wants to buy dollars to inject pesos, but the IMF opposes

The International Monetary Fund is opposed to the Central Bank intervening in the market by buying dollars if the contribution continues to fall, touch the lower band and enter the "intervention zone".

This position has been clarified in recent hours by the IMF chief economist, Roberto Cardarelli, to the authorities of the BCRA. The message was direct and flawless: "It would be premature for Argentina to intervene to increase the amount of money"Cardarelli, as he could know iProfessionnel reliable sources.

The official position of the IMF runs counter to the Argentine government's claim, which already allowed it to transcend the fact that it would intervene in the market if the dollar reached the lower end. And this exposes the Fund's iron vision to the local crisis, and that the (orthodox) recipe of the body to stabilize it does not vary too much from those it's designed in the past, beyond the proposals public.

For staff, the only way to guarantee stability is the traditional one: by maintaining real interest rates high over time, they dry up the monetary position and reduce the risk of capital outflows and depreciation of funds. change

Last Friday, the greenback reached $ 35.49 in the wholesale segment, where the central bank intervenes. On Monday, when the market opens, the group floor will be $ 35.10. This means that if the price drops 39 cents that day, the monetary authority could go out and buy currencies.

That's what Sandleris and his vice, Gustavo Cañonero, helped to transcend. In this case, the BCRA will buy dollars with the dual objective of maintaining the listing and lubricating the economy, which is in recession amid monetary tightening.

The IMF, however, does not want to take any risks. Cardarelli himself settled it, in dialogues he had with Argentine officials and private sector economists. "Stability is not assured, it is something that is being achieved and we are in the process," the Italian economist told his interlocutors.

The latest agreement signed by Argentina and the IMF postulates two very concrete things about a possible intervention of the Central Bank, either by selling if the listing is above the band, or by buying reserves if it were located in the bottom band, is what is discussed now:

• "The BCRA would have the option (but not the commitment) to announce an auction to buy or sell up to $ 150 million a day." That is to say that there is no obligation to intervene. This is an option.
• "The Central Bank is determined to ensure that all purchases (currencies) are not sterilized, which would lead to monetary expansion. "

This is precisely what the Fund opposes. At least right now. For Cardarelli, "it seems premature" to do it. Before, the agency wants to make sure the plan works.

A plan, precisely, designed with a monetary hardness rarely seen in Argentina. High interest rates and "zero emission" put the full force of the speculative wave that had led to the exchange rate to $ 41 just a month earlier.

The emergency model was designed by the government and the IMF to avoid a spiral of crisis. Until a month ago, no one could bet on the end of the currency crisis. Today, the situation has changed.

In the economic team believe that "phase A" plan is over. The stabilization of the exchange rate, with the disarmament of Lebac. Nothing less. To what must be added what has been reinforced in recent days: companies, large and large, but especially the best-selling dollars on the market.

It's a scenario until a few weeks ago, at least, unlikely, judging by most consultants in the city. They gave him more chances that the dollar tests the roof of the group and less than the price slips to the ground. But that's what's happening now.

And the question that arose in the marketplace was concrete: what Sandleris will do when the dollar falls to that value, which is a few cents above $ 35.

If the expectations of the government, but also of the city, are satisfied, it is very likely that in the coming days, the dollar will fall to the ground and that the BCRA will decide to intervene or, conversely, manage with the position conservative IMF technicians.

The reasons for each

For the staff of the Monetary Fund, the only priority is to stabilize, reduce inflation and in Argentina to ensure repayment of its debt.

In this context, technicians are not sensitive to the needs of rapid growth of economic activity. The preference is clear: the exchange rate must remain where the "market" forces are. In a context of high real interest rates.

For the Fund – and this was expressed in the latest agreement with Argentina – one of the examples to be observed is the resolution of the Mexican crisis of 1994-1995. In Tequila, the agency has implemented a strict monetary policy, which has kept interest rates at high levels for a year.

This harshness, in the perspective of Washington, is what allowed the foreign exchange market to stabilize and, nine months after the outbreak of the crisis, to achieve the first "green shoots". For 1996, the year following the economic earthquake, Mexico could already post GDP growth.

The latest report of the Foundation for the Mediterranean seems to give the reason for the strategy of the agency: "Although the foreign exchange market has stabilized and the peso has appreciated, it is mainly because of rising interest rates by appeasing devaluation expectations, "writes economist Gustavo Reyes, editorial leader of the report.

According to the consulting firm, interest rates – which currently stand at 68% per year – could fall to just 32% a year by the end of next year. Reyes imagines this process like this:

Assuming that the risks of the current plan are mitigated over time and according to the forecasts of the IMF's new economic program, current interest rates in pesos (around 70% per annum) would not fall too much before the end. of the year, then from early 2019, they would be gradually reduced to reach 32% per year by the end of next year ".

That is to say, and as the Fund has also designed, Mauricio Macri would be forced to run an election campaign with a cash cost that will continue to curb economic activity and business.

It is also clear that this path will be full of tension. Just as now, the government has already expressed its desire to buy dollars into the market to lubricate the business and advance rate reduction, it is presumed that this idea will be strengthened during the course of the year. election year.

The risk of monetary hardness is clear: the exchange rate continues to grow.

The latest report by the consultancy firm LCG (founded by Martín Lousteau) cites this trend and this danger: "The nominal appreciation of last month and the acceleration of inflation have eroded nearly 40% of the improvement in competitiveness obtained by adjusting the type of change since the end of April: the multilateral real exchange rate went from a low of 1.29 (April 25) to a high of 2.05 (September 30) and today. November (1st of November) is located at 1.73 "

The consulting firm MacroView (Melconian & Santángelo) also carried out a comparative exercise.

For this consultant, the $ 36.60 at the end of last Friday clearly shows that the cushion has eroded with the decline in the exchange rate, coupled with high inflation.

In Macri's first two years of power, the dollar (relative to current prices) would be $ 25.90. But they warn that it is close to US $ 32.40 (at current values) as being the "CFK dollar before shares," between 2007 and 2011.

To get another idea: the price of the dollar at the time of Néstor Kirchner (2003-2007) should be sought around $ 46.40. Ten pesos above the present value.

Some of the risks associated with the path taken by the IMF are raised.

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