Obviously, dollarizing was left aside, the Government used other tools such as forcing the liquidation of dollars for laundering and to spend with the drought of pesos, LELIQs, sterilization of the pesos issued by exporters who liquidate their dollars. The peso drought caused dollars to flock to the marketbut the exit from stocks requires reserves within the BCRA, and that is a little more difficult, taking into account that the BCRA has negative reserves of -4000 million dollars.
Q: Where will the resources come from to provide dollars to the BCRA?
GN: Some exogenous shock from the IMF or the US treasury, which I rule out. This being the case, it will be difficult for the Government to open the stocks and maintain its number one objective, which is to lower inflation, since it will probably have an impact on the exchange rate.
In any case, it is not the same situation as with Prat Gay. They did not receive foreign currency from portfolio investments, because at the time a large carry trade was carried out by the LEBACS and at this moment the LECAPS assume that role, but They do not have the same imprint.
Q: Milei stated that dollars are not needed to open the stocks and move towards a flexible exchange rate. Do you agree?
GN: I don’t think the same. More than one will want to have unrestricted access to those dollars. Today the Stock Market supplies that demand with implicit dollars, the MEP works perfectly. We also have to stick to the same sayings of Caputo (Luis), who gave three examples of countries that grew for many years at high rates with stocks.
I agree that It is a lie that you cannot grow with stocks, but Yes, foreign investment in multiple projects in the real economy is slowing down. Capital flows there, to where it is allowed to enter, generate profits and exit. Today you have the first two conditions satisfied, but not the third.
Q: With a devaluation rate of 2%, and a Treasury rate at 4%, there is an annualized gain of 27% in dollars. Do you find risk or repeated operations in this mechanic?
GN: The year 2018 was immersed in a very deteriorated context and situation, it was a bad year for investments in emerging markets. Furthermore, it did not help that Sergio Massa went through Congress to tax the financial income of foreign investments. The international crisis of 2018 and the tax that scared away international investors was a perfect combo to say: this is it.
Currently, the entry of foreign investment is not such, so the reversal should not be so abrupt, but the market has been benefiting from these short-term situations in which the peso is strengthened. I believe that the conditions will continue for a long time, that is, months and months, but they are facing an appreciation of the real exchange rate that does not serve the economy, which requires financial dollars and exports as the most genuine variable to generate reserves in the BCRA.
The reduction in competitiveness will coincide with a year of economic recovery, as it will be in 2025. The recovery has already begun, and that coincides with greater demand for imports and depressed agricultural commodities. For example, soybeans are down more than 20% year-on-year. Another good year in terms of quantities but bad in terms of quantities.
Q: Is the financial summer temporary or structural?
GN: A mixture of both components. There is a structural one, because the number one mandate of lowering prices appeals to the fiscal surplus and that the BCRA does not have debt. This makes it possible to maintain an exchange rate that does not have to run behind inflation, which is decelerating.
In October we will have an inflation rate below 3% and the government’s desire is for it to drop to 2%. That would occur in the first quarter of 2025 and would tie the devaluation with the monthly inflation rate. What was lost would not be recovered, but at least the exchange rate would not continue to be delayed. In that context, the influx of capital could be a benefit for the economy and sustain that exchange rate.
But it must also be taken into account that There are more than 16 billion dollars between private debt, multilaterals and the IMF. I work with the hypothesis that there will be an approval from the IMF for the second quarter figures in fiscal and monetary matters, although there will be a lack of reserves in the BCRA. This will allow us to think about a new agreement with the IMF in 2025, where the maturities of 3.7 billion dollars are kicked, which today must be paid with reserves.
Q: Until 2% inflation is reached, is this type of exchange sustainable?
GN: Maybe the low exchange rate cycle has short legsI don’t see it being finalized in the next few months, if the summer has entered, the bets have been made for February but they are not so aggressive. The implicit annualized devaluation rate of the longest tranche is around 41%, which is not high.
Q: What are the Argentine assets that currently have preponderance in the market?
GN: In a context of exchange stability, LECAPS are the queen. Bonds with CER were discarded, but let’s not take them off the map because in the middle section they are yielding 11% more CER, which has left them with a power of profitability for investors going forward.
Negotiable obligations are a highly sought after security, They had an extraordinary performance in the last three years, there is a very large emissions market that has become more dynamic in recent weeks. They have a risk well below the sovereign, and investors take refuge there to detach themselves from Argentine sovereign risk. ONs are an excellent way to be dollarized in a context of low dollars, with a return of 5% and 8% for investors who want to have their dollars invested at relatively low risk.
For its part, sovereign bonds had a very big rally, which positions them at a value where the market wonders about the glass being half full or half empty, depending on whether Argentina has problems closing its financial program, which I rule out.
Q: Will the transfer of debt from the BCRA to the Treasury imply greater fiscal adjustment for next year?
GN: Everything will depend on whether the exchange rate wakes up and whether the tenders require a higher rate. At the beginning of the year they were 60% annualized, today they are between 52% and 54%, which is why they have decreased, although they are still very high in dollar terms. With exchange rate stability, we are at the same implicit dollar levels as in Januarywhich is why it has achieved extraordinary performance.
Otherwise, investors may turn a little to financial dollars and the tenders will have a little more difficulty in covering and providing the profitability that the Government expects, but I do not see a debt crisis in pesos, beyond that there is much more issuance of bills due to having received a charge from the BCRA and facing other maturing bonds.
Q: Is there interest in investing in the real economy?
GN: There is a lot of interest from investors in RIGI, but also some doubts. The financial markets have voted that the Government is on the right path, but there are still investors who are reluctant to see it that way.
The lifting of the stocks will be crucial. In the short term it will not be possible, there are many other difficulties. It would be necessary to release the payment of dividends from banking entities and other companies that have holdings abroad, there will once again be a demand for large hoarding, which you could only stop with an increase in the exchange rate and the Government is not going to want to access that.
Source: Ambito
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