The power plant will play hard to stop the race

The central bank will focus tomorrow on reducing the exchange rate: it will deposit a large amount of notes, which could reach 3,000 million dollars, while badyzing the creation of bank reserves to reduce the cash in pesos.

Casa Rosada sources told the newspaper that, at the same time, the government would launch a "call for dialogue with the opposition" during the week. This will be to facilitate the discussion in Congress of the bill to reimpose the long-term debt that begins Wednesday with the presence of the Minister of Finance, Hernán Lacunza.

And they hope the International Monetary Fund (IMF) also announces the date of the impending disbursement of $ 5.4 billion.

In addition, in the administration of Mauricio Macri, they expect a strong gesture from the United States, with the arrival in Buenos Aires of US presidential adviser Ivanka Trump and the deputy secretary of the United States. State John Sullivan. The president had a phone conversation Thursday night with his US counterpart, Donald Trump.

dollars

The president of the entity, Guido Sandleris, and the Monetary Policy Committee (Copom) are studying various measures. While the banks and brokers The news is waiting, there is a certainty: the country is running out of dollars and financial investors are hurrying out.

Juan Luis Bour, chief economist at Fiel, said yesterday that there was "a race against the peso". And he warned that this situation "will not change much from here to December" for the mid-term indeterminacy scenario that will exist until the government's replacement.

The reserves of the plant are 54 098 million dollars and its reduction is drastic: in one month, they lost 13 810 million. Of the total, net free availability is 13.641 million. Although it remains a "strengthening" of the International Monetary Fund with what reaches 20,858 million.

The rest consists of bank reserves of $ 11.399 million and exchange (exchange of currencies) with China for the equivalent of 18 131 million euros, among other very minor instruments that are accounted for as reserves but can not be used to supply the market exchange.

With limited firepower, Sandleris will follow in the footsteps of Federico Sturzenegger on Monday, who launched in May 2018 a "bid" of $ 5,000 to 25 pesos the unit to stop the same course. Now the "wall" would be 3,000 million. It was a measure of shock It only worked for a few weeks. Then the crisis worsened and Sturzenegger was expelled from his post.

Lace

Other measures under study are a further increase in bank reserve requirements, ie the money that banks must have set in case of extraordinary increase and unexpected demand from savers.

The increase in reserve requirements could concern as much the remuneration (so that the banks do not lose money and are more flexible with regard to this measure or other measures) that the unpaid, which has an impact on the finances of the entities.

If the banks receive an interest rate for reserve requirements, the initiative will have a cost for the monetary authority similar to that of the old Lebac, or current liquidity letters (Leliq), although much less visible. In the central part, they are willing to do so in order to stabilize the front of foreign exchange and finances.

Between late June and early July, Sandleris benefited from the calm and easing of monetary policy. While still respecting the monetary base objective, it has slightly reduced banks' reserve requirements and allowed greater liquidity in the market.

Thus, this immobilized money began to move. At that time, it was explained that due to seasonal problems related to the payment of the bonus and the beginning of the winter holidays, the money supply should be increased so as not to penalize the surplus economy, marked by the recession. Now, economic activity is not a priority.

Given this measure and the virtual absence of credit demand in the country, banks' purchases of Leliq have increased. However, after the resurgence of the currency crisis and the devaluation of primary elections, the situation has changed: the banks do not want more letters and already claimed Friday a record rate of 83.26%. In the center, they want to prevent the rate of reaching 100%.

For Miguel Arrigoni, partner of First Capital Group consulting firm, the financial system "is in free fall". And he points out that the volume of funding to the private sector has shrunk by more than $ 10,000 million between June 2018 and the same month of 2019. For the expert, it's no wonder what's going on past. "Stabilizing markets with crazy rates is not a sustainable formula and can lead to a total collapse, as was the case with the Spring Plan," he said.

The Central Bank and the Ministry of Finance both deny the introduction of capital controls. And they point out that, at least for the moment, there will be no exchange rate division. The idea of ​​putting a price on the "financial dollar" and another on the "commercial dollar" was studied.

The government has also decided to begin negotiations with the banks to establish a long-term timetable for the disarmament of the Leliq Mountain, which currently stands at 1.13 trillion pesos, which is about the same as the total pesos circulates in the economy.

Two problems

Two central problems generate this crisis. One is political: the government is weak and has credibility for the floor. The opponent and potential future president, Alberto Fernández, has not been elected yet and does not send friendly signals to the market.

This is an aggravating factor, but the underlying drama is that Argentina is suffering from short-term insolvency: without fiscal anchoring nor access to credit, the rising dollar reflects the expectation of a deficit financed exclusively by monetary issues and by inflation. And this, if there is no limitation on the demand for dollars, will further erode the reserves.

It is the future that economists, and especially those who invest in public debt through bond or mutual fund purchases, are now seeing and fear not to get.

For this reason, at the Ministry of Finance, they say that the situation is already more in the hands of Sandleris than Hernán Lacunza. The plan must be strictly monetary and based on the exchange rate, given that due to its weakness and lack of discretion, the government is not in a position to promise profound reforms such as labor, taxes and social security to encourage the market to calm down.