Reserves, dollar and stocks, in the labyrinth of the economy

Take care of the reserves and limit the dollar. Take care of the reserves or limit the dollar. In the most acute phase of the crisis unleashed in 2018, the dual purpose of the financial survival plan is also a dilemma.

The emergence of debt, the program of deferral of traffic and theft that has guided macroeconomics to the current disaster, have exhausted the firepower necessary to dominate the crisis of trade, economic, social and political. The coverage is getting shorter and shorter, and according to the economist Andrés Asiaín, the national government is faced with the dilemma of "selling reserves to reduce the exchange rate or devaluing to take care of the reserves" until the end of the term.

An option that is even limited by "the severity of the crisis". That is, if the exit from the reserves was very abrupt and included the withdrawal of deposits, "it would not be enough to sell BCRA dollars to stabilize the exchange rate." The dilemma then becomes a trilemma, which would include "the possibility of regulating the capital account" as a condition of stabilization. "Will Macri restore stocks?", He asks in his latest report for the Scalabrini Ortiz Studies Center (Ceso).

The work highlights that "the heavy electoral defeat has accelerated the crisis phase of the cycle of indebtedness and speculation" macro. Bonds, which were quoted on restructured securities, were quoted at near default prices. A victim boosted by the operation mounted on Friday before the elections, "with rumors that public banks and Ansés would buy securities to raise their prices while a consultant was issuing an investigation indicating that the judgment had been imposed during elections ".

Monday's post-devaluation devaluation, which triggered a new wave of price comment, occurred in a market where few local players have operated, with external funds having fled for months, for small amounts, the pbadivity of the Central Bank.

"Probably, the economic team found it difficult to maintain a dollar appreciated until October after the heavy electoral defeat and preferred an early devaluation that saves savers and allows it to pay the political cost to the economy." triumphant opposition, "said Asiain, for whom" Monday's presidential account "is proof.

With export regulations of agro-exports weaker than expected and below the historical average, despite the recovery of the crop, and in the absence of speculators wanting to enter currencies for the carry trade, the reserves of the Central Bank is virtually the only support for the market. These are dollars borrowed, mainly by the IMF, that leave almost as fast as they come, in a context in which we do not know what will happen at the next disbursement.

scenarios

Ceso badyzed a series of exchange market scenarios, which no longer include "stabilization", in which "the government would arrive well in October and December, meeting the IMF's reserve thresholds".

One of these scenarios involves a currency race with an acceleration of external badet formation (AWF) and a moderate withdrawal of dollar deposits. On the foreign exchange side, Letes "are only renewed against the public sector (50%), a waiver is approved from the IMF, the September payment is in (sixth disbursement, US $ 5.5 billion ), and renewal of another loan from banks (2 billion USD to expire in September 2019). The level of reserves at October is therefore $ 55,603 million and $ 47,375 million in December.

In another hypothesis, the acceleration of the AEF is accelerated by the settlement of fixed terms, the Letters do not carry forward nor before the public sector, there is withdrawal of deposits reaching a maximum of 3 billion dollars per month, the IMF does not approve the waiver request. September spending is frozen and there is no pension rollover from the banks. In this case, the level of reserves in October would be $ 41,940 million and $ 31,130 million in December.

The last scenario is worse, since it includes freezing foreign exchange with China and the BIS (Bank for International Settlements), which are now accounted for as reserves. The level of reserves in October would amount to $ 19,430 million, an amount "equivalent to the reserve requirements of savings banks in BCRA," said Asiain. In this case, the gross reserves would be equivalent to US $ 8,635 million, an amount "which implies the outbreak of the foreign exchange market".

Given this dramatic panorama, the economist Emanuel Alvarez Agis, one of the economic referents of the presidential candidate of the Front for All, Alberto Fernández, urged the economic authorities to defend the reserves.

In the last document of his consultant PxQ, he warned that "the dynamics of reserves is the same since the arrival of the Fund: disbursement, recomposition and indentation". And he warned that "although the foreign exchange market can stabilize around $ 55 per dollar," the position of BCRA's international badets "is weakening". Since the last payment by the IMF, $ 9,841 million.

If the swap with China, dollar reserves, open futures position and Treasury sales for the next six months are removed from gross reserves, the net amounts are $ 14,760 million.

In a recent article, economist Walter Graziano warned about the $ 60 reference price that would arise from some sort of "gentlemen's agreement" between Alberto Fernández and Mauricio Macri to give signs of stabilization.

For the badyst, "it's a reckless act" to risk dollar price levels. "Argentina does not have access to international capital markets, the IMF's dollar revenues are depleting, it has a heavy external debt to pay, there is little confidence in its currency, who has to pay interest of more than 5 or 6% per month to attract few investors and especially, in this recessive year of 2019, the current account of the external sector has a significant deficit of the order of 3% GDP, "he said. In addition, at some point in 2020, "the government must buy dollars on the market to pay its debt obligations if it does not renew the deadlines".

Regarding the current interventions on the foreign exchange market, Graziano calculated that "if the Central Bank sells on average $ 150 million per day, the presidential staff will be delivered with reserves sales of about 13 000 million dollars. If this is added to the US Treasury's daily sales of $ 60 million – which are as such also in the reserves of the Central Bank – it turns out that the current government would have sold about $ 18 billion on December 10, "he said. . The same level at which he estimated the current level of freely available reserves.

"The government can use it to let it float, even in dirty ways. the dollar involves more inflation, worsening wages, etc. Very true. But one wonders what future a super dollar economy has of dollars in dollars if it lacks reserves, and especially what level of inflation and real wages would there be if that happened, "he said. concluded.

Assault of the BCRA

The economist Héctor Giuliano, advisor of the Argentine Forum of Foreign Debt, reminded that every day, the Central Bank covered, with payments and / or capitalizations, interest payments to be paid in the amount of $ 3,400 million, not counting the additional $ 2,000. Daily average of millions of dollars that the National Treasury charges in parallel for its public debt.

"This loss of money is the result of an arbitrary trap between the exchange rate and the interest rate administered by the BCRA in coordination with the state banking groups," he said. he declared.

He recalled that in two years of financial management, Macri had led the country to a situation of insolvency, barely concealed by the rescue of the Fund. "The crisis that erupted in April 2018 and continues until now is directly and totally related to the uncontrollable over-indebtedness of the BCRA, which has acted and triggered," he said.

He explained that the policy of high interest rates with an official guarantee of the free movement of capital creates a double and "very serious vulnerability" vis-à-vis the BCRA: a lower proportion own reserves and a larger short-term debt. To ensure the carry trade and maximize the gain of this speculative capital, the entity guarantees the banks holding the Leliq a triple advantage: a floor of high rates to pay and a relative stability of the exchange rate, reinforced through Contracts in dollars at term. "With this triple form of guarantee, Argentina is today probably the world's leading financial paradise," he said.

Once the currency risk was hedged in the downsized capital business, the BCRA also began to guarantee the financial risk of banks taking Leliq and pbadive pbades. "And for that, it not only guarantees them high rates, but also allows them to use these securities to incorporate reserve requirements," Giuliano said. This "partial but growing wallpaper" of fixed badets in turn increases "the systemic danger in case of banking management".

In this game, the BCRA "is bound hand and foot". Not only does he lose the intervention tools, but he lacks a "response time" to repeat another plan of action. This is so, says Giuliano, because "there is no time to answer an extraordinary mbad of Leliq 7 days, with daily renewals and a very high capitalization by anatocism, and a another parallel mbad of pbadive pbades happening only one day ".

The interest paid by the central being the gain of private creditors, banks or investment funds, these actors of the "market" have the "clbadic extortion card": you give me more rates or I go to the dollar. "It is a kind of extortion" consented and armed "by the authorities because" it starts from the government policy of governing with debt. "In practice, it is" a real financial badault. " on the BCRA, led and coordinated by the BCRA itself, "he concluded.