Black Swan. Last call

Black Swan. Last call

February 3, 2025 – 07:41

Factors such as the growth of the fiscal deficit in the United States (7% of GDP), the hardening of the monetary policy of the Fed and geopolitical tensions are configuring a scenario of high uncertainty.

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Global economies are going through a period of fragility, with systemic risks that could trigger a black swan event (Taleb, 2007). Factors such as the growth of the fiscal deficit in the United States (7% of GDP), the hardening of the monetary policy of the Fed and geopolitical tensions are configuring a scenario of high uncertainty.

Emerging markets, including those of Latin America, have begun to suffer the consequences of these global mismatches. In particular, Argentina is among the most sensitive economies due to its extreme vulnerability to an exogenous shock due to its renewed commitment to dependence on external factors. The Federal Open Market Committee unanimously voted in favor of maintaining the interest rate of federal funds between 4.25% and 4.5%. This means an abrupt brake of the sales of interest rates in the US International reserves. Is there a message in what began to be seen in January? The BCRA reserves were close to exceeding US $ 33,000 million on January 7, 2025. Last Friday, January 31, they closed at US $ 28,307 million. Almost $ 4.7 billion collapsed in just 24 calendar days. Gross reserves sank 14.24%.

In this context, trusting that the Donald Trump administration will meet the economic needs of Argentina is a risky strategy. The protectionist policies of its first mandate, including the imposition of new tariffs, the reduction of international cooperation and the priority given to the US domestic interests, go against the structural needs of Argentina. In addition, with a growing fiscal deficit and significant internal political problems such as the march of Saturday, February 1, it is unlikely that the US can offer substantial financial support without demanding strong concessions that could further weaken the Argentine economy.

Likewise, the Trump administration has demonstrated a transactional approach to its foreign relations, prioritizing immediate benefits for the US over the sustainable development of its commercial partners. The loudness of interest rates of the Federal Reserve and the tendency to deglobalization generate a hostile scenario for economies dependent on external financing, such as Argentina. The reduction of global trade and the growing competition in key markets, added to the possible reimposition of tariff barriers, weakens the Argentine ability to recover their trade balance and support their international reserves.

This panorama raises questions about the viability of an unconditional alignment with the US, at a time when the country faces its own economic challenges. The exhibition in Argentina of American creditors, growing indebtedness and structural commercial deficit limit Washington’s ability to offer significant solutions. In this sense, Argentina should not only evaluate the impact of its economic decisions based on its local context, but also to consider the fragility and priorities of its strategic partners.

Risk factors and structural fragility in Argentina

The Argentine economy faces a set of imbalances:

  • Indebtedness and financing crisis: The debt in dollars with bondists reaches US $ 11,421 million in the next twelve months and the debt in pesos 2025 faces the equivalent au $ 95,000 million. In order to obtain dollars from anywhere, the government does not hesitate to create a new transitional regime of withholdings on exports of grains and derivatives and currency settlement until the end of June 2025. This, in short, consists in disconnecting the liquidation of export currencies and obviously accelerate the “Carry Trade”.
  • Roy Trade dependence: The BCRA has intervened with U $ S 1,029 million to contain the exchange gap in December and Januarywhile the real exchange rate is at levels prior to the devaluation of 118%. Strengthening an economic policy that continues to rest in the “Carry Trade” involves taking very significant risks. All Carry Trade routines in Argentina ended up lighter. Logically “the financial bicycle” increases the offer of dollars in the exchange market, to keep the exchange rate stable, reduce the inflation rate and reinforce BCRA reserves. However, this permanent excess increases the risk of cope with deeply harmful funnels against potential sudden transformations in investors’ expectations. A sudden interruption of these flows or “Sudden stop” (Guillermo Calvo) could crumble the economic program, and break the precarious stability scenario in prices.
  • Exchange delay: The appreciation of weight helps the effort to hold inflation in the juncture, but at the same time affects competitiveness, reduces exports, promotes imports and discourages investment in productive sectors, generating unemployment and increased public debt. The exchange delay became persevering and has accentuated over the months. The defaults of the field follow, in 2025 a wave of bankruptcies could be unleashed and the unemployment rate per spill. At some point the Government must discover the benefits of moderation, perhaps it will be given time to progress towards inflation without complicating the sustainability of the economic program or provoking a growing social protest with repression that ends up frightening investors.
  • Current account: It jumped from a current account surplus box of US $ 9,100 million in the first 5 months 2024 to a deficit of US $ 6,350 million between June and November 2024, which made the rhythm of accumulation of reserves of the reserves of the reserves of the reserves of BCRA, currently in free fall from around US $ 33,000, arrived on Friday AU $ 28.3 billion of gross reserves, having bought in a net form.
  • Dollarization: The president continues with the fixation of dollarization, however, this would remove plasticity from an economy that has already experienced problems containing exogenous shocks. This is an economy that requires flexibility to fight with the extraordinary volatility of its exchange terms (Prebisch).
  • Exchange reservations and restrictions: Despite having accumulated gross reservations, the stock of reservations counted remains below bank lace.

“Black Swan” scenarios and its potential impact

Given the structural fragility of the Argentine economy, a black swan could trigger a deep crisis. The possible scenarios include:

  • Subsistence or increased rates in the US: This could cause an abrupt reversal of capital flows to emerging countries (as in 1997 with the devaluation of Bath Thai) and increase Argentine debt, intensifying financial risk. Remember 2001, when there was a “Sudden Stop” in Argentina, and it went from an average capital income (1997-2000) of US $ 16,500 million to only US $ 500 million.
  • Collapse of commodities: The drop in export prices such as this and projects, would limit the generation of foreign exchange, affecting the country’s ability to face their external commitments.
  • Global financial crisis: The reduction and increase in global credit could hinder the renewal of debt, new access to external financing, exacerbating exchange and fiscal problems.

Strategies to mitigate the impact with “Javier Milei’s library”

To reduce vulnerability to a black swan, according to its manuals, you should implement these urgent strategies:

  • Structural reforms: Deep fiscal adjustment, and significant commercial and investment incentives immediately.
  • Accumulation of reservations: Obtain enormous IMF support with fresh money, and then reduce dependence on external financing generating genuine dollars and reinforcing the liquidity of the BCRA.
  • Macroeconomic stability: Design of monetary policies and coherent orthodox exchange, abandoning the current unfeasible orthoheterodoxy, so that the risk of volatility is reduced and sustainable growth is encouraged.

Corollary

The problem of the Eternal Trade Carry is the most important of all problemsbecause it lies in the fact that the continuity of the exchange assessment that extends all the imbalances and makes the escape of the exchange-moneary scheme that the president literally considered and promised: “should never have existed and this year ends once and for all ” There will probably be agreement with the IMF if there are reasonable concessions of the government, this will allow the elections of October 2025 to arrive, although perhaps with another Minister of Economy.

The president suggests that he is heading towards a currency competence scheme, omitting the payment of taxes, however, he retains his desire to progress towards a dollarization and the elimination of the BCRA, he dreams of signing a free trade agreement with the US that goes in that voluntary address.

The analysis of the Argentine economy under the logic of black swans suggests that the country in the face of an external shock today is on the verge of a crisis of great magnitude. The lack of immediate action could turn an unexpected event into a historical crisis. As in a last call before the take-off of an airplane, Argentina must decide whether it addresses the liberal-libaria reforms or remains inert, trapped in a new crisis that deepens structural precariousness. Acting now is essential to avoid being late.

Director of Esperanza Foundation. Postgraduate professor at UBA and private universities. Master in International Economic Policy, Doctor of Political Science, author of six books.

Source: Ambito

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