BCRA extended restrictions on importers for six months / Argentina News

The Central Bank of the Argentine Republic extended for six months the scope of the exchange stocks under the current conditions for the payment of imports and the cancellation of foreign debts.

Thus companies with foreign currency abroad will continue to be denied access to the exchange market until June 30, 2020, according to the monetary entity.

The BCRA maintained for the same term the regulations in force regarding the refinancing of securities of foreign currency debt and other financial liabilities contemplated in Communication A 7030 and its updates, which expired on December 31 next.

Likewise, it extended the validity of the foreign exchange availability mechanism foreseen for exporters that register increases in their exports in 2022 compared to 2021.

As a counterpart, the BCRA expanded the limit amount and the permitted uses of the cancellation of commercial debts with new financial indebtedness abroad.

Communication 7030 impacts on the payment of imports of goods or services provided by non-residents, as well as interest on debt related to said imports, (b) payments of profits and dividends, (c) payments of capital and interest on financial indebtedness with abroad, or (d) debt payments in foreign currency between residents, among other concepts.

More pesos: this is how the Central Bank issues to finance the Treasury

In the context of the pandemic, money machine financed the entire primary fiscal deficit in 2020, which reached a record 6.4% of GDP. For this year, the Minister of Economy Martín Guzmán proposed as a goal the objective of financing the fiscal red foreseen at 4.2% of GDP in the Budget with a mix: 40% taking debt in the market, and 60% with issuance.

In the first half of 2021, in a scenario of additional income such as the tax on large fortunes and withholdings on exports from the high price of soybeans, the Central Bank’s assistance to the Treasury totaled $ 330,000 million, but already in the In the second semester, the little machine picked up speed to finance the higher electoral spending.

According to the latest official data, Central Bank assistance to the Treasury in November totaled $ 130 billion in concept of Temporary Advances.

“On top of this was added the monetization of public deposits for $ 4,000 million” indicated a LCG report.

The consultant specified that “so far this year it generated the injection of $ 995,000 million”

As he explained, the expansion of the monetary base in November “basically responded to the same reasons as in the previous months: financial assistance to the Treasury and payments associated with the growing stock of remunerated liabilities.”

Nevertheless, LCG He remarked that “unlike what happened in most of the year, new sales of foreign currency in the exchange market and the interventions carried out with securities at the expense of reserves played ‘in favor’ of a monetary contraction.”

The analysis detailed that in November “the interest payment on repos and Leliqs reached $ 139,000 million and it was the main factor of expansion via open market operations ”

Likewise, he pointed out that the sale of foreign currency in the Single Free Exchange Market (MULC) contracted the monetary base by $ 90,000 million, a level similar to that seen in September, the month of PASO “while” interventions in parallel markets via securities against reserves they allowed to withdraw another $ 70,000 million “.

On Facimex Values They highlighted that monetary assistance to the Treasury in November implies “a significant reduction compared to the $ 353,000 million in October (0.8% of GDP), but remains at high levels.”

“The lower monetary financing responded to a large extent to the fact that the Treasury relied more on debt placements, with November being the second month of the year with the highest net debt,” they said.

For his part, the economist Gabriel Caamano, from the consulting firm Ledesma, alerted through his twitter account that “November closed with net monetary financing around 0.3% GDP, and the accumulated in eleven months already stands at 3.1%, making 2021 in the second year with the most net cash aid since the 2001-02 crisis. “

“Comfortable behind 2020. Then they wonder why the gap is so high,” he emphasized.

Is it possible to meet the financing mix that Guzmán aspired to?

In Facimex Valores they pointed out that “the composition of the net financing of the Treasury so far this year is explained by 71% by the monetary issue and by 29% by the net placements of debt in pesos”, figures higher than the combo contemplated by Guzmán on the Budget.

In that sense, a report from Eco go He said that the Economy calendar foresees two debt tenders in December (on the 13th and 29th), the first to cover maturities of almost $ 30,000 million, and the second to face payments of $ 280,000 million.

“Probably Finance will not only seek the $ 306,000 million maturities, but also seek financing for the fiscal deficit of a seasonally high month,” due to higher expenses such as the payment of the Christmas bonus, he said.

Within this framework, Eco Go projected that the December Temporary Advances line “will be at least $ 300,000 million, with an estimated monthly deficit of almost $ 500,000 million.”

“If such a scenario is realized where the difference between the deficit and monetary financing is sought in the market, Finance should get almost $ 170,000 million extra, Thus, the financing mix would close the year 35% market (debt) and 65% BCRA “, he calculated.

The primary fiscal deficit in the first ten months of the year is equivalent to 1.8% of GDP.

A report from Quinquela Funds, estimated that 2021 will close with a fiscal imbalance of 3.2% and “with a participation of the BCRA as a financial source of 76% much higher than originally projected (60%)”.

Fernando Baer He said that Quantum Finance also project that the primary fiscal deficit “will close at 3.2% of GDP.”

“In December, in general, the seasonality in the demand for money that grows gives some margin to expand the money supply. But the limit is a very finite one in this context of uncertainty, a fall in dollar deposits. The key will be in how the money is sterilized. BCRA in January / February. Whether or not the interest rate rises to absorb and avoid pressure in those months, when demand reverses, “he assessed.

In turn, the consulting firm Balances He estimated that “the BCRA will have to issue an additional $ 250,000 million (0.6% of GDP) in the remainder of the year to cover financing needs of the National Public Sector.”

“The surplus of pesos that is not sterilized will be a future source of additional pressure when in January and February the seasonal rise in the demand for money is reversed at the end of the year,” he said.

In line with this, LCG stated that “the seasonal recovery in the demand for money in December may bring some momentary relief to the BCRA, but it must be borne in mind that without a sustained increase in the demand for money – something that we rule out in an inflation scenario ever higher-, the possibility that the BCRA will put a stop to the growth of remunerated liabilities seems remote “.

Challenge for 2022

“By 2022, we see that clearly the challenge is to reduce dependence on the BCRA. That is surely one of the aspects that will be part of the goals that should be agreed upon, “speculated Quinquela’s analysis.

As indicated, “this year the gross monetary impact of that assistance reached the equivalent of 4.3 points of GDP in 11 months, next year according to the 2022 Budget it would fall to 1.7 points of GDP, but to achieve that it has to increase the net flow that is managed to capture through the capital market and still need to obtain 1.6 points of GDP that does not have a specific source assigned “.

“Reducing the fiscal dependence of the BCRA is a necessary step, but not enough to achieve monetary convergence. There is still the effect of the accrual of interests of Leliqs and Pases, that today are equivalent to a 4% monthly increase in the monetary base, “he warned.

In this regard, he argued that “over the next year, if the current trend is maintained and the interest rate does not rise, an additional issue of 3.2 points of GDP would be generated.”

“Probably the way in which this imbalance is resolved, together with the mechanisms that are designed to align exchange rate expectations, are the main one today. axis of the discussion with the IMF staff, much more than the fiscal goals that would seem more accessible, “he concluded.

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