He market gave another example of the speed with which it is losing optimism. He blue dollar jumped this Wednesday 45 pesos and closed at 1275 pesos. The mep accompanied with an increase of 5 percent to 1,230 pesos and the cash with settlement rose another 5 percent to 1,256 pesos. He country risk closed at the edge of 1400 points due to a sharp drop in foreign currency securities that lost up to more than 6 percent.
The appreciation of financial dollars, the recovery of public bond prices and the performance of stocks were left in the shadows. tightrope in less than a week. Since Monday, the prices of dollars traded on the stock market and the blue dollar began to rise sharply. This was added in the last day the collapse of Argentine companies listed in New York and sovereign bonds in foreign currency.
It is a kind of start of run against Argentine assets, which so far cannot be said to be chaotic (due to the strong rise in stocks and bonds in recent months). However, it shows the financial fragility of the country. The government’s logic that the fiscal adjustment, the cut in the monetary issue and the implementation of liberal policies restored hope to investors is beginning to look ridiculous.
The financial stew of recent days shows the capacity of the market to mark the field for the economic team. Specifically, the agricultural complex seeks to point out that the appreciation of the official exchange rate cannot be permanent, while investors who carried out carry trades in recent months reaffirm that they are short-term players. The bets on production and the real economy are conspicuous by absence.
Among the factors that explain the return of exchange pressures to the city of Buenos Aires can be found economic but also political elements. Milei’s government had called for an agreement with the governors on May 25, days before the meeting took place. did not get the support of the provinces to show governance. At the same time, the government adds local and international enemies, where the unintelligible episode of fight with the front office of the executive power of Spain stands out.
Of course, purely macroeconomic elements are added to this political situation, which are beginning to generate uncertainty, encourage hedging decisions, seeking refuge and dollarization. At least 6 of these economic factors can be detailed:
1. Interest rate: The recent reduction of the Central Bank’s reference interest rate to 40 percent annual nominal interest boosted dollarization. This monthly rate, which is less than 3 percent, is insufficient in the face of inflation that reached almost 9 percent in April and is unlikely to fall below 6 percent in the coming months.
2. International reserves: The Central Bank’s reserves present worrying signs. Many of the recently acquired dollars have increased foreign debt with importers, a maneuver that appears to artificially inflate net reserves by increasing debt.
3. Fiscal surplus: Although the government celebrated a fiscal surplus in the first quarter of the year, this was achieved through cuts in pensions, public works and other items, measures that many analysts consider unsustainable in the long term.
4. Economic activity and tax collection: The decline in economic activity and the decline in tax collection make it increasingly difficult to maintain a primary surplus.
5. Exchange Rate and crop settlement: The agricultural sector considers that the official exchange rate is overvalued and has delayed the liquidation of crops. This has reduced the supply of dollars in the exchange market, evidencing the sector’s commitment to a devaluation.
6. Stock of weights: Although the government has managed to reduce the amount of pesos in circulation, monetary aggregates in dollar terms have doubled. This suggests that a relaxation of currency controls could trigger a currency run, and no one wants to be the last to acquire foreign currency.
These elements seem to increase financial uncertainty. What began with the rise of dollars continued this Wednesday with a collapse in Argentine stocks in New York and a sharp fall in sovereign bonds. There were energy companies and banks that lost almost 7 percent in dollars during the day and some securities fell more than 6 percent. The country risk that weeks ago flirted with approaching 1,000 points was now a few points away from exceeding 1,400 units.
