Thursday , June 8 2023

wants to buy dollars for the injection of pesos, but the IMF is opposed


Expected Market

The agency worries that BCRA will intervene as soon as the dollar touches the floor of the band and warns that the risk of volatility has not disappeared.

The International Monetary Fund opposes the intervention of the Central Bank in the dollar market if the contribution continues to decline, touch the lower band and enter the so-called "intervention zone".

This position has been made explicit in the last few hours by IMF Chief Economist Roberto Cardarelli at the beginning of the BCRA. The message was immediate, unobstructed: "It would be an early intervention for Argentina to extend the amount of money""Said Cardarelli, as he might have known iProfessional from reliable sources.

The official position of the IMF is in conflict with the Argentine government's demand, which has already left it to overcome the possibility of intervening in the market if the dollar reaches the lower zone. And it exposes the Fund's iron vision for the local crisis, and that the body's (orthodox) recipe for stabilizing it does not differ much from what it has planned in the past beyond public proposals.

For IMF staff, the only way to ensure stability is the old-fashioned way: by maintaining real interest rates that are high over time, to dampen the monetary position and to minimize the risk of capital outflows and devaluation of the currency

Last Friday, the dollar reached $ 35.49 in the wholesale department where the Central Bank intervened. On Monday, when the market opens, the floor of the band will be $ 35.10. This means that if the price drops 39 cents on the same day, the monetary authority could go out and buy a foreign currency.

That's what Sandleris and his vice-president, Gustavo Cañonero, allowed to overcome. That if it happens – some of which are very confident – BCRA will go buy dollars with the double goal of maintaining the supply and melting the economy that suffers from the recession in the midst of monetary compression.

The IMF, however, does not want to take any risk. Cardarelli herself arranged it in dialogues she had with Argentine officials and with private sector economists. "Stability is not assured, it is something that is achieved and we are in the middle of this process," the Italian economist insisted on his interlocutors.

The latest agreement signed by Argentina and the IMF sets out two very specific things about the possible intervention of the Central Bank, either by selling if the bid went above the complex or by buying the stock if it fell in the lower zone, is what is being discussed now:

  • "BCRA will have the ability (but not a commitment) to announce an auction to buy or sell up to $ 150 million a day." That is, there is no obligation to intervene. It's a choice.
  • "The Central Bank is determined to ensure this all markets (currency) are not sterilized, which would result in monetary expansion. "

Exactly, this is reversed by the Fund. At least at this time. According to Cardarelli, "it seems premature" to do so. Before, the organization wants to make sure the plan works.

A plan, exactly, designed with a monetary hardness rarely seen in Argentina. High interest rates and "zero emissions" took all the power of the speculative wave that had led to the exchange rate of up to $ 41 a month ago.

The emergency model was designed by the government and the IMF to avoid an increase in the crisis. Until a month ago no one could bet at the end of the monetary crisis. Today the situation has changed.

In the economic group, they believe that the Phase A of the plan is over. The stabilization of the exchange rate with Lebac's disarmament. Nothing less To which should be added what has been strengthened in recent days: large and large companies, but especially the last sales dollars in the market.

This is a scenario until just a few weeks ago, at least, unlikely, judged by most City counselors. They gave him more chances for the dollar to test the band's roof and less that the price would fall on the floor. But it is what is happening now.

And the question he set out on the market was specific: what will Sandleris do when the dollar falls to that value, which is just over 35 dollars.

If the expectations of both the government and the city are met, it is likely that in the coming days the dollar will fall to the floor of the band and the BCRA will decide whether to intervene or, on the contrary, manage the IMF technicians in the conservative position.

The reasons for everyone

For staff of the Monetary Fund, the only priority is to stabilize, reduce inflation and ensure debt repayment for Argentina.

In this context, technicians are not sensitive to the need for rapid growth in economic activity. The preference is clear: the exchange rate should remain where the market forces are. In a context of high real interest rates.

For the Fund – and this was reflected in the latest agreement with Argentina – one of the examples to be observed is the resolution of the Mexican crisis of 1994-1995. During Tequila, the organization has implemented a tough monetary policy that has maintained interest rates at a high level within a year.

This toughness, under Washington's perspective, was what made it possible to stabilize the currency market and nine months after the crisis broke the first "green shoots". For 1996, the year after the earthquake, Mexico could already show an increase in its GDP.

The latest report by the Mediterranean Foundation seems to be talking about the agency's strategy: "Although in recent weeks the currency market has stabilized and the peso has been appreciated, this was more because of the rising interest rates with the calm of the expectations of devaluation" , wrote economist Gustavo Reyes, who was in charge of writing the report.

According to the consultancy firm, interest rates – currently at 68% per annum – could be reduced to 32% per year only at the end of next year. Reyes imagines this process as this:

Assuming that the risks of the current plan are mitigating over time and in line with the IMF's projections for the new economic program, current rates on crashes (nearly 70% per annum) will not be greatly reduced by the end of the year and then , from the beginning of 2019, will gradually decrease to reach 32% per year by the end of next year. "

That is, and as the Fund has designed it, Mauricio Macri will be forced to conduct a campaign at a cost of money that will continue to stifle economic activity and business.

It is also clear that this course will be full of tension. As it is now, the government has already expressed its desire to buy dollars in the market to melt the activity and promote interest rate cuts, it is believed that this idea will be strengthened during the election year.

The risk of monetary toughness is clear: that the exchange rate continues to evaluate.

The latest LCG advisory report (founded by Martín Lousteau) puts this trend in line with the risk: "Last month's nominal appreciation and acceleration of inflation have destroyed nearly 40% of the improvement in competitiveness achieved through its adjustment Change from the end of April: the multilateral real exchange rate has fallen from a minimum of 1.29 (25-Apr) to a maximum of 2.05 (30-Sep) and today (1 Nov) is at 1.73 "

The consulting company MacroView (Melconian & Santángelo) also conducted a comparative exercise.

For that counselor, $ 36.60 at the end of last Friday made it clear that the pillow was eroded by the fall in the exchange rate coupled with high inflation.

During the first two years of Macri in power, the dollar (introduced at today's prices) would be at $ 25.90. But they warn that it is close to $ 32.40 (at current prices) being the "CFK dollar before stocks" between 2007 and 2011.

To get another idea: the dollar's price in the Néstor Kirchner era (2003-2007) should be sought at around $ 46.40. Ten pesos above the current price.

There are some of the dangers of the IMF's path.

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