Wednesday, November 30

The market asks “not to play with fire” in the midst of negotiations with the IMF

President Alberto Fernández has just made an official trip to Russia and China, where he announced new investments. “By reducing the probability of default with the IMF, the agreement could reduce the extreme uncertainty that has prevailed in the markets in recent months, when many were betting on that outcome,” said Víctor Beker, an expert at the University of Belgrano.

“However, the political turbulence that followed the announcement of the agreement conspires against this result, keeping open the questions about the economic and political future“, he pointed.

“As time goes by, the real effect of the agreement on economic variables will be seen. We must remember that the country has a long history of agreements signed with the IMF starting in 1959 and an almost as long history of non-compliance,” concluded.

“Tightening the negotiation rope a lot at this delicate juncture for political or ideological reasons looks like an alternative strategy of playing with fire,” said VatNet Research, adding that “in the face of a possible favorable agreement in the short term, I would not have a rational explanation political dissent about it”.

“We analyzed one of the points of the potential agreement with the Fund, the deficit: the financing of the primary deficit plus the interest on the debt in pesos would be financed with a mixture of assistance from the BCRA, soft financing from international organizations and placements of new debt” Delphos Investment estimated in a report.

He added that “this implies a renewal rate of the principal and interest maturities of approximately 120%, very similar to that of 2021 (122%). This objective seems achievable for the Treasury thanks to the regulatory incentives and the great liquidity of the financial system.” “The rigid limits on the monetary financing that the agreement would include are at the same time an important factor that will help the Government not to deviate from the fiscal goal“, estimated the consulting firm Ecolatina.

“The greater ‘laxity’ achieved in terms of the fiscal trajectory must be covered with other sources, either from international organizations (the amount projected by the Government seems voluntary) or by increasing net financing in the market, adding future pressures on the -still reduced- interest burden and on the quasi-fiscal result”, he explained.

“With a stable labor income outlook for this year and no boost from the fiscal side, consumption will continue to evolve at a low rate (4%), losing power as the summer ends, disposable income decreases with the increase in rates, and the impoverishment of the middle class continues”, the consulting firm Abeceb revealed in a report.

“At the foreign exchange level, while attention remains focused on the evolution of net reserves, operators continue to wait for news about possible changes in the strategy, which could come from a more accelerated pace in the ‘crawling-peg’ and a new rise of rates in search of offering positive real yields,” said Gustavo Ber, an economist at Estudio Ber.

According to the IMF’s request, and if the agreement is sustained, the BCRA must begin to rebuild reserves. In particular, it requests an accumulation of 5,000 million dollars, an amount slightly higher than what will be the return of payments already made to the IMF for US$4,500 million.“, explained Invecq Consulting.

He added that “this scenario leaves us with two options: a higher rate of devaluation, which depresses economic activity and reduces the pressure on imports, or lower the demand for dollars through new closures in quantities.”