He Central Bank of Uruguay (BCU) closely monitors the complex economic situation that Argentinaalthough the market does not fear a contagion effect, and devoted several lines of analysis in his latest Monetary Policy Reportthe first of this year.
GDP growth, the level of inflation and the problem of access to foreign currency are the three central points on which the BCU technicians debated to alert that “the starting scenario is that of marked macroeconomic imbalances and limited margins of action for the goverment”.
The analysis places special emphasis on the effects of drought in Argentina, to which it adjudicates impacts at the fiscal, external, level of activity and prices.
“In Argentina, GDP fell 1.5% in seasonally adjusted terms in the fourth quarter, after the 1.4% expansion registered in the third, which reflects the deteriorating economic conditionswhich worsened in the last months of 2022 in the framework of the severe drought that the country is suffering,” said the Central Bank of Uruguay.
Problems to comply with the IMF program
At the time of writing the report, the BCU linked the increase in prices to the consequences of the drought that will cost GDP 3 points (USD 19,000 million). Then it took inflation for March as data, which was 8% and 104.3% year-on-year. The indicator was updated last Friday by the indec and the variation with respect to 2022 is already 108.8%.
The BCU also considered that it will be difficult for the government of Alberto Fernandez with the fiscal goals agreed with the IMF since the collection showed a fall linked to a drop in agricultural exports. “It implies stretch the limits of monetary financing allowed by the program and supposes more pressure to increase financing in indexed and short-term pesos (the only one to which the Government has access)”, he pointed out.
Argentina and an “abnormal” exchange rate gap
At the close of the report, the exchange rate gap in Argentina exceeded 100% -which even reached 200% during the historic rise of the blue dollar in mid-April-, a situation described by experts from the Uruguayan Central Bank as “incompatible with the normal development of economic activity”.
The BCU referred to the increase in the monetary base and the stock of instruments of the Central Bank of the Argentine Republic (BCRA)added to the short-term debt in pesos that the Government must cancel as the main causes, together with the lack of access to dollars from the agro-export sector.
Source: Ambito
