The peso fell asleep and the effects of the second wave of macroeconomic imbalance begin

Paradoxically, with the highest value of the prices of our export products in years and the ratification of the dollar party in the United States by the duo Biden and my friend Jay Powell (president of the Central Bank of that country), the prices of free dollars in Argentina have accelerated in recent days.

“The dollar woke up” headlined the media.

If the kind reader and the kind reader maintain the masochistic habit of reading this column assiduously, they already know that, in reality, what happens is that “the weight fell asleep”. Put in more technical terms, the problem is the lack of voluntary demand for pesos.

The way in which the financing of the COVID spending explosion and the consequent fiscal deficit was handled during the first wave, last year, accelerated the inflation rate for the October 2020-March 2021 semester. The excess of pesos first put pressure on the gap and, as economic activity normalized, the increase in the gap was transferred to the inflation rate.

The price of free dollars had “settled down” during the summer, (after rising more than 130% in the year) due to the need to cover commitments in pesos of over-dollarized Argentines in their savings, due to tax payments and the presence of “old wages and new prices” and with the intervention of the Central Bank and other public organizations operating in the bond market, accompanied, in recent times, with the devaluation of the official dollar below of past inflation.

But as new joint ventures begin to close, and families in certain sectors regain some capacity to save, the demand for free dollars increases. (given that the supply of official savings dollars was more restricted and its price inconvenient). In turn, producers in the agricultural sector have the incentive to sell what is necessary for their production, due to excellent international prices and the constant threats of eventual increases in withholdings. But when they sell, they go from a dollarized asset (cereals and oilseeds) to pesos that are not adequately remunerated. Therefore, they too add to the demand for free dollars. Finally, given the restrictions for debt payments and / or imports, through the official channel, many companies, for reputational reasons, to maintain their good relations with their suppliers and creditors or their business cycle, also demand dollars in the free market for meet your payment commitments.

We are facing a market that does not want pesos and that knows that it will be difficult for the Government to maintain the price of the official dollar and the gap under control, without reserves and without access to international credit, once the seasonality of the harvest has passed.

To this panorama is added the problem of the financial program, to renew debt maturities and finance the fiscal deficit. In the coming months, until the November elections? More than 1.5 trillion pesos of debt maturities must be refinanced. In the last placements, the Ministry of Finance was forced to raise the interest rate, shorten the terms of the new debt or, in longer terms, place debt indexed either by inflation or by the exchange rate. In other words, Nobody wants to pass the elections in pesos, and those forced to be in pesos due to regulatory restrictions, only accept it with some type of adjustment. The Government is placing more and more “non-liquidable” debt.

In addition, given the evident lack of sufficient vaccines to have normalized economic activity in the short term, the increased COVID spending must be added to the expected fiscal deficit.

The 2021 national budget, with even greater tax pressure, the wealth tax and the extraordinary gain from the higher collection of export taxes, presents an operating fiscal deficit. As it has a primary deficit, the Government is obliged to issue or increase the debt, in addition to renewing the debt that is due plus the corresponding interest. As it also issues to buy dollars and issues to pay interest on the Central Bank debt (Leliqs), then it has to place more Central Bank debt to withdraw part of that issue from circulation and not to press further on the demand for dollars and the inflation rate, in this context of falling demand for pesos.

But in order to continue placing debt, without a consistent macroeconomic program, amid internal political misunderstandings, with an electoral confrontation with the opposition, with serious management errors, facing the second wave of COVID with little immunized population, without an agreement with the IMF, and with the main Argentine province in default, the Government has no choice but to shorten the duration of the placements, pay a higher rate and / or index its debt.

In short, the markets are beginning to discount the future of the distortions that are accumulating and the snowball of indexed debt and Central Bank debt.

For now, the global context plays in its favor, but as long as the deniers of the effects of monetary policy continue to speak of “multi-causal inflation” and the Earthers of economic policy continue to combat said multi-causality from the Ministry of Commerce, the second wave of the macro disaster will continue to advance, with the risk of mutating into a major crisis.


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