RIO DE JANEIRO, BRAZIL – Argentina is less than a week away from facing payment obligations for almost US$ 2,800 million. At the same time, the Senate will debate tomorrow the bill’s approval that approves the refinancing of the debt contracted during the government of Mauricio Macri while inflation reaches its highest levels during the administration of Alberto Fernández.
In this context, J.P. Morgan prepared a document a few days ago. It describes the program agreed with the Fund and criticizes the macroeconomic policy management of the government.
However, the analysis considers five projections both in favor and to the detriment of economic stability: the increase in raw materials would help growth, but the macroeconomy is sufficiently vulnerable so that the main variables may crunch.
THE WAR AND ARGENTINA’S KEY OPPORTUNITY, ACCORDING TO JP MORGAN
“Beyond the implications and considerations related to the IMF program, we also begin to gauge the consequences of the global energy shock associated with the invasion of Ukraine,” the paper first marks.
According to JP Morgan, the lens through which the effects of the war are studied at the national level would be underestimating the consequent rise in food: “Commodity prices may be the real game-changer.”
THREE PROJECTIONS OF WHAT COULD HAPPEN
While it is still uncertain when the war could end, JP Morgan has made projections based on three main global economic assessments:
The first one marks that the energy supply shock will not be enough to derail the global expansion, “so real demand for raw materials will not weaken materially.” The finance firm believes that “key commodity prices will remain elevated, even if they are not directly affected by the supply shock,” so there would not be a sharp decline even if the conflict were to end overnight.
Finally, they stipulate, the prevailing uncertainty would not cause a sudden withdrawal of capital from emerging markets.
“Argentina’s status as a net energy importer would make the country a relative loser. But the fact that the country is a large net exporter of agricultural products more than cushions the trade balance drag and makes Argentina a winner from the region’s current commodity price windfall, along with Uruguay and Paraguay,” they estimate.
TWO CAVEATS ON THE OBJECTIVES OF THE AGREEMENT
JP Morgan’s estimates come in the context of the Government’s US$958 million and US$1.9 billion debt commitment due on Monday and Tuesday of next week, respectively. Due to the short time margin to approve the agreement with the IMF, the government summoned the Senate for tomorrow to finalize the legislative approval and thus pass the baton to the board of directors of the credit organization.
Even if the deadlines are met, JP Morgan notes that the country “still needs to resolve the main frictions that prevent it from maximizing the benefits of its terms of trade,” such as capital controls and the lack of a capital expenditure framework favorable to the private sector, among others.
The positive outlook provided by higher commodity prices would not imply a definite substantial improvement: “The double whammy of higher food and gasoline prices will exacerbate inflation, Argentina’s main macroeconomic challenge, even when government price controls on major food commodities are taken into account.”
“In all, the pickup in inflation is likely to test the government’s commitment to positive real interest rates, as embedded in the IMF program,” they warn.
With information from Cronista