Massa’s Bermuda Triangle / Argentina News

The program of dollar debt repurchase announced by the Minister of Economy Sergio Massa on January 18 It generates a lot of uncertainty in the financial market and, in particular, a lot of rejection in the opposition.

There are also many doubts regarding the evolution of the international reserves of the BCRA, which from the peak at the end of December fell some 4,000 million dollars. Added to this is concern about the inflation data of January that already had an advance when knowing the inflation of CABA on Monday. This combination of effects is what today in the financial market call the “Bermuda Triangle” by Sergio Massa.

This uncertainty in the market translated into a new rise in the Dolar blue what happened from 373 to 377 pesos after the drop observed on Monday.

While in the stock market the dollar CCL reached 364 pesos and the MEP dollar reached 354 pesos.

Time bomb?

On the other hand the official dollar in the wholesale segment, it reached 189 pesos with a rise of 42 cents, which marks a monthly rate of devaluation of the peso of close to 6% per month compared to projected inflation for February that will oscillate between 5.5 and 6% per month according to to the estimation of the main consultancies.

Regarding the BCRA gross international reserves They totaled 40.3 billion dollars compared to a December record of some 44.5 billion dollars registered in December thanks to the liquidation of the soybean dollar 2.0 at 230 pesos by the industrial agro-export sector.

But the harsh statement from Together for change Alert about the time bomb that means the renewal of the debt in pesos that the government will have to face between April and August when the presidential PASO takes place, caused two officials from the economic team, the Vice Minister of Economy Gabriel Rubinstein and Secretary of Finance Eduardo Setti came out yesterday to defend the program with two quite controversial tweets that caused more rejection in the opposition.

Setti announced through his twitter account that the Treasury will continue to intervene with strong buying positions of dollar bonds in the secondary market within the repurchase plan announced by the government.

What happens with the debt in pesos

He also mentioned that the rise in Fed interest rates generated a situation of general fall in emerging markets that gives us an opportunity to continue consolidating the buyback process and today we will be present with a purchase of 20% within the announced program. This message was also retweeted by Minister Sergio Massa.

For his part, Rubinstein gave strength to the controversy by stating that: “Unlike the 2016/2019 period, in which debt was mainly issued in dollars, today the debt market in pesos constitutes the main source of financing for the Treasury.

With respect to indebtedness wrote that “this Government not only did not borrow abroad, but also restructured more than 100,000 million dollars of debt securities in foreign currency, renegotiated the 2018 Stand-by Loan with the IMF for more than 44,000 million dollars and reached a new agreement with the Paris Club and reconstructed the debt market in pesos after its reprofiling (defaulted) by the previous government in 2019”.

He further noted that “as a result, the debt-GDP ratiowhich had increased during 2015-2019 from 52.6% to 89.8%, by the third quarter of 2022 it already accumulates a decrease of 10 percentage points to 79.8% and at the same time, a “de-dollarization” is verified of the debt with respect to that received in 2019, going from a proportion of debt in dollars of 70% to 53% currently”.

The size of the debt

What Rubinstein explained is that from the point of view of the government the debt in relation to the size and capacity of the economy is significantly less in a very short timeboth due to good debt management and economic growth since the post-pandemic recovery, and unlike the 2015-2019 period, the current financing strategy is based on issuing debt in the currency that the country issues.

Regarding the government of Mauricio Macri explained that “that government issued very short-term Letes in Dollars with rates close to 7.5% per year, accumulating towards the end of 2019 an amount equivalent to 8% of GDP that they themselves had to “reprofile”; mainly harming the Argentine savers. This Government is financed in Pesos, and the portion called the Linked Dollar, which is adjusted by the official exchange rate, pays interest rates of 0%.”

Regarding the composition and evolution of international reserves, the specialist Salvador Di Stefano explained to iProfessional that “they are financed by not paying for imports and requesting an advance on exports, although measures are negative, the peso has no support.”

He also stressed that “the State is fleecing the Finance system, which is at the service of the State, and the Central Bank is a machine for generating inflation. The data is irrefutable in a scenario where reserves are increasingly scarce.”

A financial system at the service of the State

Di Stefano pointed out that the BCRA asked exporters for a total of about 2,000 million dollars in advance, and postponed import payments for approximately 13,000 million dollars and if these payments were up to date, the BCRA reserves would be negative, much worse than what Cristina Fernández de Kirchner left at the end of 2015. This implies that the BCRA reserves are financed by the postponements of payments of foreign trade and the advance of exports.

According to the latest report from the consulting firm Invecq, computing the percentage of computable SDRs that the country of the International Monetary Fund in March, after reviewing and approving the goals of December of last year, it is estimated that the BCRA will have to additionally accumulate some 1.8 billion dollars between February and March to meet the goal of net reserves for the first quarter.

In this regard, we can ask ourselves if it is feasible accumulate 900 million dollars this month and another 900 million in March under current macroeconomic and political conditions.

The report explains that under normal conditions and excluding a new “soybean dollar” the landscape is difficult.

complicated picture

As data, it is important to highlight that from the exit from Convertibility in January 2002 to date, the Central Bank bought an average of 330 million dollars in the first quarters and some 264 million dollars in exchange rate years.

Assuming that the target could be met net reserves In the first quarter, with some help from the IMF, we must mention that the operations with the organization in 2023 do not imply a net income of foreign currency as in 2022, which reached more than 5,000 million dollars. They will imply a net outflow of foreign currency of almost 2,500 million dollars and contemplating the disbursement of December 2022, the payments to the IMF for 2023 are only fixed until June, this means that there will be no IMF dollars in the second half of this year.

In this regard, we must point out that the stress of the debt market in pesos June-July changed the political-economic landscape and took over two Economy Ministers. First to Martín Guzmán and then to Silvina Batakis so that Sergio Massa would later arrive to attempt a search for the stabilization of the economy.

Political and economic crisis

The Treasury debt crisis in pesos not only triggered a political Crisis, but also a substantial monetary policy reaction since in said two-month period the BCRA issued pesos for the equivalent of 1.5% of GDP to sustain the short-term debt parities in pesos and 2% in all of 2022,” the report states. of Invecq.

That debt crisis in terms of financingtranslated into a shortening of the placement terms, higher interest rates that the Treasury has to pay to renew maturities, the use of financial instruments indexed for inflation or adjusted by the evolution of the official exchange rate and a recurrence of debt swaps.

The worrying fact is that 70% of the more than 8.8 trillion pesos that mature between April and May are indexed, either to the official dollar with dollar-linked bonds or to inflation such as the debt tied to the CER) or to whatever else Raise from both as dual bonuses.

In this context, we are left to analyze what happens with the BCRA’s liabilities where the sum of the paid and unpaid monetary liabilities amounts to $15.6 million, this measured at an official dollar would give us US$54.940 million, a sum much higher than the reserves that are located at 40.300 million dollars.

A distortion that grows

This distortion in turn will continue to grow because the Bookings are placed at a very low interest rate close to 2.0% per year in dollars, while seventy percent of the BCRA’s monetary liabilities accrue a nominal annual interest rate of 75% or an effective annual rate of 107.0 %.

The curious thing is that compared to the latest inflation data for the City of Buenos Aires (CABA) the passive interest rates of the BCRA are negative. “The data for January surprised analysts since it accelerated very strongly, marking 7.3% monthly and the annualized data reached 132% compared to 5.8% in December and thus approaching the all-time high of July 2022 of 7.7%.

Speculations will continue until the INDEC publish the official data next Tuesday 02/14 but what is evident is that inflation measured through the CPI hit a floor in November of last year and now has accelerated again, confirming the regime of high inflation or an annualized rate three digits.