“Another problem, which is not independent of the strengthening of the dollar,” is the weakening of agricultural commodities. And, as he points out, soybeans are already below US$420 per ton. Although it is not a disaster, the soybeans of 2008, when the crisis with the field occurred, measured at today’s prices, would be almost US$900. Compared to the 2023 average, soybeans fell 14% in nominal terms or 17% in real terms.
The document warns that “It is not a minor loss. Wheat prices also fell sharply and corn somewhat less. The terms of trade are not so bad in absolute terms, but they also reflect a more manageable drop of 3% year-on-year in the first quarter of the year, probably something more when we have data for the second quarter.”
At the local level there are also some dark clouds
Econviews warns that parallel dollars escaped when the Central Bank lowered the interest rate greatly and there were doubts about the approval of the Base Law. “But they did not drop significantly once the law was passed”, which triggered the gap above 40%, “a worrying value” and which stirs up the rumor of devaluation.
The second fact that the consultant raises “is that In June the Central Bank almost did not buy dollars in the exchange market” unlike previous months in which it bought more than three billion dollars per month. “Now that it urgently needs to increase reserves and is not achieving it, it is a problem.”
Econviews projections.png
Econviews projections.
“This leads us to think that if the situation does not improve, it will need more exchange rate flexibility, in line with what the IMF recommends in the staff report,” Econviews assures before slipping that this seems to be the great challenge that Javier Milei faces. not only in economic but political terms”, since the surveys continue to show favorable data in financial and fiscal matters, but now they are asking the government for more activity and employment.
For the Kiguel consultancy, for this to go from a low flight to something more robust, it will be necessary to take risks and lift the trap. “This is a deal that potentially has more benefits than costs, especially given that fiscal fundamentals are strong. And she adds that, “a more flexible exchange rate will bring the antidotes that are needed if the external issue becomes even more difficult and the headwind hurts.”
The IMF gave clues about the next monetary regime
Following the approval of the eighth review of the current program by the International Monetary Fund (IMFI) the disbursement of US$800 million was enabled, which has already been added to the reserves “although they will not last long because next month we have to pay US$640 million,” recalls the consultant.
After details about the discussions between the Fund and the Government emerged, there are some clues that Econviews finds about what can be expected in the future. As Econviews maintains, “the juiciest part of the document is the section dedicated to monetary and exchange rate policy, since it clarifies the panorama of what may come.”
The first thing that is indicated is that progress will be made towards a currency competition regime, where the exchange rate floats in a managed manner, as happens in Peru and Uruguay. The Central Bank will have price stability as its first objective, it will be prohibited from financing the Treasury, it will continue to be the lender of last resort for financial entities, it will sterilize reserve purchases and regulate the liquidity of the system through open market operations with public titles.
For Kiguel, inflation this year will be between “27 and 28%”
“A very important point is that in this new context, individuals will be able to save in the currency they want, but other currencies would not be legal tender and tax payments will continue to be made in pesos. This is very far from the dollarization discourse, at the same time it is closer to what most countries in the world do,” highlights the consultant.
Likewise, it mentions that for the IMF “it is necessary” that the exchange rate policy becomes more flexible and that the authorities will adapt it to sustain the reserve accumulation process. There is also a commitment to lift all restrictions on the market and eliminate differential exchange rates.
And here comes the section that generated “confusion” between the Government and the Fund, since it would start with the “blend dollar” for exporters (the goal is set for the end of June). In addition, the PAIS tax would be eliminated before the end of the year. Regarding the latter, the Government said that, if the Bases law is approved, it would lower the rate from 17.5% to 7.5%, but it also said that the dollar for exporters will not be modified.
“This difference between each of the parties generates some uncertainty about what the timing of the measures will finally be.”, concludes the Kiguel consultant.
