While playing to the limits of exchange rate lag, the government is betting heavily on the contribution of the big harvest

April came and an event long awaited by the government, fixed measures to achieve this DeadlineCoarse crop exports, led by soybeans and corn and their primary derivatives, are beginning to unwind, which will boost foreign exchange flows in the second quarter of the year, contributing heavily to the seasonal trade surplus. for the financial year. , due to the increase in revenue associated with foreign trade, 'mainly withholding, but also transit and regional consumption.

With equal measures of courage and precision, administration Javier Miley – Cheater Luis Caputo in the Ministry of Economy and Santiago Boucilli At the central bank – it was decided to raise the spot exchange rate by more than 100% in the first week of administration, and then to “iron” the official exchange rate around $800, with monthly increases of at least 2%.

The strategy worked: even with nearly 90% accumulated inflation in four months and a sudden contraction of the exchange gap, the par value remained stable.

Success at the exchange rate was accompanied by a significant reduction in negative net international balances at the central bank, as it monopolized purchases in the exchange market and displaced importers.

With the influx of agricultural dollars, there will be sufficient flow of foreign currency to meet private and official needs in the short term.

At the same time, we must take into account the costs of the chosen policy: in the first quarter of 2024 the recession deepens and the “anchored” dollar to accelerate inflation begins to close the exchange rate lag of the past. Harmful to the economy.

On the other hand, the reliance on “shares” is still a holdover from the previous administration that helped shift the sacrifice of adjustment in the public sector to the private sector.

At the beginning of April the real exchange rate was practically at equilibrium in historical terms. It stood at 102 points above the theoretical equilibrium point of 100, according to BCRA's measure of the multilateral real exchange rate index (Itcrm), based on the inflation and deflation rates of Argentina's largest trading partners. On December 17, 2015, the start of Govt Maurizio Macri.

However, this indicator of exchange competitiveness is a very volatile variable. Suffice it to remember that once the jump of the official dollar was applied on December 13, 2023, Itcrm rose from 75 points – the “late” dollar – to 163 points – which reflected the “high” dollar. As the months went by, it was pushed back to the current balance.

Economists are debating whether to expect a new devaluation when this transaction advantage is consumed due to the effect of a nearly stable dollar –Creeping wedge With a 2% monthly increase – and inflation still hovering close to 10% monthly, albeit decelerating rapidly.

From a strictly mathematical perspective, the official dollar is stuck with the December high, although it is still losing in the race against inflation. Assuming a total dollar price of $60 on October 25, 2019 – when “stocks” for private demand were tightened to a limit of USD 200 per month – and a cumulative inflation of 1,886%, It should now trade at $1,192About $329 or 38% higher than the current value 863 coins.

However, it should be emphasized that BCRA's Itcrm was at 132 points in October 2019, that is, it was already one dollar above the level of exchange competitiveness that allows us to think that the government-fixed dollar can still resist. In that theoretical “equilibrium” zone

The second quarter of the year begins the maximum settlement period of agricultural exports, which guarantees a significant return of foreign currency and a certain exchange rate stability. and provides a solid basis for the central bank's strategy.

Jose Maria SeguraChief Economist of PwC Argentina, “The inflow of this foreign currency – although, as history shows, is very volatile – can contribute in the short term to reduce the decline in activity due to devaluation and inflationary expectations, the effect of wealth and the effect of wealth. , partly, due to its monetization. of foreign trade. If we add to the seasonal positive in the second quarter of the year based on tax collections – which means less demand for consumer goods – we can conclude that there will be a certain “bridge”. It will allow the transition of the economy until the process of adjusting relative prices and cleaning the central bank's balance sheet is completed.

“The expectation is Creeping wedge 2% maintained in April, seeks to consolidate the slowdown in inflation and will continue to be our baseline scenario until inflation declines to single digits. “Only then can we prevent an exchange rate lag that could push the rate of disinvestment closer to inflation and put reserve accumulation at risk,” experts pointed out. Adcap Financial Group.

“However, it is worth remembering that this accumulation is possible only when import payments are delayed by more than 10 billion dollars in the coming months, allowing the normalization of dense harvest payments,” Adcap analysts added.

And Adcap economists added: “Despite the fact that the third quota of 25% of imports can access the MULC, we are not surprised that private demand has not picked up. As we have discussed in recent reports, importers may carry the official dollar instead of buying it based on expectations of a crawling peg of 2% month-on-month. On the supply side, it will be a transitional event near the arrival of a dense harvest. It is worth remembering that April, May and June are the peak season months for sowing grains and oilseeds. With the expectation that the pace of demonetisation will remain at these levels, given restricted access to MULC by importers, the pace of BCRA purchases will increase, ensuring capture of a larger share of dollars from the total crop.

“Beyond strong offer and continuity Creeping-wedge At 2% discounted in the short term, investors are trying to assess what the post-harvest strategy might be if they decide to face an exit from the stock with new external funding, a delay that could mean continued incubation. Potential risk in the future. However, with short-term and controlled flows – mainly due to exports through settlement money – fiscal dollars extend the lull, which is met by a 'decanuto' that adds compressed demand and supply surplus between restrictions. Economist drew Gustavo Ber.

George FedeoClave Bursátil's technical analyst, said, “Economic variables have improved, inflation is decreasing, the dollar is declining, country risk is decreasing and the central bank has been able to erase the deficit by buying dollars. Since Javier Mille took over as president, the conversion gap, which was more than 200%, is now 20% to 15%. is less. It dries up the peso market with the help of Boprial, which achieves what was impossible several years ago, achieving primary fiscal balance in January and February by not releasing it in the first three months of the government. In March. Inflation is falling, mostly because March inflation is already in single digits.

“During these first 100 days of administration, the new administration is beginning to show some encouraging results: the correction of relative prices has begun; the rate of inflation has begun to decline faster than the market expected; “we went from an environment of twin deficits in 2023 to a state of twin surpluses in the first two months of the year, the same “In time the monetary authority started accumulating reserves,” he pointed out. Maximiliano GutierrezIrish economist at the Mediterranean Foundation.

“The flip side of the stockpiling coin being recorded by PCRA is delay in payment of imports. Between December and February, the share of commercial credit is estimated to have increased by around USD 9,400 million, which is higher than what was observed when restrictions on the market persisted (USD 8,526 million),” Gutiérrez noted.