Markets bet on balanced election in November, don’t rule out IMF default

The virtual meeting which showed a very smiling Alberto Fernandez next to the strong man of Russia, Vladimir Poutine, perfectly summarized the new game that the Government has decided to play on the international scene. Without access to financial markets and with little echo in the United States, Kirchnerism’s decision is to consolidate a strategic alliance with the Russians, It could go way beyond buying Sputnik-V vaccines or even manufacturing them locally.

The antecedent of this meeting was another virtual meeting, on March 16, moderated by the Minister of the Economy, Martin guzman. In this opportunity where the Russian Sovereign Fund, which manages assets for more than 180,000 million dollars, which has practically acted as a “facilitator” to interest other large investors in the possible opportunities that Argentina offers. Let’s hear from you, so far none of these contacts have decided to go ahead.

Joining Russia is not free. For now, that means following the country’s position in international forums. Thus, Argentina voted in favor of an investigation into Israel for the bombing of Gaza, when the United States, almost all of Europe and much of the Western world decided to protest in the opposite direction. . Even the two terrorist attacks of which Argentina was the victim did not make the government hesitate to modify or soften its position, for example by abstaining.

The country also withdrew from the group that was promoting an investigation in Venezuela into repeated human rights abuses by the Nicolás Maduro regime.

The strategic alliance with Russia raises questions about the continuation of relations with the United States and also jeopardizes relations with the IMF. Sergio Massa will answer these questions this week in Washington and New York.

It is impossible not to refer to the other great alliance that the Russians have in the region, precisely with the dictatorship of Venezuela. Maduro is counting on Putin as his main ally to support a government that not only violates individual freedoms, but also accumulates complaints of corruption and money laundering, while continuing to use fraudulent elections.

Sputnik yes, Moderna and Johnson no

It is suggestive, to say the least, that Argentina threw itself on its head to receive the Sputnik V vaccine, but at the same time did everything possible so that the vaccines from North American laboratories did not enter. The Pfizer scandal has already been mentioned and the ANMAT exceptionally continues without approving those manufactured by Moderna and Johnson. The latter, in a single dose, was also tested at the end of last year on a number of volunteers in Argentina as well as at Pfizer.

Russia and China emerged as natural alternatives to Kirchnerism almost from the start of Alberto Fernández’s government. The financial markets had already turned their backs on him since PASO in August 2019, and confidence was never restored. Even the agreement with almost all creditors to resolve the private debt default has not been reached, as evidenced by the price of the floor maintained all this time by the new bonds resulting from this swap in September 2020.

At the same time, the strategic alliance with Russia raises doubts about relations between Argentina and multilateral organizations. The president and Guzmán received mixed responses when they demanded in Europe that the Paris Club postpone collection of the last installment of $ 2.4 billion. They have received the support of Portugal, Spain, France and Italy, but the two main creditors – who represent 55% of total loans – have slowed them down: “Talk to the IMF”. is the irreducible position that Germany and Japan maintain for now.

The Central Bank bought more dollars in the official market and the net reserves reached 7.3 billion dollars, giving it more leeway. But June has already started much weaker than last month, and the build-up in the first week has barely exceeded $ 100 million.

The danger is not only a possible default with the Paris Club, but with the IMF itself, with which nearly $ 4,000 million is due between September and December. Guzmán’s intention is to move these payments forward as well, until a new deal is negotiated. But that doesn’t seem like an easy task, and the final say will also go to the Fund’s largest shareholder, the United States.

A default with the IMF would pose an unprecedented and unknown scenario for Argentina; There are almost no instances in the world of non-compliance with the agency.

On the other hand, the plant also recovered net purchasing reserves on the official market. According to the calculations of economist Fernando Marul, they already reach $ 7,300 million to which must be added what will come from the capitalization of the Fund, via the special drawing rights, and that would add another $ 4,300 million. ANDThis means that the government would have more leeway even to give it the “luxury” of paying the next installments. Of course, a big stumbling block is the “home front”, which seeks to limit Guzmán’s decisions regarding the Fund, both in reference to a future deal and to upcoming payments.

Massa’s journey

The tour he will undertake Sergio massa in Washington and New York this week aims to establish the first formal contacts with the administration of the government of Joe biden and take the relation out of the “freezer”. The main questions they will ask you will surely concern Argentina’s rapprochement with Putin.

Amid this sea of ​​doubts, Argentine stocks continued their bullish march through the first week of June, after appreciating 15% in dollars throughout May. All this amid a re-epidemic of Covid-19 and signs of a decline in economic activity due to restrictions but also due to high inflation, which continues to reduce purchasing power.

What is behind the stock market rally? Essentially a question of expectations for the next election. Different reports known in recent days, from Poliarquía to Synopsis, DAlessio Beresztein and Taquión among other consulting firms, show the same phenomenon: a growing percentage of society’s disapproval of the way the government has handled the pandemic. Almost 60% of people have a negative perception and in some surveys it reaches 70%.

In other words, Investors expect November election to be much more regular than October 2019, when Alberto Fernández was consecrated with 48% of the votes against 41% for Mauricio Macri. However, there are still no concrete measures on what the outcome of the election would be, while in addition the candidates are not even known.

Question

The question many are asking is whether this time it will be more similar to 2013 or 2019. Eight years ago a rally in the local stock market started that took it to rise by over 200%. It was from the legislative elections in which Kirchnerism lost and would lead to the victory of Ensemble pour le changer. What happened two years ago was very different, when many investors suffered millions in losses betting on Macri’s re-election. In a single day, major stocks fell more than 50% in dollar terms on August 12 of the same year after the PASO defeat, a phenomenon unique even in emerging economies.

For the moment, the government seems to have been right to change the date of the elections. Postponing both the STEP and the legislative elections will give you more time. Time for? First, speed up vaccination and reach November with a substantial reduction in cases. In addition, the economy could recover after the slowdown this quarter. In the previous election, it is also possible that inflation fell at least gradually, in a context of the dollar almost ironed and semi-frozen rates. And at that time, the government will surely prepare a package of aid measures for the beneficiaries of the AUH and other sectors plunged in poverty, through new “obligations” and additional amounts of the Alimentar card. .

Vaccination, lots of assistance, economic stimulus and low inflation are the four legs of the official plan to better reach the November elections and reverse the fall in the government’s image in recent months.

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