By Guido Lanzillotta. May 2021.At the end of March, we held a debate on twitter, where officials and former officials and the opposition discussed whether Argentina was indebted 18% a year in dollars selling bonds on the stock exchange to contain the exchange rate, or if it did not. Justifying that the government did not indebted 18% a year in dollars is recognizing that the currencies that liquidate the field purchased by BCRA in the official market, rather than being used to strengthen the reserves, are used to contain the currency gap by sealing them through the Stock Exchange.
Officialism or opposition, the same problem: dollars without counterpart used for containment would change. Ironically, in this case there is political consensus.
The recomposition of BCRA's reserves in the last month adopted a virtuous dynamic, leaving positive net balances of the product of the lowest intervention in the bond market, due to a greater supply of those who sold their dollars to pay taxes and the government itself who stopped erogate reserves to comply with external and internal commitments.
The soybeans mobilized above 500 USD/tn allowed to harass more agri dollars prolonged in time, a situation that, as economic reality indicates, will not be forever. On the day that this happens we will again wonder how much firepower stays to the BCRA to keep calm would change in a short-plate and obviously negative dynamics.
It is important to understand the misuse that was given to the exchange of debt with private captors: They were not able to take advantage of the bases of equal treatment of legislation or the repeal of the tax on financial income in order to anchor the country's risk and strengthen the capital market. That is why a new external agreement can be a fundamental tool (although not enough) to balance expectations: signs before _ and the Club of Paris demand urgent resolution. In any case, when we say that an agreement is not enough, it is because it is in the view that the political leadership still in pandemic could not generate and sustain consensus that derives in trust for investors.
The stickers in the Argentine economy are recurring and this leads us to think that they may reach as often happened, to cover the fiscal and monetary problems in the short term, but with the serious risks that this supposes. Therefore it is of paramount importance to correctly analyze the market of obligations and the dollar, because this derives from the understanding of interrelation with the country risk that is the indicator of the highest sensitivity to political and institutional distrust.
Therefore, to discuss whether the sale of bonds using reserves or loans at high rates in dollars after an exchange makes no sense if it is not understood that political leaders must put public policies on top of a common premise that is recalled: if the quotation rate is low, Argentine bonds can be guaranteed by greater exchange stability and, exchange stability will continue to reduce the bond rate. This will generate tools and spaces to effectively manage fiscal expenditure, a stronger currency and greater institutional credibility.
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