July is turning out to be a lousy month for the depressed reserves of the Central Bank with net sales of around US$1.2 billion. In recent days, not only were dollars sold to contain the exchange rate and meet the demand of companies, individuals and importers, but the sale of yuan intensified. This year the contribution of the agricultural dollar scheme has not been as forceful as the government expected: just over US$5.5 billion since the different versions were launched from April to July.
But the need for foreign currency does not cease and the imminence of the Primaries, with an overheated blue and putting more pressure on the official exchange rate adds tension to the table of the Central Bank led by Pesce.
For this reason, a new announcement of the dollar for the agro-export sector was expected for Friday or yesterday Saturday – until the closing of the edition. including the regional economies and at a somewhat more competitive value, at least in the terms of what the government tries to propose. The new scheme would be around $350 and would include, as stated, sunflower, sorghum and barley for regional economies. Massa’s intention is to get some US$2,000 million, key to the delay in the review and renewal of the agreement with the IMF.
The collection of dollars in which Massa engaged finds him in one of the most delicate moments: trying to convince the IMF staff that the fiscal adjustment will continue, but juggling narratives weeks after the PASO with inflation in July that, according to anticipation, will once again be above 6%.
All in all, if the announcement of a slightly higher differentiated exchange rate for agriculture materializes, the entities have already advanced their position: they see it as a patch measure, which does not resolve the fundamental distortions, generates new distortions due to its transitory condition, raises prices in some markets and alters costs in many others. It is the position that leaders of the Rural Society, CRA and cereal exporters entities came out to establish these days.
The request is clear: unification of the exchange rate and withholdings. It is, in short, something that neither this government nor the next one is in a position to face, at least in the short term. “A definition of the macro will allow going to an exchange order and carry out the unification for the commercial and export sector. But before lowering withholdings, the inflation tax must be eliminated,” economist Enrique Szewach remarked to this outlet. This week, in radio statements, the pre-candidate Horacio Rodríguez Larreta made the same point: “whoever says that he is going to remove the withholdings in the first days is lying. They have to go down in a scheme that provides predictability to the producer, but you also have to be responsible with finances because the situation is very complex, ”he said.
“The producer does not want to enter this game, because he does not know how much it will be worth tomorrow. He sells what he needs and the rest is capital that he understands will have more value later. They have not trusted economic measures for a long time and the repetition of recipes shows the power of the field in the economy and the lack of ideas for another”, Eduardo Riera, head of the Rural Society of Jesús María, pointed out to this outlet.
The dollar collection and care scheme would be completed with…yes, a new tax increase on the purchase of imported products and services.
Reserves, axis of tension with the IMF
From what has transpired so far in the lengthy negotiations with the Fund to make new disbursements, there are two central aspects where the differences are anchored: fiscal goals and recomposition of the Central Bank’s reserves and the last point is the hottest, due to the Fund’s insistence that a correction be generated in the exchange rate to narrow the gap and begin to balance the exchange market.
The government’s refusal is clear and is based on the inflationary inertia that a rise in the official exchange rate can apply, with all the collateral damage for the expectations of a presidential candidate who is also the Minister of Economy.
“With inflation at 6%, it has been possible to consolidate positive real interest rates that are higher than the rate of devaluation. The current rhythm of rates around 8% per month, depreciation at 7% per month and inflation at 6% is balanced to encourage the settlement of currencies and gradually recover some real exchange rate”, says a recent paper from the consulting firm MegaQM.
And he maintains that “if we focus on the adjustment clauses, in the short term it seems probable that the BCRA will maintain the rate of depreciation and the current interest rates as a way of containing the demand for dollars. On the other hand, if the analysis period is extended, it is more probable that the position of the IMF with a correction of the real exchange rate and a smaller gap will be the one that predominates and this implies that the evolution of the official dollar should be higher than inflation and the interest rate”.
For the economists Jorge Vasconcelos and Maximiliano Gutiérrez, the negative sign of the BCRA’s net sales in the coming months cannot be avoided and an eventual “Soybean IV” could hardly help. “It is estimated that the stock in silo bags could reach the equivalent of US$5 billion, therefore, taking into account the latest experiences, the Central could eventually take between 1.5 and 2 billion dollars for the reissue of a special exchange rate for soybeans and derivatives, at the cost of “drying up” the income of subsequent months. The downward trajectory of the Central Bank’s reserves towards the end of the year may find a pause, should this scenario occur, but the trend will not be interrupted”.
