Friday, December 3

The market expects a new post-14N exchange rate regime and signals with the IMF

The different readings

According to Eduardo Fraccia, economist at IAE, the Austral University business school, for some measures to be seen, it could take a few days before the elections to assimilate and evaluate the results. “Whatever happens, what I think is that they are going to see the melons settle back into the governing coalition. I cannot imagine Miguel Pesce accelerating the devaluation on Monday at 9 in the morning. I think they are going to take time to assimilate ”, said the professional. The IAE director indicated that the exchange rate change could be “more for the summer”, although he considers that it will be inexorable.

According to a report by the Research Foundation for Economic Development (FIDE), Argentina is now going through “the months with the lowest supply of foreign currency as a result of the seasonality of primary exports.” The center for studies linked to developmentalism states that “as the recovery accelerates, the demand for foreign currency for imports grows and the balance of payments decreases.”

Beyond considering that regulations in the exchange market are necessary to avoid shocks, FIDE warns that “simultaneously, it is essential to advance a set of policies that allow relaxing the external bottlenecks that historically condition our recovery.” In this sense, it maintains that “the recent announcements of Direct External Investment plans on the production of green hydrogen are auspicious,” referring to the US $ 8.2 billion project announced by the government.

According to market sources consulted by this means, two signals are expected after 14N, beyond the result of the legislative election, which are rather of a political nature. One is the understanding with the Fund and the other is the Budget. “If the Budget is approved in Congress, it is a good sign because it is the basis on which the Minister of Economy, Martín Guzmán, sits to negotiate with the IMF, ”said the economist of a renowned investment fund. Although the Budget may have guidelines that the opposition will surely try to change, such as the inflation projection, for the market it may be irrelevant. The text projects an inflation of 33%, when 50% is expected. “That would imply that you are going to have more resources than you projected. The problem would be if you promised more resources ”, summarized the analyst.

For Lorenzo Sigaut Gravina, from the consulting firm Balances the issue could begin to be resolved 24 hours after the election. “You cannot continue to sustain the exchange rate delay. The official dollar has moved at 1% per month and inflation at 3 for several months. One month nothing happens, two months maybe, but if 7 months have passed, it is already a dynamic that must be reversed, ”said Sigaut Gravina. For the economic analyst, this correction policy should not wait, and he even understands that from the same Monday after the legislative elections it could be put into operation. He also maintains that if a future agreement with the IMF is looked at, the agency “would never allow an agreement that contemplates delaying the exchange rate.” “That could be seen next week,” he considered. The idea would then no longer be to reduce the gap by lowering the ceiling, but by raising the floor.

Sigaut Gravina considers that the economic authorities’ first attempt will be to accelerate the devaluation rate from 1% to 3% per month, because it would be the one that would imply the lowest costs. Although it could then go towards a stronger jump, something that happened during Axel Kicillof’s tenure as Minister of Economy in a similar situation. The economist of the Equlibra consultancy indicated that “perhaps monthly inflation will go to 4%” which would mean a regime change. “You use the exchange rate, rate and gasoline anchor, you do it before the elections,” he said. On the other hand, he opined that the current level of gap between the official price and the financial versions expresses a high level of uncertainty that could be reversed if there are political signals. “A concrete step must be taken with the IMF. Nobody knows what they are doing anymore. Someone in the government says that the negotiations are progressing and others say that there is no need to fix, “he explained.

In this regard, Javier Timerman, economist at AdCap, considered that after the elections “rationality will prevail more because the anti-IMF discourse will no longer make sense and there will be faster negotiations.” “When you don’t have financing and you have to face these payments, you have to agree with your creditor; there is not much room for further discussion. In Argentina we are in a situation of considerable economic stress, and in this situation, the alternative of radicalization simply does not exist: there is neither flow nor stock ”, the economist summarized in radio statements.


The Economist Ivan Carrino pointed out, for his part, that “If there is a politically appropriate moment to make a decision that is to take the dollar to an intermediate level between the official and the parallel it is after the elections.” Carrino pantomimed that although the measure may have a political cost to pay, then “it can be recovered in the two remaining years in office.” “If it were because of the economy, we would have to get out of the stocks with a monetary plan to lower inflation, but perhaps politics will ask for something else,” he remarked.

Whatever the immediate scenario, operators try to take cover. The consulting firm LCG points out in a report that due to the context of uncertainty “the expectation of depreciation continues.” “The open interest in the Rofex (contracts) returns to levels above $ 5.5 billion due to the growing demand for coverage and the implicit devaluation rate 4 months ahead is above 60% per year”, indicates LCG.

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