The imminent end of debt negotiations, for better or for worse, increases uncertainty about the price of the dollar and the exchange rate
Former Vice Minister of Economy Emmanuel Álvarez Agis estimated this Friday that the dollar purchase limit for hoarding, currently authorized to u $ s200 per month, will remain even if debt renegotiation is successfully closed but instead controls on companies will be relaxed.
On the contrary, the economist participating in a videoconference organized by Puente, asserted that if Argentina defaults exchange control will remain strict.
“If people ask me if debt is fixed we can buy more than $ 200 a month, i say i don’t think. I don’t think the debt settlement comes with a relaxation of exchange control for people but yes for companies“considered the economist, who he was vice-minister of Economy in the last mandate of Cristina Kirchner.
However, he added that “the debt settlement may mean that the maximum gap levels that we saw in the past are a ceiling and not a floor.”
“With debt settlement the gap goes down or what is the same, the demand for pesos goes up. If you think there is a debt settlement, the CCL is not worth $ 150 and if you think there is a debt settlement, the Central Bank does not lose 70 million dollars a day, buy 30 or 40 “, reported the economist.
Álvarez Agis was considered one of the “ministerials” for Fernández’s cabinet.
Will they make access to the dollar more flexible for companies?
Alvarez Agis insisted that after an eventual agreement with external creditors “the 7030 modification, which is the one that imposes the greatest restrictions in Argentina, and its younger sister, the 7032 communication, begin to relax.”
The former official assured that “if there is no default, there is no devaluation”, when describing that “there is a default scenario that puts a lot of pressure on the foreign exchange market, but on the contrary, if that scenario does not occur, that pressure does not occur” and “this level of controls or higher” are left aside.
Regarding the public service tariffs that are frozen by the current context of the pandemic, the economist indicated that the tariff tables “will unfreeze in the first half of 2021 but at a slower rate than the accumulated inflation in the last year. and a half”.
“Recent history shows that in the years when there are no elections, rates go up and in the year of elections they go down because they freeze and in the middle the nominal salary accompanied. This time, the rates are frozen but the nominal wages go down” he explained.
“It is clear,” he understood, “that the rates in the first or second quarter of next year will unfreeze but I doubt that they will do so at the rate one might think if the account of accumulated inflation is taken from September 2019 to January 2021. They will thaw but gradually. ”
Álvarez Agis analyzed what will happen to the economy if Guzmán and Fernández do not reach an agreement with the creditors.
When will the economic recovery come?
As for the scenario of the local economy, he specified that “with a default scenario, it will be possible to have a technical rebound and little else, but without default, a recovery speed can be expected that perhaps in two years will return the country to the initial point.”
The economist assured that according to the released data “there is no relationship between opening the quarantine and reviving the economy. Opening is not selling and selling is not collecting. Because on the supply side there is a technical rebound but demand does not respond. ”
Regarding the real possibility that the tax on great fortunes Álvarez Agis expressed: “I see it feasible, but more as an extraordinary contribution and not as a regular tax.”
“Argentina has to drastically change its structure, it has to raise taxes on people, but it has to combine it with a drop on company taxes,” he said.
Appetite for the dollar: Argentines exhaust the quota of $ 200
The restrictions on the purchase of dollars and the continuous advance in its official price were not enough in May to quell the greed for dollars of private savers in the month of May.
This was revealed by the Central Bank in a report released this Friday, detailing that the purchases of foreign currency made by human beings doubled in amount compared to April.
The “human persons”, who basically buy foreign currency for hoarding, travel and other consumption abroad, bought net u $ s534 million ($ 438 million for tickets and about $ 83 million for travel and other card expenses). From the monetary authority, they indicate that dollar purchases fell 81% year-on-year (compared to May 2019), given the context of border closings.
However, the comparison is not at all positive for the Government if it is done with April 2020. In that month, natural persons were made of only $ 248 million, whereas in March they had only acquired $ 174 million. That is the hunger for the dollar has been growing in the minds of the Argentines, wrapped today in a context of economic and health uncertainty.
The average purchase per capita by human beings was US $ 190, slightly below the allowed monthly quota of US $ 200. the number of individuals who chose to acquire dollars was double in May than in April, jumping from 1.2 million to 2.4 million people, according to the official report.
According to the Central report, clients of financial entities (aggregate that includes individuals, companies and other bank entities) bought in May $ 755 million in the exchange market, which were covered by net sales of the BCRA and entities by u $ s679 million and u $ s76 million, respectively.
The US $ 200 limit was not reached to avoid further dollarization of individuals.
Indentation of dollar reserves
During May, the BCRA’s international reserves decreased by $ s980 million, ending the month with a stock of US $ 42,588 million.
The BCRA pointed out that as of the entry into force of Communication “A” 7030, which reinforced the exchange rate for companies, a reversal was generated in the result of the operations of clients of entities, a situation that allowed the BCRA to accumulate international reserves in the following weeks, beginning with net purchases of US $ 279 million during the last day of May.
Loss of reserves: the BCRA released US $ 980 million during May.
The companies in the real sector were net sellers of foreign currency for US $ 23 million. Within this group, the main sector in terms of historical net sales, “Oilseeds and cereals”, had net sales of US $ 1,709 million, with a year-on-year drop of 37%.
During last November and December, the sector netted US $ 4.6 billion (84% year-on-year rise, basically due to higher income from advances and pre-financing from abroad, whose debt stock has been paying off during 2020), and that the external sales records (which define the payment of export duties) for all of 2019 were above the exports of the year by about $ 8.5 billion.
Meanwhile, the companies of the “Real Sector excluding Oilseeds and Cereals” made net purchases of US $ 1,685 million, mainly to make payments for imports of goods and services. This level of net purchases for the sector was not observed since August 2019.
The “institutional investors and others”, both residents and non-residents, made net purchases in the month for $ 12 million.
The exchange current account, which comprises the net result of exchange operations registered as net exports of goods and services, and primary and secondary income in line with the definitions of the Balance of Payments, registered a deficit of USD 322 million.
On the other hand, the financial account of the “Non-Financial Private Sector” had a deficit of US $ 739 million in May, as a consequence of net cancellations of financial debt and the formation of external assets, partially offset by income linked to investments direct.
In addition, the operations of the foreign exchange financial account of the “Financial Sector” were in surplus of US $ 877 million, explained by the decrease in the liquid external assets of the entities that make up the General Exchange Position (PGC), partially offset by cancellations of financial loans and lines of credit.
Lastly, the operations of the exchange financial account of the General Government and BCRA recorded a net outflow of funds of US $ 4 million, which was basically explained by the net cancellation of financial debt through the use of funds that were previously deposited (” swaps “) and the local liquidation of funds that were in foreign currency.
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