Why the Market Expects More Tough Dollar Restrictions

In the midst of the countdown to the elections, the Government knows that it is facing a period of decline in Central Bank reserves

The recent movements of the BCRA and the CNV in order to beef up the stocks exchange rate shows that the Government will use all monetary and exchange rate instruments to avoid a strong outflow of dollars in the months prior to the November legislative elections and a devaluation of the peso.

The country is less than two months from a STEP and four from an election, with the aggravating circumstance of still not having closed an agreement with the IMF, with which some 5,000 million dollars will expire between next September and December.

The authorities have under analysis three “taps” where the dollars could go:

1. The official exchange market, where a more strengthened restraint could be imposed on the demand for dollars of individuals and companies or more restricted on imports.

two . Payments abroad, using the SDRs of the International Monetary Fund and stretching payments like what is left with the Paris Club

3. Alternative financial markets, with more regulations and new reinforcements to the stocks of “counted with liquid” (CCL) operations, such as the recent ones taken by the CNV and the BCRA,

The latter is the new tap that was opened to the BCRA. Specifically, it was opened at the end of last year in the midst of the escalation of alternative dollars and with a gap that exceeded 120%, while now it reaches an average of 85% with an official dollar of 96 pesos and a parallel close to the 178 pesos.

To stop the rise in the CCL last year, the BCRA devised a financial strategy in the bond market by selling and buying securities where the net was transformed into an outflow of dollars that the BCRA did not expect.

In times of tension last year, before October 22, when the BCRA tightened the stocks, it sold around u $ s15 to 20 million daily, an amount similar to the one he has been selling in recent weeks.

The new restrictions of the BCRA and the CNV point to tighten controls to reduce the daily dollar sale amount. The objective is to stop the rise in alternative dollars and the gap, using more and more restrictions than selling dollars.

The Minister of Productive Development, Matías Kulfas, yesterday defended the application of these new restrictive measures in the exchange market.

At the end of the economic cabinet meeting that took place in the Government House, Kulfas affirmed that the decisions of the Central Bank and the CNV to limit the cash market with liquidation “are different measures that have been implemented with a clear objective that is to manage in an efficient way a scarce good that is the dollars “.

In the official exchange market, a more reinforced clamp on the demand for dollars could be imposed

In the end, the Government is preparing for a period of decline in international reserves of the BCRA, as a result of a lower supply of dollars from the export sector, particularly the oil complex. In parallel, he expects an increase in the demand for dollars for imports and higher payments of public debt to international organizations.

There are several factors that converge so that the situation can get complicated in the immediate future. Among these we can highlight the low level of net reserves, a very unbalanced macroeconomy on the fiscal, monetary and inflationary front and a delay exchange rate that is becoming increasingly evident due to the rise in the exchange gap between the official dollar and alternative dollars, which is now reaching 80 percent.

Is gap is the one that causes a demand additional of dollars in the official market, because the dollars to import and to pay debt are cheaper than the alternative dollars.

In addition, the official export dollar is not competitive, therefore there is no incentive to export goods and services. At present the net reserves they reach the 7,000 million dollars.

While last December they totaled about 2,700 million dollars. They could increase in September if the IMF contributes to Argentina the equivalent in SDRs for about 4.3 billion dollars.

The economist Carlos Melconian believes that “the BCRA will try to take care of net reserves and that the gap does not scale more than historical levels. They are goals that can collide with each other: sitting on the reserves versus sitting on the gap. 70/80% is a difference between the official dollar and the alternatives that can contaminate the behavior of the supply and demand of dollars in the official market, very close to influencing the formation of some prices and impacting inflation “.

For his part, the economist Salvador Distéfano, affirms that “it is probable that the gap will reach 120% and this means that we will see a blue at a price between $ 200 and $ 240, because the dollar will be a refuge for many Argentines looking forward to the end of the year. ”

The Government is preparing for a period of decline in the BCRA’s international reserves

The first problem sitting on net reserves and the gap is the September and November elections. There is a second problem, which is the renegotiation of a new agreement with the IMF.

Next year, the foreign exchange market will be Super stressed and public debt payments in dollars will not be zero like this year, but will exceed US $ 4 billion. With respect to the official market, the BCRA will have to be much more alert to the foreign exchange trade surplus. On the export side, seasonally the bulk of the harvest has already been sold, while the pre-financing of exports will surely turn around.

While on the side of the imports, Purchases of goods and services abroad are already around US $ 5 billion per month: low for a serious economic reactivation and high for the current level of exports even with “super soybeans.” With more even supply and demand, the BCRA’s purchases will be reduced and spaced and the BCRA could have to sell dollars.

Another of the canillas open is the use of Bookings to pay foreign public debt that has been leaking for a long time. What is worrying is the debt that must be paid to the IMF until the renegotiation is completed.

On the other hand, the Government awaits the SDRs of the organism with which it will surely cancel the capital maturities of next September and December. And you will have to choose whether or not to sign an agreement to finance the debt that begins to mature in March 2022.

The debt with the IMF is not the only thing, since in the remainder of this year there are about US $ 1.5 billion from other organizations, the quota of the Paris club and about US $ 200 million that must be paid to the bondholders. that entered the exchange.

The conclusion is that the more the BCRA wants to take care of net reserves, the exchange rate gap is likely to rise, but the government will resist devaluing the peso in the official market.

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