Argentina’s financial condition deteriorated sharply in October

RIO DE JANEIRO, BRAZIL – Local financial conditions deteriorated sharply in October in a context of electoral uncertainty and the widening of the exchange rate gap, which almost reached 100% due to the rise of the blue dollar and the free parallel currencies, so that “the Argentine economy has been operating in a financial stress zone for 37 months”.

This was reflected in the report of the Argentine Institute of Finance Executives (IAEF), which stated that the Financial Conditions Index (ICF) fell 6.4 points in October compared to September, reaching a level of -41.3 points, “its worst record since March of this year”.

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The entity highlighted that the collapse was all “made in Argentina”, that is to say, that it mainly responds to the worsening of the local financial conditions component, which dropped 9.6 points in October against September when the index fell to a level of 75.9, the worst since January of this year.

On the other hand, the component measuring international financial conditions had a 3.2% rebound in October and was the best figure since June. “Since July 2020, international conditions have been in a comfort zone,” the text pointed out.

The analysis specified that “seven variables that contributed negatively” to the sub-index of local conditions “continue comfortably in the stress zone.” According to the analysis, “the most significant” was the exchange rate gap and the expected depreciation. “There was also a slight drop in the stock of dollar deposits, where we made a methodological change to better capture monthly variations,” it says.

The report showed that “the Argentine economy has been operating in the financial stress zone for 37 months” and pointed out that “the last time the local ICF was in positive territory was in August 2018”. “The first 12 of these 37 months of suffering, the stress was moderate, while now we have been in severe stress for 25 months,” he warned.

The analysis estimated that in 2021 the rebound of the Argentine economy “will possibly be close to 9%.” Still, the country “cannot take advantage of this bonanza on the financial side because the international capital market is not open.”

In their view, the significant risk for Argentina “is that once it becomes more attractive to world markets, with an IMF program that reduces uncertainty, global conditions will not be as auspicious as they are today.”

“The other major risk is that even if some reforms are made and after a program with the IMF, the world will move to tougher financial conditions given the rise of inflation in several of the main developed and emerging markets, as is the case of Brazil,” he warned.

In this regard, he said that currently “one of the risks we see are weaker emerging currencies, as is the case of the Brazilian real and levels of activity with meager growth in two important trading partners such as Chile and Brazil,” and added that “although commodity prices are not bad, we no longer see the averages of 2021.”