As if all this were not enough, there is something that, in my opinion, makes it even more complex, and that is that this agreement could take shape in the context of the armed conflict between Russia, not only against Ukraine, but also against NATO. Someone might wonder; but what is the relationship between our country’s agreement with the IMF and the conflict that arose in Eastern Europe? The answer is that in a hyperglobalized world like the one we live in, there are many factors of both international politics, geopolitics and international economics that are related and interrelated; Consequently, this conflict will not be the exception, not only because of the actors involved, but also because Russia and Ukraine are countries that, due to their characteristics as grain exporters, will have an inevitable impact on the world market. This impact can already be seen in three central axes for the economy of our country.
Increase in the price of wheat, soybeans and corn
The Black Sea basin is the epicenter of the world sunflower market. It represents 60% of the world trade of said oilseed and almost 80% of the world trade of oil. Ukraine is the largest exporter of sunflower oil in the world. Also, Russia is the world’s largest wheat exporter, while Ukraine this year could be in third place. In corn this last country is the fourth exporter.
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Faced with the inevitable increase in the prices of these commodities, our country will have to be a beneficiary of the increase in the price of these products, even due to the possibility of being able to win international markets, as a result of the possible embargo on Russia and Europe’s failure to purchase its grain. This will bring as a consequence, greater income of dollars for our country in concept of exports.; The national government will also see an increase in collections for withholdings and taxes on exports. So far, good news, but the problem will be centered on the increase in the prices of these products in the local market. In this sense, the Secretary of Domestic Trade confirmed that he will advance in the implementation of trusts for corn and wheat with the intention of decoupling domestic prices from international ones. This measure was resoundingly rejected by the Agricultural Entities Liaison Commission for understanding that the Government wants to impose a masked increase in export duties after the non-approval of the 2022 Budget.
In short, the national government and the entities of the agribusiness sector began a new arm wrestling match based on the decision of the Ministry of Agriculture to promote maximum exportable balances of corn and wheat (which are in fact equivalent to quotas) and to set up trusts with which subsidize the local market price. This is totally open ended.
Increase in the international value of oil and gas
The price of oil exceeded $100 for the first time in more than seven years. A barrel of Brent crude hit $100.04 after the announcement, which intensified fears of a full-scale conflict in eastern Europe. WTI oil was trading at $95.54 per barrel. This strong rise in the barrel of oil will generate a clear complication for our country in terms of the value of energy and fuel. The agreement with the IMF stipulates a significant drop in energy subsidies; consequently, thinking of an increase greater than projected would not be illogical. If this happens, pressure on inflation will be unavoidable.
Increase in the value of gold
Due to both financial and geopolitical factors, demand for the metal increased, allowing gold to hit its highest value in nine months. Gold is up more than 9% so far in February as the Russia-Ukraine crisis hit appetite for risk assets. The metal is heading for its best monthly performance since July 2020. This has a positive side, which is the increase in BCRA reserves that are in gold, but it also has a negative side and that is that the increase in the international price of gold will generate pressure on the value of the dollar at the international level. In consecuense, there will be another important external factor that will put pressure on the value of the dollar in our country.
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In short, the double effect will be, on the one hand, an increase in the price of agricultural commodities of which the country is an exporter, thus expecting an increase in foreign exchange earnings. On the other, the rise in international oil and gas prices, generating inflationary pressure with respect to energy and food. There will be a higher collection for exports, as a result of withholdings and taxes, but that can be liquefied in a context of greater inflationary pressure.
Given the draft with the IMF that came out publicly, it will be necessary to be attentive to whether this extra income of foreign currency to the country can be used to improve and drive the domestic economy, or if it should be used to pay obligations with the IMF or to strengthen of BCRA reserves. Everything indicates that an increase in collection will not be destined to greater spending, but to increase payments or reserves. Perhaps in the face of this new scenario, the possibility of a negotiation on this point will open up.
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Telam
Our country, prior to the conflict between Russia and Ukraine, was in an extremely delicate and complex situation; It had to close an agreement with the IMF and fight so that it has the least negative consequences on our economy and consequently allows us to continue with the growth that had occurred after a decade of stagnation. With the emergence of the conflict between European nations, the intervention of the United States and NATO, the situation may become even more complex for our country. With this conflict, very complex variables are now added that will not be under the control of the country and that can significantly modify the development of what was planned, bringing as a consequence greater complications to those already existing. Perhaps there is still time to be able to contemplate this new scenario and it admits generating a planning that allows minimizing the collateral effects of this armed conflict, which despite the thousands of kilometers of distance that separates us, can damage us very closely.
Source: Ambito
