Dramatic start to the year for the Argentine Central Bank: US$2.3 billion short of IMF targets
The monetary authority could not contain the dollar advance in all alternative markets and lost reserves by US$674 million since January 1.
With no new ideas, Massa’s team is betting on foreign indebtedness and is studying the launching of a soybean dollar III.
The Central Bank suffered the worst performance in purchasing and selling foreign currency since the 1980s.
Since the return of exchange restrictions in 2012, there has never been such a negative foreign currency balance in the first two months of any year.
The monetary authority lost US$674 million since January 1, 2023, a figure higher than what was lost or gained in any year of applying the exchange restrictions since 2012.
The exchange rate system shows signs of evident exhaustion and is practically incompatible with the reserve accumulation goal agreed upon by the IMF.
The agreement with the IMF establishes a floor of at least US$7.825 billion on net reserves (April revision).
The Central Bank has lost about US$3.5 billion of reserves since December last year and is estimated to only retain up to US$5.443 billion.
To comply with the IMF, it is necessary to accumulate at least US$2.3 billion more in only two months.
The trend of the last three months is dramatically negative, the dollar climbed again in each and every alternative market (including the legal segments), and the official devaluation rate once again lagged behind inflation as of January.
Minister Sergio Massa’s economic team responded to the objective of reserve accumulation by resorting to more external indebtedness.
After a strong bond redemption maneuver by the BCRA, the Government intends to unblock a REPO loan of up to US$1 billion using the 2030 global bond as collateral.
It would seek to partially cancel the cost of the debt repurchase announced in January.
Without any idea and without too many alternatives, the other tool on the table is the launching of a soybean dollar III.
But unlike the previous launches, this time, not only is the field going through an extremely adverse weather situation but also the incentives for liquidation are increasingly lower because the Government’s desperation to retain dollars is evident.
Settlements for soybean dollar II were far lower than those under the original program, and the same is expected for a hypothetical third program.
In practice, this only constitutes an “advance” of income that will negatively impact future reserve accumulation.
Another feasible alternative would be to violently tighten the flow of imports again, extending non-automatic licenses and postponing permits to purchase foreign currency by the BCRA.
However, the economy has already entered into recession, and tightening foreign trade restrictions in these circumstances would only aggravate the fall in activity.
For the second quarter of the year, the program with the IMF establishes a net reserves accumulation target of around US$10.925 billion, US$11.025 billion for the third quarter, and by the end of the year, a minimum of US$12.125 billion.
Neither the application of successive exchange rate patches nor the scarce external indebtedness is a guarantee to meet the goals.
In view of December, there is a greater expectation of a more pronounced devaluation of the official exchange rate.
With information from Derecha Diario
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