Javier Milei, the Libertad Avanza candidate, was the most voted in the PASO, and with it comes the possibility of dollarization of the economy and the loss of the peso as currency. Also from Together for Change there was talk of bimonetarism. Given this, it is worth asking: What could happen to Argentine assets nominated in pesos? And those with foreign currency? How will it affect quotes and parities?
Nicolás Cappella, Sales Trader at Grupo IEBin dialogue with Ambitexpressed: “It is a big question that needs to be clarified in the dollarization plan that comes to pass. In terms of stocks, the only thing that changes is the price that will go from being quoted in Argentine pesos as now, to being quoted in dollars, at the dollarization exchange rate.”
Regarding the bonds nominated in pesos, Cappella said: “There the Treasury must carry out a swap of debt in pesos for debt in dollars. Which opens the question of what type of exchange they do, if they do bond for bond, or some type of parity relationship. The ultimate consequence is that the debt in ARS must be transformed into debt in USD, because the ARS would cease to exist. “The questions remain as to what exchange rate and what parity.”
For its part, Juan José Vázquez, head of Research at Cohenalso in dialogue with this medium, said: “You could only dollarize with an exchange rate much higher than the current cable dollar. Most companies cannot transfer the rise of the free dollar to prices, so “you would have the value of the assets rising in pesos but falling in dollars.”
“In part, this uncertainty weighs on the market today, even though La Libertad Avanza has already said that short-term dollarization is impractical due to the liquefaction of assets necessary at times when you do not have dollars“he explained.
What would happen in a scenario of accelerated dollarization
It should be noted that dollarization would imply, in addition to the conversion of currency and deposits in local currency to dollars, the conversion of all debt instruments (public and private) in local currency to assets denominated and payable in US currencyaccording to a report from the consulting firm 1816.
For Juan Pedro Mazza, Fixed Income Strategist at Cohen: “If the idea of accelerated dollarization gains ground, We expect a strong collapse in Argentine debt parities. This scenario is mainly due to the increase in the size of debt denominated in dollars, which would result from dollarizing the debt in pesos and assuming new debt. All of this would put considerable pressure on Argentina’s payment schedule – already very stressed -, increasing the probability of a debt restructuring and negatively affecting parities”.
In this context, Cohen anticipates a particularly severe impact on public debt in pesos. “It is likely that this will be liquefied, dollarized at a punitive exchange rate or subjected to an exchange under unfavorable conditions,” they specified.
Dollarization: what would happen to assets if it is delayed
According to the same report from the consulting firm 1816, in the scenario that appears an outside interest for the financing of the reformboth the Globales and Bonares bonds (debt instruments in dollars in foreign and local law), “The better investment climate could be offset by the greater effective supply of bonds, if, in the future, the demand for Argentine assets fell again for any reason.”
The same report also suggests what would happen if Milei postpones the “second generation” reforms to dollarization, in this case, “It would be positive for the debt in dollars, and its impact on the debt in pesos and banks will depend on the details of the alternative stabilization plan.”
In turn, they maintained that Dollarization with few dollars could lead to “increasing nominal and asset price volatility.” According to 1816, both elements should be increasingly correlated: “The greater investor confidence in Argentina, the greater the chance of obtaining financing to dollarize at a lower exchange rate and vice versa.”
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