The time factor is key. What at another time was a hypothetical horizon, later became a long term (in Argentine usage) to recently acquire a place in the emergency calendar. Debt services began to have a specific disbursement date and amount. And the imminence triggers a lethargic discussion for two years: pay or stop doing it.
While that novel climbed, the thermometer of the Argentine economy grew: during January the dollar in its “free” version (blue, counted with liquidation and the “bag”) ranged between $215 and $230, in a rise of between 9 and 12%. in the last two months, according to each case. But cementing the expectations of a path of no return if there are no new “anchors” for this variable.
For the analyst Carlos Fara, the strategy of tightening the rope is due more to a need due to the weakness in the formation of the official coalition that cannot agree without showing harshness and in a possible rupture would also show having sat down with good will. In his opinion, the Government makes an effort to say that in reality there is a very marked decoupling between the real economy and the financial economy, minimizing the strictly economic content of this crisis. “It is possible, but objectively the BCRA lacks dollars to continue complying, although up to now Argentina has paid almost US$ 7,800 million”, he adds.
money illusion. The question comes back from time to time: how long will the dollar continue to rise? In reality, the evolution of the exchange rate throughout 2021 followed that of inflation. It had reached a peak in October 2020, when it touched $190 and forced the economic team to take control of a situation that seemed out of control.. The reason? The monetary tsunami with which the Central Bank had had to go to the Treasury in the face of the double challenge of facing pandemic expenses (vaccination, emergency aid to companies and individuals) and the collapse of tax collection due to forced inactivity.
Jorge Vasconceloschief economist at IERAL, estimate that the issue to alleviate the fiscal deficit reached 8.3% of GDP during the first 9 months of that year. The recipe was not unprecedented: operations with dollarized bonds (so as not to touch the interest rate) and the tailwind of record prices in our country’s exportable products. Despite the bad weather, shipments reached a historic high to which was added, already in 2021, the gift of SDRs that the Monetary Fund itself distributed among the member countries (Argentina obtained US$4,350 million).
However, the electoral calendar stuck its tail and the “toughness” of the economic policy of Martín Guzmán (the emission of fiscal origin fell to 2% of GDP, it changed in expansion from July to end the last semester of the year, again, at 8.4% of GDP. In Vasconcelos’ opinion, the economy reaches this hot flash in January in a situation of inflationary pressure similar to that of October 2020. At that time, the exchange rate gap reached 130% and that set off alarms due to its harmful effect on the balance trade: discourages exports by slowing them down and advances imports by anticipating a future devaluation. During 2021, the official exchange rate rose only 24% against 51% of the CPI, so the gap remained only because the “free” dollar did not escape. Therefore, a reading could be that when returning to the same place as that date, the effort made to avoid a price stampede had a mediocre result, but, above all, it served to finance the foreseeable electoral expansion in spending. The cost of this delay was indebtedness and its financial cost: it is estimated that the remunerated liabilities of the Central Bank reached 3% of GDP at the end of 2021 and are expected to reach 3.6% by the end of this year.
Currencies, Wanted. The other factor that feeds the demand for dollars is the projection of a year where they will not enter in the same magnitude as the previous one. It is estimated that between the drought of the last two months and the growth in energy prices (partly due to the difficulty of Russia’s gas supply), the trade balance will have a decrease of up to US$ 7,000 million, almost half of that obtained in 2021.
With the path to voluntary indebtedness closed and even with discounted interest rates that will grow this year to contain unprecedented inflation in the developed world (7% in the United States last year), the only remaining sources of income are new loans from multilateral credit organizations. Just with whom an endless negotiation was established to restructure the payments. Everything indicates that, in addition to rains, the Argentine economy will suffer from a shortage of dollars for a while.
“I believe that the rise in blue, in part responds to a seasonal factor, post-demand, of a greater demand for pesos in December. The Central issues many pesos that later enter the economy, then people stop demanding pesos, but they are not absorbed”, he explains. Sebastian Menescaldi, associate director of EcoGo. In addition, he adds, there is the uncertainty caused by a larger gap and that will end up being reflected in a higher value of the official exchange rate. A scenario that qualifies as “pedaling in the air. More gap, more uncertainty, more inflation”, he concludes.
For its part, Ricardo Delgado, President of Analytic Consulting, adds that three concurrent causes converge in the rise of the dollar: inflation of 51% in 2021 that “was not fully reflected, in an economy with high uncertainty and imbalances; the rise in rates that international markets anticipate due to global inflation and that plays against emerging economies (countries will devalue their currencies and adjust the price of their assets) and the rumors that payment with the IMF can be avoided, with bad reading on the part of the market”.
another crack. In a dialectical effort to minimize the impact of the increase in free exchange rates, the official preaching has traditionally been to ignore the importance of these markets because the truth is that foreign trade passes, for now, through the so-called “single and free market”. (MULC)”. But the gap between these values is another indicator of short-term problems. “It is a problem because what it causes is a brutal transfer of income and causes a double incentive: underdeclaring exports and advancing imports to obtain dollars from the BCRA”, emphasizes Menescaldi. In December, for example, there was record demand for US$6.2 billion, and he believes that this would lead the Government to manage said shortage with more stocks. Delgado takes account of what happened during 2021 with the delay in the official exchange rate: “imports grew more than production and the longer a gap like the current one continues, devaluation expectations are confirmed,” he summarizes.
Thus, the background to this exchange rate vertigo continues to be deciding how a fiscal deficit will be financed, which, although it fell a lot, continues to generate inflation. “This is part of Argentina’s structural problems, so the lack of definition of an agreement with the Fund only adds more uncertainty and postpones a solution”, he concludes.
The permanent vicious circle of the Argentine economy.
