The dollar and the calm that precedes the hurricane

As expected, in April, the supply of dollars increased, which led to this downward trend in the price of the currency. This decrease, with the liquidation of the agro-export sector, undoubtedly that gives the air to a dollar that ended up being sold for more than $ 45 in private banks and which rose by only 12% in March. But: what to expect from the economy in this election year?

Inflation and devaluation at the door

After a brief financial summer, in February, the plan to reduce inflation with the economic recession showed its limits and 2019 began with an acceleration of inflation, which remains in the estimates at least until April.

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The monetary policy that Sandleris put in place at the Central Bank, at the request of the IMF, is based on a very simple idea: if I take traffic pesos, prices will go down because the demand will be lower and there will be no pressure on the dollar. The recession in this scheme solves the price increase. Well, sI have the recession and then the inflation regime does not work.

But the interest rate higher than 62.5% and the fact that the BCRA is the only borrower of the private banks show that there is no change of strategy, rather the deepening of it.

It's an election year and now Instead of reducing inflation, the important thing is to maintain the stability of the dollar. The problem with this is that inflation itself marks a depreciation of our currency, to artificially keep the dollar "cheap" (I know it's hard to think that $ 43 is cheap, but the prospects are not better) this only marks the possibility of a more abrupt devaluation at the door.

Everything for the dollar

It is clear that the variable that is given more weight in the monetary scheme is the green currency and that's why this week and probably this month is a success for the government. But this was expected with the liquidation of a deposit ineligible for the drought of the previous year and new dollars from the IMF that will be used to keep the North American currency at a distance.

The harvest dollars will come mainly between April and May, and we must add that the Treasury will sell $ 60 million a day. next Monday to November of this year (until the end of the vote, said in electoral language) and this will give a word to the green offer.

The problem lies in the demand and the historical tradition of dollarization at the time of the elections. But it is not only the pressures of the electoral field that make us think that the dollar will increase: the dollar will be maintained just above September 2018, while inflation since this period has increased significantly.

If the demand is not satisfied with what is proposed, the power plant, beyond the rise in the interest rate, lacks tools to reach the ceiling of the band. Ceiling today at $ 51 and in June at $ 53.

My kingdom for the dollar

This variable weighs so heavily on the government that, to control the currency, it seeks to address the lack of tools in the event that demand exceeds supply reinforced by the IMF's dollars.. That is why Sandleris met yesterday with the deputy director of the Fund to soften the exchange policy and give the central government more power in the face of possible difficulties.

As it appeared, eAt the meeting, the possibility of using part of the funds sent by the IMF to intervene more strongly in the market in case of emergency was badyzed. J & # 39; swap. Beyond $ 60 million a day, we are looking for greater freedom in the disposition of these dollars.

If he got this freedom, which was contrary to the IMF's position on the free market, he could, in the case of a foreign exchange, control the price of the currency by selling the necessary dollars. However, this would not solve the existing tension with increasing inflation.

Political or economic risk?

The economic agenda of the brand and the elections undoubtedly define the monetary policies followed by the government. There is no one without the other and June, with the presentation of the lists, is getting closer.

In the face of poor economic results, the Cambiemos campaign tries to convince the elector that it is a choice between "future or past", which contrasts sharply with the Kirchner. But this polarization only reinforces an opposition that still has no candidate and comes to the market as total uncertainty.

Electoral uncertainty weighs on the market but also on the long-term economic outlook. Beyond the odd year, the variables macroeconomic they show an Argentine in a much more vulnerable position than in 2015.

We were the emerging economy that has the most borrowed between 2016 and 2017, but this has not been achieved and, before the races last year, we have the biggest loan signed with the IMF. Total debt is worryingly high in our GDP, which in turn is down (2.5% in 2018) and will follow the same path this year. It is added that each devaluation leaves our product more and more compromised.

All actors play and even the President of the Fund, Christine The guard, is in campaign: "We believe that the Argentine economy is about to rebound," he said the other day, in line with Dujovne's statement that "the worst of the crisis is over." ".

The central question that has to be asked, and one that has been around for some time, is the following: durable this model? With debt maturities approaching 2020 and the end of IMF borrowing, there are two options: or the long awaited investment rains (that we expect from 2015) or the word "fault" begins to appear in the environment.

There may be a fault, or not

Along with the fall of the dollar, insurance against fault at 5 (credit fault trades o CDS) Reaches the record price of the time Change: they are close to 900 points.

These insurances are hedges which, in case of fault, unpaid or debt restructuring, reimburses a portion of investors' losses. The prices of these CDS have increased by about 15% since the beginning of the month and amount to 234% since the first exchange, according to Matías Barbería. Cronista.com.

Without a doubt, it is a whole market signal. In fact, given the current cost of hedging this type of event, there is an implied probability of fault 47.5% according to the journalist's calculations. That is to say that from the age of 5, the big investors think that there can be a faultor not, almost in the same proportions. By the doubts, they are covered.

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