9) Exchange rate lag. In addition to the negative reserves, upcoming maturities, pending dollar needs and the export problems mentioned above, we must add the exchange rate lag that has been occurring and that the government does not seem to care about. This lag, which is becoming more and more marked, with a gap of 40%, will imply at some point making some correction, which will be worse and more abrupt the longer it takes to be made. This, when it occurs, will shake up the entire anti-inflationary program in play, punishing the real economy even more.
Avoiding default and devaluation is not a matter of will, but of having sufficient resources to prevent this from happening. The fiscal surplus may remain firm and very high, but this is in pesos. And what is needed are dollars. The high country risk indicates that the markets are wary of the ability to pay, since there seems to be no way to comply in 2025.
The IMF has already told Milei’s government that it will not have fresh funds if it does not devalue. So this inflow of foreign currency also seems blocked for now. The only hope is that dollars will enter the reserves via money laundering (at most some 3 billion can be expected), although the government seems to be placing all its hopes on a virtual electoral victory for Trump in the United States to obtain dollars to avoid default, devaluation and the looming economic crisis. If this does not happen, the accumulation of factors will form a perfect storm whose dire consequences no one can anticipate.
* Economist. Researcher at Conicet. Author of the book Argentine Economic Crises. From Mitre to Macri. Ediciones Continente.
Source: Ambito
