The economist Marina Dal Poggetto It marked the problems that Javier Milei’s economic program is facing, which in June showed cracks in some aspects. For example, June will be the first month during which the government will not be able to accumulate reserves in the Central Bank.
“This year you have a much better harvest than last year but with lower prices, you had more dollars in sight than last year and you finished June almost tied: one day you buy and the next you sell.“, he explained.
“The economy starts to ask you for more dollars for some reasons. One is that the signal to disarm stocks is moderated because they have already been disarmed and because there is beginning to be an incipient recovery of the economy and because you are in a very low interest rate scenario,” he explained.
And he illustrated: “You ran out of gas before you even reached the third trimester and the million dollar question is how do you get out of here?”.
At the moment, The average daily purchases are below USD 6 million per daywhich is causing concern among operators and the need for Minister Luis Caputo and the president himself, Javier Milei, to publicly and emphatically rule out the possibility of a devaluation.
“At first the program started well, in my opinion in the recalibration you took some insurance that is beginning to have diminishing returns. One is the dollar blend, you sent 20% of the export to the CCL, it is USD 9 billion, it is counterfactual to say that today they would be in the reserves, but if you had bought part of that perhaps Instead of having negative reserves, you would have 7 billion or 8 billion and you would be more comfortable at this point”, he stated.
“The recession that you need to continue buying dollars is not sustainable either politically or fiscally.“, he added.
And he analyzed: “The program is starting to have short legs and this is what you are seeing reflected fundamentally in the purchase of dollars by the Central Bank.”.
The economist assured that the approval of the basic law and the fiscal pact were a necessary condition what the market expected, although they are not enough to answer the questions about the economic program implemented by the government of Javier Milei. “With the law you breathe and gain time”he exemplified.
According to his vision, presented in a report given to Marcelo Longobardi in Rivadavia radiothe markets look at four things in the government plan.
“They are watching for inflation to go down, and it has been going down. Let the Central Bank buy dollars, and it has been buying. I looked at the tax numbers, that you still have to consolidate them and negotiating by law does not help you. And the last point was the approval of the laws,” he developed.
Some of those bulbs started to show some cracks. For example, June inflation is projected to be higher than May due to the impact of the increase in rates. And the Central Bank will close June without having added reserves.
“Until April this was a rally of everything, everything was flying and the flows were killing the fundamentals; You could get negative about the fundamentals, but the flows killed it. Now the flows have slowed down a little looking at what happens with the fundamentals and public opinion supports you”explained Dal Poggetto, executive director of EcoGo consultants.
“Now we have to monitor what is happening with public opinion, flows and fundamentals to see how this story continues. Flows can kill fundamentals for much longer than we economists believe, but the problem is that the recovery with this dollar falling behind will generate an increase in the level of imports and that will make it difficult for you to buy dollars“, he elaborated.
He recalled that the International Monetary Fund’s last review had already set a target for net reserves of USD 2.5 billion below the current level by the end of the year.You are being warned that you will not be buying dollars in the second half of the year and without access to the international credit market, the noise begins about how you are going to pay the maturities; if the Country Risk does not go down, this will cause problems.”, he analyzed.
This scenario opens up two possibilities: bond prices rise, country risk falls and the international credit market opens up for Argentina; or bond prices fall, country risk rises and the credit market remains closed.
“Until now in the financial program, dollars were paid with flow, that is, with recession, with a Central Bank buying Reserves. And the pesos were all being refinanced within the stocks. The question of whether you can remove the stocks or not… answer me how you are going to manage your financial program with this concentration of maturities that you generated by transferring your debt from the Central Bank to the Treasury,” he consulted.
“Since you do not have access to the credit market, you have the interest rate on the debt that Guzmán’s gross restructuring left you. The average coupon on debt in Argentina today is 3.8%, you pay 1.8 points of interest, against a debt level that is USD 50 billion higher than what you had in 2019. In 2019 you paid 3.4 points of GDP. Today, the negative rates generated by the cepo are favoring you and allow you to sustain this financial scheme without access to the genuine credit financial system. The question is how Argentina accesses genuine credit and that will depend on what happens with the flows. The iteration begins but the program’s diminishing returns appeared prematurely“, complete.
