Overheating of the dollar: Government minimizes devaluation tension, but admits the lack of foreign currency

However, Javier Milei focuses on the excess of pesos in the economy as conditioning for the elimination of exchange restrictions. In this line, the BCRA board announced on Thursday the Elimination of Passive Passes as of July 22so that the Liquidity Tax Letter (LEFI) be the protagonist of the liquidity management of the banking system. This is the concretization of the intricate announcement of Caputo and Bausilihead of the BCRA, two Fridays ago.

LEFIs are coming: how are they received in the market?

An excerpt from the consultancy report PxQof Emmanuel Alvarez Agisrelativizes the importance of this measure: “Change short-term debt of the BCRA to short-term debt of the Treasury does not change the nature of the problembecause the surplus of pesos from the private sector positioned in public sector securities is the same,” the document highlights.

Instead, the economist puts the magnifying glass on the level of real exchange ratethe stock of international reserveshe risk country and the expectations on the economic program as the central conditions for getting out of the trap. Along these lines, he argues that “There are many weights” and you can’t “even borrowing dollars to have the means to confront them”.

IMF supports government figures, but does not accept clashes between authorities

The Government rejects this idea because it is confident that it will be able to reach a renegotiation with the International Monetary Fund (IMF). “We come overfulfilling goals, why would it be complicated to negotiate?” asks an official, dismissing any kind of tension.

It was Caputo himself who assured in radio statements that “The relationship with the Fund is very good“and they are beginning to talk about a new agreement,” something that could be finalized this year and mean fresh funds, although they have not yet reached that point.

The IMF did not maintain the same impetus when referring to a new agreement with Argentina. It did not bother to give details: “There is no specific timeline for such discussions,” His spokeswoman replied, Julie Kozackin response to a question from a local media outlet.

Minutes later, the body ratified in a finished form your support to the representative of the Department of the Western Hemisphere in response to Milei’s criticism: “It is important to note that the Director General -Kristalina Georgieva– has Complete trust in Rodrigo Valdes and his entire senior leadership team,” Kozack said.

Milei referred to the official in a speech from Prague, where he accused the Chilean of “turn a blind eye” regarding the impact of puts on the quasi-fiscal deficit. “We are talking about four points of GDP“And it is not only the responsibility of the previous government,” the president warned.

This distance between the staff of the organization and the Head of State, which is presented as an obstacle to the concretization of the negotiations, can perhaps be amended. between July 24 and 25 in Rio de Janeiro, where the event will take place third meeting of G20 ministers and central bankers. But the IMF, so far, did not confirm a meeting between Caputo and Georgieva in Brazil.

Payments in July for more than US$3 billion: how much will the BCRA lose?

Meanwhile, financial obligations are approaching as the month progresses. According to a report from the Renewal FrontJuly’s commitments respond to payments for the hard-dollar bonds (cancelled on the 8th and 10th of this month), to IMFamong others International organizations (OOII), and the debt maturities sub-sovereign (provinces).

The total amount is US$3.811 million and the breakdown is as follows: payment of the Bonares (AL) and Globales (GD) bonds for a total of US$2.786 millionof the BOPREAL Series 2 by US$167 millionof the provincial debt for US$46 millionto the IMF for US$648 million, and other organizations by US$164 million.

Assuming that disbursements to IOs are offset by income from those same agencies, the report concludes that The impact on the exchange balance will ultimately be due to the reduction of US$3.647 billion.

Finally, the factor that could make the situation worse is the retention of the harvest by producers.

Currently, international prices for exported commodities are 21% below those recorded in 2023according to the document. In turn, the climatic factor did not contribute and the liquidation of the harvest, although it is not bad, “is below what was expected since the beginning of 2024”.

However, they highlight the appreciation of the exchange rate “in an accelerated manner”, as an unavoidable factor of concern. They argue that the real exchange rate is close to “even smaller” To the exchange rate post-30% devaluationproduced in August last year.

Getting out of the trap: how far is the light at the end of the tunnel?

For all this is why the question persists:the fiscal rule is sufficient – non-negotiable balance, as signed in the May Pact – to lift the restriction?

Returning to the Agis report and the data presented, it seems not: “The stock of pesos is so high and the reserves so lowwhich does not seem like a strong fiscal surplus can get the Government out of the current predicament” which is, neither more nor less, that the market perceives that the exit from exchange control “It is far away in time”.

Therefore, the City may consider the exit “It will be with a higher exchange rate than the current one”, since the continuation of the crawling at 2% monthly “seems to be written in stone”.

Caputo maintains that the current administration will modify “The conduct” to maintain that “Competitiveness is gained by devaluingThe Government has repeatedly stated that it is committed to lowering taxes, along with reducing inflation and excessive taxation, as an alternative to devaluation.

That is why it resists the market “be guided by great Titles“who insist on a devaluation and do not see why, after gains of up to 80% in dollars In the first quarter, the City would lose confidence so quickly.

The event at the Stock Exchange was no exception, where Milei also downplayed the loss of more than US$3 billion between July and Septemberdue to increased demand for energy imports: “If it is colder, more dollars are lost. And if it is less cold, fewer are lost.However, beneath the scenes, the lack of foreign currency is there, disturbingly and unavoidably.