The direction of the economy, the exit from the exchange rate and the opportunity for credit

However, he admitted that “Investors have to think about what can go wrong and measure what the consequences of that are,” so he compared: “We all use what happened in 2019 as a thermometer, with a government that the market liked, that talked about broadcasting again or dreamed of Argentina with investment grade, I had held the G20 meeting and presidents came. One could think that Argentina was heading towards a different model. However, the events of the PASSED and the market falls 70%. That will always be in the memory of investors and puts a brake on the potential upside.”

Less volatility and appearance of tensions

In turn, Luna agreed that “we are objectively in a better situation in terms of volatility and variability” and emphasized: “The experience is not talking about another society, but about ourselves a few years ago. Although this does not guarantee that there will be no setbacks ahead.”

“It was a complex year, we started with monthly price volatility, rising to 20% in January and today it is at levels of 4 or 3.5%. It would seem at first reading that we are better. There are conditions, some demand appears for our listed assets, bonds rise and that is also positive. In some things we are in a situation in which we seem to be getting on track,” he observed.

And he admitted: “We have to see what tensions continue to be generated and what is maintained in terms of the balance achieved to project it ahead. “We began to talk again with concern about the pace of evolution of the exchange rate versus internal prices and tensions appeared.”

“The question of restrictions that would enable the entry of capital, especially into direct investment and the real economy, which is where we have the most focus on the bank. All of this does not yet appear so clear and forceful. There are sectors that are achieving better levels of activity than months ago, but it is still very selective and focused. We have to see if this is a trend and reaches others who are linked to the domestic market. “These are challenges that are not resolved,” he warned.

A rising capital market and risks ahead

Timerman also highlighted the improvement of capital market and considered that “it is an interesting phenomenon because it has not been experienced in other times,” pointing out: “It was unthinkable to think that provincial bonds were going to yield less than the sovereign bond. One always thought that if Argentina defaults at the national level, provinces and companies too. That did not happen in the last Argentine default and it greatly increased the credibility of those sectors, because it was shown that They are companies capable of competing and attracting investments, “That during these years they made that adjustment that the nation demands today.”

“That is positive, but it is not something that can be maintained over time. It is very difficult when one seeks to attract investments to have a country risk and for Argentine bonds to yield 20%. They are going to say ‘how do I invest in a country where its debt yields 20%’. “That is being demystified,” projection.

Regarding the forecasts of economists, he considered that “Today they are divided into thirds: those who believe that Argentina needs to devalue, those who talk about releasing the stocks and those who say that we should do nothing and keep everything as it is.” “It’s not that they are bad or good, but that they can’t understand how people are going to react and they think differently, which I think is good because you don’t really know,” he analyzed.

“The government is betting on maintaining the policies and that shows how difficult it is to invest in Argentina. You have two very difficult issues to price. Argentina comes from a well of credibility and that takes a long time to reverse. “It is difficult to know if the market is going to give time to the government’s right or wrong policies,” he abounded.

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The Adcap representative maintained that “many believe that it will depend on the accumulation of reserves or whether the exchange rate is behind or not,” but he differed from that view. “I think the market’s benefit of the doubt will depend on policy, not reserves. If tomorrow we see that Cristina Fernández de Kirchner has 60% approval, the stability scheme falls. The risk today comes from politics and not necessarily from economic variables, for which it is difficult to predict reaction and timing.”

The importance of credit, rising from a low base

Regarding the importance of credit, Luna considered that it is a “fundamental aspect of economic activity anywhere” and regretted that there is “an underdevelopment of the economy that is inappropriate at this stage.”

“We have a goal that, of the total of what we produce, an equivalent of 10% is in aggregate terms leveraged in loans. It is low, but today it would be a glory for us,” he admitted, revealing that “in April we hit a floor in the financial system, financing the product in terms of 4.5% and today, after 5 months of sustained growth, we are at 5. 9% on loans to both individuals and companies.”

Along these lines, he highlighted “the virtuous process” that entails “the passage of savings placed in the State to the real economy” and pointed out that “there is a lot to walk”, and then highlighted: “Signs appear such as laundering, the externalization of assets. Argentina has a lot of wealth, there are companies that are highly valued by the market even in contexts where the operating rules are not very clear. I think that credit leveraging the economy has to contribute, there may be a vein.”

How much influence does dollar dependence have?

Besides, Timerman considered that cutting dependence on dollar “It is something that should happen if we want to be a more normal country where investments are considered from the point of view of own investment and not of country risk or external risk.”

“There are countries that have a lot of volatility in the exchange rate, like Colombia for example. However, the exchange rate is not a problem. The Colombian thinks in Colombian pesos and so does the investor. “Argentina should tend to normalize this obsession with the dollar,” he compared and ventured: “If investments begin to arrive and Argentina begins to be part of global markets in a more normal and efficient way, I think Argentines will begin to think a little that the dollar is not the only refuge, “In fact, many times it was not with respect to papers in pesos.”

At the same time, he considered that “the Argentine capital market is developing quite surprisingly,” indicating that “there are countries that have much better credit and do not have such a developed market.”

“Today, for several years now, a market has been developing among private individuals, for loans, promissory notes and checks that is growing a lot and it surprises me. I think that a lot of the growth is going to come from there and this increase in credit that is being talked about comes from this development in the local capital market. The credit is going to come from the locals more than from outside,” he anticipated.

The banks’ offer to savers

Meanwhile, Luna highlighted that there is “a response or joint growth in expanding the offer and the vehicle where the savings are carried” and stated that “The traditional product is fixed-term deposits in banks for savings.”

However, he said that “it is a vision that is being surpassed and is being complemented with products such as the growth of the activity of the common funds, with investors who choose one type of fund or another, since they can save on funds or stocks, bonds of a certain type, with CER, that adjust in the short or long term.”

“The developments are very dynamic in the activity of mutual funds and the banks are responding. These are steps that are being taken in the financial culture of incorporating tools,” he highlighted and clarified that “the investor decides what the fund or asset class will be chosen in a decision that is good to be reviewed all the time.”

The exit from the exchange rate

Finally, Timerman referred to the exchange rate and warned: “At some point it will open and we will see it there. It is very difficult to evaluate a capped economy, measure an investment, the amount of reserves you need, the interest rate you need, real economic activity. The country has to normalize.”

However, he considered that “It is difficult to predict when the government is going to leave the exchange rate trap.” analyzing macroeconomic variables only” and maintained that the government “believes that it is an extremely important decision and has only one bullet, that they cannot make a mistake with that decision because it would come from the part of market instability.”

Along these lines, he admitted that the exit from the stocks “It’s a kind of obsession.” and analyzed: “Knowing the mentality of the people who are in the Ministry of Economy, they are going to want to protect themselves in the best way possible. “It will depend on how the market evolves and what type of agreement is reached with the IMF, which is crucial for the opening of the stocks.”

“When there is fresh money, an agreement with the IMF, some money from multilateral organizations, an agreement with banks and contraction of country risk, maintaining this status quo of fiscal and monetary tightening, that will give the government more tools to have more ammunition when you open the trap,” he indicated.

And he graphed: “It is very difficult to predict the market reaction. Today, a company that has 200 or 300 million dollars in pesos, which were going to be used to pay dividends or intercompany loans, when the stocks are opened there will be a call to ask what to do. The outside shareholder can say ‘bring them to me now’ or ‘I liked the reaction, invest them’. Nobody knows the answer.”