Armored dollar: the government has already defined its plan until the elections


Some signs of this first two-month period have helped to ease the tensions of the government in general and the economic team in particular. It is not just the "financial summer", with dollar stability, low country risk and improved bonds. Also the real economy would begin to show some encouraging signs. Month-to-month comparisons (for example, of the actual measured data collection) already show that the drop in activity would be stopping. I mean, the economy would have reached his gait.

But what comes before does not excite anyone. This forecast of a robust recovery of the economy by the end of the year in which the Ministry of Finance drafted the Letter of Intent with the IMF was already behind schedule. In this text, a rebirth with a "V" shape was mentioned, which would allow the economy to grow at a rate of 8% year on year, almost at the same time that one must go to the polls.

To the bottom, top Treasury officials recognize that they were very optimistic assumptions. And now they estimate that, in reality, the economy could be expanding at a rate between 3 and 4% by the end of 2019. Very little if we take into account that the point of comparison is the strong recession at the end of 2018.

All this taking into account that several factors would play in favor. The harvest will significantly recover agricultural GDP in the second quarter and also provide a good amount of dollars. In addition, the international scenario has changed positively and no further increases in US interest rates are expected, at least during 2019. This increases the appetite for emerging assets and Argentina can take advantage of this larger financial flow.

Of course, at the same time, electoral uncertainty is too great to dream of a more vigorous recovery. Very few are willing to make decisions in the medium or long term without a clear idea of ​​who will rule Argentina from December 10.

Most companies have no plans to increase their team, buy a new machine, or simply expand. The perception is that the "opportunity cost" of waiting ten months is very low. In other words, if decisions are made when the political landscape is clarified, no opportunity will be lost.

In government, it is clear that the investment will be insignificant throughout 2019, in addition to generating jobs. Real wages will rise as inflation falls, but it will be a slow-motion improvement. Credit can also be revived by the drop in benchmark interest rates. But banks will also be extremely cautious when it comes to lending a few months before the election.

With a rather mediocre scenario ahead, the priority in government is one: to avoid another currency crisis. "It does not bother us that the dollar moves, on the contrary, we demand the flotation. we must avoid oscillations at all costs as abruptly as last year because this paralyzes the economy and would bring interest rates back to the clouds, they recognize in Central.

Nobody hides by now the name of the game within the economic team is the shielding of the dollar. Daily monitoring is related to the behavior of the exchange rate, the demand for Leliq and interest rates. And so it will be until the elections. Nothing would be more damaging to Mauricio Macri's re-election aspirations than a new exchange rate shock. The dollar should not be late, but the moves should necessarily be in slow motion. You have to keep the dollar away from the titles of portals or newspapers.

So far everything worked wonders. The interest rate has fallen 13 percentage points since the beginning of the year and is now located for Leliq at 46.2% per year. The decrease was much faster than expected. In the latest Market Expectations Survey (REM), released by the Central Bank, economic advisers expected these tariff levels only for April.

The exchange rate stability and the purchase of foreign currency that the Central Bank has been making (about US $ 850 million in one month), with the subsequent issue of pesos, accelerated the rate reduction process. The value of the dollar has remained virtually unchanged and although there has been an increase in the last week, it remains below the floor of the "non-intervention zone."

The head of the Central, Guido Sandleris, does not want to be neglected. His favorite concept, and this is reflected every time a monetary policy statement is released, is "cautious". At the BCRA, they know that the increase in demand for dollars will be released at a moment's notice. The dollarization of portfolios is a classic pre-election in Argentina and this time will not be the exception. Worse still: in a binary scenario (Mauricio Macri or Cristina Kirchner wins), the quest for strong currency coverage before the elections can be gigantic.

Protecting the dollar against a backdrop of high demand or race is never easy, as former Central chief Federico Sturzenegger and his successor, Luis Caputo, suffered last year.

The only option is for the moment to do accounts. And that is why the Central Board of Directors is dedicated and an important part of the technical area of ​​the institution. The forecasts should be clear on the potential demand for dollars that could be triggered in the coming months and at the same time as the supply of foreign currency will increase.

In previous calculations, the situation seems fairly balanced. The demand for dollars may come, for example, from those who have signed fixed plots for $ 300 billion since October, attracted by high interest rates. They should also join those who bought Lecap (peso denominated bonds) issued by the Treasury and have maturities in the coming months. This year they have bonds in pesos for the equivalent of US $ 7,000 million.

It is likely that a significant portion of these local currency placements at high interest rates will end up going to the dollar with five or six months remaining until the elections. To this must be added some demand for accumulation and balance of tourism, although in both cases the fall was substantial after the mega-valuation of 2018.

To compensate for this demand, there are basically two "faucets". On the one hand, there are the dollars of a trade balance that has become surplus, at an average of $ 1 billion a month. This means that every day there are about 50 million net dollars that did not exist before and that are essential to keep the dollar quiet. This trend is accentuated seasonally from April, because the thick harvest begins to be liquidated.

The other source is Treasury dollars, which will have a large surplus for loans that the IMF is disbursing. According to the recognized Infobae the secretary of finance, Santiago Bausili, the amount available will be $ 6,000 to $ 11,000 million. It all depends on how the refinancing of maturities comes in 2019. These dollars will be sold in the market to meet peso obligations.

Between the trade surplus and the availability of the Treasury, the government would have over the next eight months a USD 15 billion to meet a predictable increase in demand for dollars.

But everything is for now in Excel spreadsheets. The reality of how many currencies will ultimately be demanded by savers and companies will depend on how surveys are done and how the level of uncertainty will grow. But there are indications that there will be sharp peaks, especially from June, when they will know who the candidates will be.

TheCan falling rates affect the stability of the exchange rate? No one knows exactly. But from the BCRA interpret that, even after the reduction of the last weeks, the rates in pesos remain at very high levels, attractive for the saver. With expected inflation of 30%, interest-free yields of 46% per year in pesos are still high under any parameter. But the low road would be very limited forward. It will be very difficult until the elections can be held at a level of 40% without endangering the calm of the currency.


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