The imbalance of the external accounts forced the government to make an adjustment that would allow it to have a surplus result in the balance of dollars and, in this way, put a floor on the gross reserves of the Central Bank, which are located around US$37 billion.
The national government professes as a religion to delay the exchange rate, bought the idea that a rise in the exchange rate could generate a disorderly inflation of prices and continues to correct the wholesale exchange rate at a rate lower than inflation. In the month of June, the growth rate was around 5.7% monthly, inflation for the month could be higher than 6.0%. However, to achieve a dollar surplus that would allow it to increase reserves, it is working to restrict the quantities imported.
The restriction of imported quantities means that the market is left with less quantity of merchandise, which necessarily shows us a contraction in economic matters. As the lack of merchandise is evident, many economic agents have gone out to import putting the dollars out of their pocket, which implies that many imported products are paid for to the cash dollar with liquidation, which implied a rise in prices from the value of the wholesale dollar at $137 to $300 of the dollar placed abroad. This will undoubtedly generate higher inflation in the economy.
Inflation is traveling at levels of 6.0% per month, this implies that, projected for 12 months, it would be around 100% per year. With this scenario ahead, the fixed-term interest rate of 69.5% per year does not look attractive. Nor the yield of the Treasury bill at 97 days of 88.0% per year, or the bills that adjust for inflation and pay a negative rate of 10.5% per year at 90 days. With letters and fixed term in pesos that yield less than the projected inflation, all roads lead to the dollar. If you have a company, the most profitable thing is to have merchandise.
This shows us that there is a direct connection between the lack of dollars in the economy, inflation and the interest rate, which shows us a negative dynamic, which leads us to a vicious circle in the economy. In summary, the main problem is investment, this does not attract foreign currency to sink in the country, there are no new jobs and tax collection remains stagnant. Dollars do not arrive, the demand for pesos falls and inflation spirals worryingly.
The fiscal result for the month of July looks positive, the government managed, at least for a month, that revenues exceed expenses, although detailed information was not disclosed, we assume that there were strong cuts in budget items in search of achieving a lower fiscal deficit. Secondly, The Government has promised that it will not issue pesos to finance the deficit, with which all efforts will be focused on obtaining financing in the peso market.
How’s the movie going?
The Government will seek to reformulate the agreement with the IMF in search of greater disbursements that allow it to strengthen reserves and ensure that the dollar does not continue its upward march.
At the same time, the government is processing an agreement with China to obtain a Swap that allows it to have more liquidity and face foreign trade commitments. Work is also being done on the arrival of Chinese investments to increase liquid reserves.
The possibility of an international loan against the guarantee of bonds seems to be low, given the weakness in the prices of national titles, on the other hand, the Arab sovereign fund seems to have no interest in financing Latin America, Argentina or even speak.
The Government does not want to put multiple exchange rates, but, in fact, it leads us to that scenario by limiting quantities. Today we have a commercial dollar that is the wholesale dollar at $137 and a financial dollar that is the cash dollar with liquidation at $300with an unsustainable gap of 120% that generates an imbalance in the monetary accounts.
An inflation that is projected at 100% per year, and rates that could exceed that level, do not fill the future scenario with uncertainty, where a year 2023 appears, in which the drop in activity would be assured, given so much monetary disorder and fiscal, as well as by a drought that would enhance the recession.
Bonus Track: the field
The Government has not offered anything concrete to the field to liquidate the 19.8 million tons of soybeans that remain from the 2021/22 campaign. The rumors of a sale of soybeans to the dollar are more wishful thinking than reality. Soy is worth today $53,000if it were settled at the stock market dollar it would be worth $112,600. If this happened and 3 million tons were settled at today’s prices, they would enter the coffers of the Central Bank US$1,164 million and the entity should issue a whopping $349.2 billion which would represent 8.2% of the monetary base. This would imply that the Central Bank should absorb these pesos so that they do not generate a rise in market prices. This amount would represent 5.1% of the stock of leliq and repos for which the Central Bank would pay an annual rate of 69.5%.
In summary, the cost of capturing US$1.164 million is very high for the government, given that it would have to issue a lot of money, the economic agents do not want to demand these pesos and it would have to withdraw it by paying a very high interest rate. I believe that the government has no answers for the field and the soybean dollar proposal by which 30% is settled in savings dollars and the rest in pesos does not excite the producer, they do not understand it and prefer to wait for better future prices. In Chicago this week we are seeing how soybeans are close to US$600 a ton, while corn and wheat are close to US$300.
Source: Ambito
