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If we take the financial variables, the prices in dollars remain relatively stable. While the country risk has exceeded 1,600 basis points and continues its upward trend. The other aspect is the bond market, where we find parities similar to those they had in 2001 and 2002, even after the country declared the default. It would seem to elucidate that what is sought is to maintain the lag in the exchange rate, tariff, price control and greater intervention in the bond market to reduce the exchange rate differential. A combo that is not surprising in an election year.
Apart from the fact that in March, some $ 70,000 million. Which shows the existing financial need. This fragility is exposed with data from the Congressional Budget Office itself. According to him, in February, the national public administration had a primary deficit of 76,128 million dollars. In other words, 169.8% more than in February 2020. Made up of total income from $ 442,926 million (7% more in real terms) and with primary expenditure reaching $ 519,059 million (4.9% more in real terms). Beyond the February deficit, January’s result closed in the first two months of 2021 with a primary surplus of $ 62,549 million. On the total revenue side, export duties climbed 130.1% year over year (in real terms). At the same time, the collection of value added tax increased by 9.6% year-on-year and income tax by 25% year-on-year.
Likewise, the most adjusted current expenditure items in February are pensions and pensions, due to the suspension of the mobility law (they represent 60% of total operating expenditure and decrease by 7% over one year in real terms) and public wages (down 11.7% year on year, also in real terms). The elements that boosted public spending were economic subsidies (utilities grew 224% year on year in real terms due to the rate freeze), investment spending (public works) and social programs.
In view of this economic and financial panorama, Where should we look?
First, in the vaccine, since it is practically impossible, in economic terms, to have to close the economy because of a rebound (emitting 8 points of GDP to support public spending as in 2020 is unsustainable and without access to markets even less debt).
In contrast, this year’s exchange rate pressures could ease on the supply and demand side with a “Save the harvest”. But the drought could defeat this dynamic and with it soybeans (the Rosario Stock Exchange has already reduced its projections).
In addition, the save a dollar will generate less demand than in 2020, adding nascent tourism, the closure of imports and the debt restructuring already ordered by the BCRA which will cushion the pressure on official demand.
Also intervention in the bond market it could decrease if one sought to accumulate reserves and would generate an impact again on the exchange rate differential. However, today the flow of net reserves is still limited and the possibility of increasing them is reduced.
Finally, we must continue to observe the countries at riskSince if there is no fiscal policy adjustment or agreement with the IMF, it will be difficult to reduce it, which would put a floor on the exchange rate gap.
In a year with these characteristics, the control of the budget gap is not in sight. For this reason, in March, pesos were reissued to finance the treasury. In short, the risk of permanent monetization of the budget deficit would generate more pressure on alternative dollars and inflation, triggering devaluation expectations. Sooner or later, the correction of these imbalances will arrive (by the search for a consensus or simply before the honesty of the fundamentals).
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