If Kuwait in 1991 was released by the “Desert Operation”, today Argentina suffers from another version; A financial desert dried by Caputo and his team in the Monetary Square. The local economy exhibits an unprecedented combination of improvisation, overreaction and extreme volatility that would make veteran Wall Street operators.
The industry collapses 11.3% year -on -year in July, construction falls 21.8% and consumer confidence drops almost 14 points, while real credit slows down to 1% in 30 days from a previous monthly average. Monetary policy ranges from absorbing surpluses of weights and reinjecting them, generating interbank rates that jumped from 32% to more than 76.66% TNA in a matter of weeks, with unpublished volatility (minimum 23%, maximum 148% in caution operations).
Faced with these numbers, international finance readers should ask themselves: How would any government survive in this scenario?
Quantitative development
The government of Javier Milei maintains significant social support, but fiscal and monetary data show structural fragility. The primary surplus reached 1.6% of GDP, insufficient against a fiscal deficit of 3.7% and an interest payment of 5.2% of GDP. To sustain the debt, a primary surplus of 4.5%would be necessary.
The monetary policy, after the disarmament of the Lefis for $ 15.5 billion and the placement of the Treasury for $ 5.6 billion, created a net excess of $ 9.9 billion -equivalent to one third of the monetary base- shooting 12% bond rates initially, and then at 80-150%, with successive adjustments of lace of 11.6% to 16.3% between July and August, unpublished levels from November 2019 (Macri). Extreme volatility hit private deposits (-$ 6.3 billion) and total (-$ 2.4 billion), more expensive credit and braking economic activity.
In the exchange market, despite a commercial surplus of $ 989 million in July and accumulated $ 3,750 million until July, the current account continues to show a deficit close to 2% of GDP, with strong formation of external assets. The BCRA, after receiving $ 2,000 million from the IMF, lost reservations again, and the net remains negative. The policy of accumulation of reserves and control of the dollar is supported only with exorbitant rates, not for genuine improvements in the external balance.
In terms of debt and financing, the Treasury faces the need to renew at least 74% of the remaining maturities of 2025 (approx. $ 45.6 billion) with own $ 12 billion deposits, while rollover in recent tenders barely reach 61-100%, depending on the adjustment for previous maturities. LECAP and bond rates reaches record levels (up to 81% effective annual), showing extreme pressure on internal financing.
DOLLAR BCRA INTERVENTION RESERVES
In the real economy, the recovery is heterogeneous: agriculture, mining and financial services lead, while construction (-21.8%), industry (-6.6%) and commerce (-5.3%) continue lagging behind. The projected GDP for 2025 is cut in private to 3.5% year against year, with probable contraction of (-0.8% trimester against trimester) in the third quarter. Monthly inflation is located around 2%, with a limited Pass-Through of the dollar at prices. The slowdown of the credit and the increase in delinquency threaten the payment chain, while the direct foreign investment falls 90.2% year-on-year in the first quarter, with industrial divestment of (-$ 340 million) and net exit of $ 1,182, millions for (m & a) mergers and acquisitions.
In short, Argentina operates with record interest rates, weak rollover, negative reserves and growing tax deficits, all under a confrontational political climateacts of corruption and erratic liquidity management. Caputo and Milei dance about the financial titanic, while the real economy sinks slowly into a sea of volatility, deficit and unsustainable indebtedness. Making abstraction of social aspects, with the theoretical framework of the governmentstabilization after October will require a solid macroeconomic plan and deep structural reforms; Increase in primary surplus, strengthening of the real exchange rate, labor, pension and tax reform, and restructuring of co -participation.
Without these measures, the situation will remain marked by improvisation, extreme financial risk and social vulnerability, remembering that even the best choreography on the Titanic will not prevent the ship from sinking.
Source: Ambito
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