The Ministry of Economy made the decision to raise the rate it will offer in the debt tender this Wednesday, in a context in which the Central Bank It has not been able to accumulate foreign currency for three consecutive days and the market is beginning to suspect difficulties in the policy of transferring repos to debt and looks at the Treasury’s ability to renew the stock that expires this month.
The Central Bank sold on Tuesday for the third consecutive day, and it is the first time that has happened since the change in management. They were US$31 million and were added to the US$9 million yesterday and US$27 million last Friday. The balance of purchases for the month was reduced to US$59 million. The loss of reserves reactivated the debate on the consistency of the monetary schemebased on the liquefaction of assets in pesos that is sought with a monetary policy rate of 40% well behind inflation, both past and expected for the coming months, while carrying out a devaluation step of 2% monthly .
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The uncovering warned that tourism had been showing signs of exchange rate delay and that the growing spending of Argentines was worrying and Indec reflected this in the latest report on International Tourism Statistics.
In April, a negative balance of 329.3 thousand international visitors was recorded on all access routes to the country. This result was due to the negative balances of 270.5 thousand tourists and 58.8 thousand hikers. This negative balance was the result of a 23.4% drop in travelers arriving in the country and a 33.6% growth in Argentines traveling abroad.
The Central Bank’s Market Expectations Survey (REM) also showed the expectation of a devaluation jump for September, of the order of 5% to 7% according to the main consulting firms that participate. The peak season for debt maturities begins in June, with the possibility that China will demand the cancellation of the currency swap, which implies a payment of US$2.9 billion. In addition, another US$ 750 million in principal and interest on the debt bonds.
In this context of the BCRA selling reserves in the middle of the harvest liquidation period, with tourism putting pressure on the official dollars and the possibility of the swap being executed and without notice of an agreement with the International Monetary Fund that would provide fresh funds, The market began to take positions in dollars, anticipating that Minister Luis Caputo could not fulfill his promise and would have to devalue.
“The truth is that not only have purchases slowed down in the official market, but short-term financial commitments (swap with China and debt maturities) threaten to retrace almost two-thirds of the year’s net reserve accumulation.” warned the director of CP Consultora, Pablo Moldovan.
Caputo explained this week that the rise in financial dollars “is a reaction of the markets to the political obstacles” to the approval of the Base Law. “We are not going to disappoint them. And if the country starts to grow we will lower taxes. We are very close to that and that is why I believe that the level of aggression against the Government has intensified in recent times,” was his assessment. The minister did not explain, however, if the International Monetary Fund participates in this aggression by not approving the latest review or agreeing to sign a new agreement that provides fresh funds.
These days it has been a month since the Economy agreement with the IMF staff on the last review and the board has not yet approved it, which would unblock the disbursement of US$ 800 million. The question is whether the IMF also waits for the approval of the Base Law. It will be known this week.
In the market they do not make the same evaluation and consider that the lack of political capacity to approve the law considered fundamental by the Government adds to the inconsistencies that are accumulating in the economic model and require the payment of a premium to remain in pesos.
Economía announced on Monday the securities that it will put on offer this Wednesday to raise funds. One is a capitalizable bill as of September that will come out with a minimum effective monthly rate of 4.25%, higher than that which operated in the secondary market. It is an incentive to extend the term, but in any case the average placement term will not exceed 3 months, generating tests of increasingly sensitive markets. For now, the market is confident that the Economy will be able to obtain the 5.8 trillion pesos it needs this Wednesday to renew the debt and keep the wheel turning, but they believe that it is becoming more and more difficult.
