Negative reserves and a dollar that flies to infinity and beyond

We would have to highlight that the Central Bank asked exporters for a total of US$ 2,087 million in advance of exports, and postponed import payments for approximately US$ 12,807 million, If these payments were up to date, the Central Bank’s reserves would be negative, much worse than what Mauricio Macri inherited in 2015.

This implies that the reserves of the Central Bank are financed by the postponements of foreign trade payments and the advance of exports, this implies that the country does not have credit and foreign direct investments do not arrive to swell the coffers of the Central Bank.

In this context, we have to analyze what happens with the Central Bank’s liabilities, the sum of the remunerated and non-remunerated monetary liabilities amounts to $15.6 million, this measured at an official dollar would give us US$ 54,940 million a amount much higher than the reserves that are located at U$S 41,417 million. This distortion will continue to grow because reserves are placed at a very low rate, they should not reach 2.0% per year in dollars, while 66% of monetary liabilities are remunerated at a rate of 107.0% per year in pesos. , which gives a rate of approximately 68.0% for the whole.

In this context, the exchange rate grows at a rate lower than inflation, for example, in the last 12 months it increased 78.0%, a rate higher than the remuneration of monetary liabilities. In this way, it seeks to try to equalize the relationship between monetary reserves and liabilities, which today is very unequal.

If we take the stock of monetary liabilities versus the reserves, the equilibrium dollar is located at $376.26, which indicates that for now the blue dollar is well valued, we will have to see how the reserves and monetary liabilities evolve during the month of February when it is necessary to face strong debt maturities with international financial organizations.

In our opinion, the dollar should exceed the $400 mark during the month of Februarygiven that monetary liabilities grow at a rate of 4.0 to 4.5% per month in its stock, and reserves are called to be below US$ 40,000 million.

Deposits and Loans

Deposits are showing a positive evolution, Fixed deadlines in pesos growing at an annual rate of 120%, with a drop in fixed-term deposits adjusted for inflation, given that for two months inflation was around 5.0% and the fixed-term rate was at 6.25% monthly.

This increase in fixed terms did not translate into greater financing for the private sector. Loans to the private sector grow at a rate of 74.0% per year, when inflation for the last 12 months stands at 98.0% per year. Banks are financing the State and leaving the private sector aside, thus economic activity has no room to grow. Personal loans grew 61.0% annually in January, while credit card financing grew 81.0% annually.

The deposits in dollars of the financial system total US$ 19,692 million, the reserves that are deposited in the Central Bank US$ 12,890 million, and the loans to the private sector US$ 3,830 million, this fully shows us that the financial system is to support the state. Loans to the private sector in pesos represent 38.6% of total deposits in pesos in the financial system, a very low level.

Of the total deposits in pesos, 53.9% is placed in checking and savings accounts, and 46.1% in fixed terms. The fixed-term stock is $8,858,273 million, and the stock of leliq and Central Bank repo amounts to $10,266,895 million. With these numbers it is impossible for banks to fulfill the function of boosting the economy with loans to the private sector. Argentine entrepreneurs lack credit.

conclusions

Reserves are negative, since commercial debts must be considered when analyzing the stock of dollars in the Central Bank. For this reason, the blue dollar will continue to rise, since uncertainty is very high regarding how the government will handle itself in the coming months, where fewer dollars from the harvest will enter due to the drought effect, and US$ 1,000 million will be squandered rescuing debt.

The financial system is at the service of the State, since loans to the private sector are becoming less and more expensive.

The government has decided to delay the exchange rate, in the month of January it increased by 5.5%, while the increase in the last 12 months was 64.8%, when inflation would be around 98.0%.

In the month of February, the effective rate on the future dollar position in February is 104.1% and the rate on the lede maturing in February is 103.8%. For the month of March, the effective rate of the future dollar in March is 113.0% and the rate of the LED maturing in the same month is 105.8% per annum. In this way, the Central Bank clearly discourages the purchase of future dollars and delays the exchange rate.

According to the multilateral real exchange rate, the blue dollar at $380 has a purchasing power similar to the official dollar of June 2002, this implies that the market is discounting risks similar to those of the 2001/02 crisis. We believe that the risks are greater today than at that time, since we have a primary fiscal deficit (at that time we had a primary fiscal surplus) and reserves are more negative than during that crisis.

All roads lead to not having pesos, and whether to collect exchange goods, real estate, financial assets or dollars. Argentina is going to an inevitable exchange rate adjustment, but as it is postponed for the moment, what will emerge in the scenario is an increase in the exchange rate gap, which should be around 120%, this would imply a blue dollar over $400.

The note was written for I Professional, and we replicate it on our page, for more information our private reports will give you more detail about what is coming in Argentina and the world. Consult and you will have information by exception.

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