Until a few weeks ago, the markets expected a very accelerated recovery, in part because Javier Milei’s management encouraged that possibility, which led some to think of a “V”-shaped reaction of the economy. Despite the volatility, the data indicate that the level of activity has begun to find a bottom, since there are items that are beginning to recover.
This was indicated by Santiago Bulat, economist and director of the consulting firm Invecq, when participating in the opening event of Proyectar Córdoba 2024, the second edition of the meeting organized by the Business Chamber of Urban Developers of Córdoba (Ceduc).
“The sharp deterioration in real wages complicates a ‘V’-shaped recovery, so I expect this recovery to be a little slower and I think that is part of what we are seeing, a more ‘U’-shaped recomposition,” highlighted in dialogue with The voice.
According to their survey, there are items that in April and May registered more activity compared to the previous month, such as those linked to the external market, such as fishing, agriculture, mining, oil and gas; but there are also others, deeds (real estate activity), patenting, cement dispatches, hotel occupancy and the arrival of tourists to the country. But this does not mean that it is definitive or that this phenomenon is beginning to transfer to other areas.
“There may be months in which some items have recovered a little, but perhaps they deteriorate again. This does not necessarily indicate that we have already hit the floor and are going up. Argentina has a very heterogeneous economy and now, unfortunately, very volatile. The Argentine wants this to turn out well once and for all, but it is an economy that is trying to gain some stability,” he highlighted.
According to the economist, accustomed to the volatility that Argentina tends to be in these crisis situations, investors take defensive measures, which ends up becoming a “self-fulfilling prophecy.” Hence the importance of generating certainties at this stage.
“The Base Law, for the Government, is very important, but it can also be a complication, because the opposition says: ‘Well, I already gave you the Base Law, now all the errors are going to be your responsibility, no longer because of the caste and because caste gave you what you wanted’, and this can work against you,” he reflects.
The market demands overreaction
The Argentine crises, especially inflationary, accompanied similar situations in Latin America and other emerging countries. On the other hand, the stagnation recorded since 2012 is purely local, because the rest of the regional and global economy continued to grow with stability.
In this context, Bulat assures, what the market demands of the Government is to “overreact”; asks that it demonstrate that it will have a financial surplus when no economy in the region currently has one. And Argentina is obliged to do so to demonstrate confidence and that this time it can start a different story.
“We must remember that in the Cambiemos government, the market paid to see; now you want to see and then pay; First, you want me to show you results. Before, he bought a story that didn’t end up going well and that happened so recently that now it is demanding an overreaction,” he highlights.
In this way, you understand what is happening in the stock and financial markets, mainly the run towards the dollar and the increase in country risk.
The son of fellow economist Tomás Bulat rules out an overly positive initial expectation that would cause stocks and bonds to rise and the dollar to remain stable for as long as in previous months.
“The most relevant of all is the dollar clampdown. The market continues to warn that if the Government does not remove the stocks and companies cannot take their dollars, they will not bring them either. The most relevant thing going forward to see sectors that can react and bonds that can rise faster is the exit from the stocks. The game is played there,” he explains.
What output does the trap have?
According to data provided in Proyectar Córdoba, the Central Bank of the Argentine Republic (BCRA) began this new management with negative international reserves of US$ 11,359 million. This month, they are at US$ 1,115 million, an important recomposition but that still does not allow it to stop any sudden movement in the US currency such as those that Argentina usually shows in unstable situations.
This creates a trap, where the private sector demands to lift the trap to invest and the Government needs private investment to lift the trap.
According to data provided in Proyectar Córdoba, the Central Bank of the Argentine Republic (BCRA) began this new management with negative international reserves of US$ 11,359 million. This month, they are at US$ 1,115 million, an important recomposition, but that still does not allow it to stop any sudden movement in the US currency such as those that Argentina usually shows in unstable situations.
This creates a trap, where the private sector demands to lift the trap to invest and the Government needs private investment to lift the trap.
In addition, this administration has two major risks: puts, the mechanism by which the BCRA reinsures the value of the bonds in the event of a sudden fall, for which it has no other option but to issue money; and the liabilities of the monetary authority, on which repos for four points of GDP still remain to be covered.
“They are going to rearrange that. Maybe it is taking a little longer than the market expects. There is a difference with the Macri government; Cambiemos opened the stocks much earlier and was fiscally very lax, there was not much fiscal adjustment at the beginning; On the other hand, the Milei government is making a lot of fiscal adjustment and is being much more prudent in exiting the stocks,” he explains.
For Bulat, the Government shows solutions “little by little.” Since the previous government completely stopped imports due to lack of dollars, it now offers payments in four installments and in one payment in the official market in the case of SMEs. Similarly, faced with the impossibility of buying dollars in the previous stage, it is now possible to buy up to a certain limit in cash with settlement per day.
“They are dismantling the stocks little by little, as they see that they are recovering reserves and the gap is not widening too much. I don’t think there will be a moment this year in which the Minister of Economy, Luis Caputo, stands up and says: ‘Well, now everyone go buy dollars at the home banking‘; because, furthermore, it would make no sense because it would make you lose a large amount of dollars,” he indicated.
For the economist, prices in June show that food continues to decline, but inflation will be “close to 5% or five and a bit” due to the correction of relative prices in services. However, he ruled out slowing down the disinflation process. Regarding the dollar, he warned that if the Government, once the Bases Law is approved, lowers the Country tax, it could accelerate imports, complicating the recovery of international reserves, which is why he did not rule out a greater correction of the official exchange rate that compensate for the lower tax.
