Bour: “What the government does with the sale of bonds is shoot itself in the foot”

The calm of exchange rates was weak. So much so that it was enough that the “friendly hands” that bolstered the supply in the parallel market were absent for the blue dollar to cut with a streak of 12 consecutive wheels and climb $ 13 in a single day. And while liquidity with liquidation still moves away from its October highs, recent setbacks have been driven by bond sales. The market never seemed completely convinced that the declines in the parallel dollar and the financial dollar were lasting and continues to see risks of an inflationary acceleration and of the exchange rate increased.

Juan Luis Bour, Chief Economist at Fiel, refers to these and other issues in an interview with The chronicler, in which he says that with the sale of bonds, the government validates a very high level of country risk and warns that the measures taken so far have not resolved the problem but rather allow the situation to be monitored.

The dollar counted with liquidation has fallen 17% from its highs. How sustainable is this decline?

– The scenario is dominated by the budgetary issue and the monetary issue associated with fiscal issues. We are faced with a typical scenario of fiscal domination of monetary policy, with the high budget deficit being mainly financed by monetary issuance. In recent months it has started to be possible to get into debt, but basically we have excess pesos that need to show up in the currency gap first and inflation later. We have seen policies that have tried to limit the consequences of all this, but the causes were not attacked, which are associated with the tax part. This is a scenario where the economic team started to worry about the situation and reacted by raising rates and acting in the market. With what has been done, the market is not tamed, but the current situation will be accompanied.

How do you see the transmission channel between the upward dynamics of cash with settlement and prices in the real economy?

– There is clearly a contamination of what is happening on the foreign exchange market by inflation. It is not only liquidity with liquidation, but the marginal market since there is ultimately a certain number of prices that are formed by looking at expectations. October’s inflation rate was high and higher than in previous months. On the one hand, we see that import prices are adjusted to higher levels, as well as in construction and in the informal sector of the economy. The transmission channel is also given by the side that there are shortages of goods so we see excess demand at these prices and it resolves with higher prices when you don’t have the available supply. From this I think we will see an acceleration in inflation partly in November and from December.

Could the recent drop in cash flow with liquidation delay this acceleration in inflation?

– This influences although we must not forget that these are jumps that occur in the exchange rate and there is not a continuous question as if we saw in the official dollar that there is a creeping peg . There are free dollar jumps that don’t have an immediate impact on prices, but do over time. What they do is cap transitional prices for a period of time.

To drive the dollar down, bonds are sold and a future dollar is sold. What is your reading of this strategy?

– The balance of the Central Bank They will start to worry when they talk to the IMF. At these meetings, they’ll likely remind you that stocktaking is important. On the other hand, future dollars are sold, which is a promise of future issuance and one of the foreign exchange insurance mechanisms we have, with the sale of dollar-linked bonds. The risk exists is that bonds are placed on the market and when bonds that yield more than 15% are delivered, what is done is to validate a very high level of country risk. Finally what is done is to increase the supply of securities on the market, for a relatively limited demand.

This prevents Argentina’s risk premium from falling further.

– What the government is doing with the sale of bonds is shooting itself in the foot over the issue of lowering the risk premium. Country risk will not be reduced much if titles that were station In another side. Financing a deficit with a lot of debt is a transitional mechanism and the fundamental question is whether we will aim for a budget deficit of 2.5% or 4.5% of GDP next year. This is a key question for the next few months.

It is often said that a successful debt restructuring is one that leaves the country at levels below 1000 points. We are in 1350. What opinion do you deserve?

– Trade is only part of the problem. SWe have managed to agree on part of a new situation which means that it will be possible to meet these commitments. On the one hand, we have to agree with the IMF that although it is possible, there is still an agreement to be found. The government must convince the market that it by default at least in the next two years. And the question is, what is done for this? For now, there are moves in the economy that are better up to what was in September, although the question remains undefined. In this way, I believe that a deal has been made which can be considered successful as long as everyone can be convinced that there can be an exit to a risk premium of less than 1000 points. This is the situation where the government starts to issue debt and somehow makes the program viable. All of this remains to be seen.