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ARGENTINA | 23-10-2023 14:00

With no devaluation on cards, Massa seeks to tame tense FX market

Argentina's electoral result will offer its economy minister some breathing space, but consistent foreign exchange interventions by the Central Bank portends more pressure for parallel exchange rates.

Sergio Massa’s victory in the general election, which places him in the run-off on November 19, dismissed the devaluation the market was awaiting for the first day after the election. While from the fifth floor of the Econopmy Ministry they confirmed that the foreign exchange restriction policy which they agreed to with the International Monetary Fund (IMF) will continue, financial operators have admitted that the impact will bring calm over the next few days.

However, other market sources have forecast that risk assets, bonds and shares will have a downward trend, due to the consistent foreign exchange intervention. From the Ministry they will seek to avoid a greater widening of the gap between the official and parallel exchange rates. “Tensions will stilll be there until the second round”, the head of a stockbroker company operating in Buenos Aires said.

According to director of the CEPA Centre for Economic Policy Hernán Letcher, Massa’s victory has prevented a “disaster” in economic variables, as some sectors had announced the week before the election. These fears also caused a price run run which promised to fuel inflation, in line with a devaluation at the pace of claims by opposition leaders Javier Milei and Patricia Bullrich.

“The result opens a different outlook from before, as it backs Sergio Massa’s official policy. In practice, it means tensions will continue, because there are few dollars; but the possibility of a run of parallel exchange rates which was predictable if (Javier) Milei won is now remote”, Letcher stated, while talking to PERFIL.

Massa will continue to head the Ministry of Economy. His doubling as a storm pilot amid the inflationary crisis and dollar dearth has gained him political initiative in the general election campaign, unlike the trap he had been in during the PASO primaries, when the IMF agreement was uncertain and pressures for a devaluation had multiplied. Now, with loose hands in terms of international financing, he will seek to move the foreign exchange margin.

The Economy minister will advance the payment of maturities with the Fund, via the Special Drawings Rights (SDRs) in his power, without fear of a hole in the Central Bank’s fire power for interventions to quiet down financial exchange rates. The decision seeks to show the market his fulfilment of contracts, with a wink to the establishment, but also to make it clear that he got the foreign currency to face any run.

It just so happens that on Monday, the ENACOM National Communications Entity will finalise the “bid for frequency bands to deploy, develop and provide the fifth-generation (5G) service, which expects to help collect around US$1.05 billion”. He is also expecting the foreign exchange benefits for the export incentive for soy, auto industry, SMEs and oil over the next few weeks.

The coordinated action between the AFIP Tax Office and the CNV Securities and Exchange Commission to penalise market operators working under the table, in order to tame the “blue” dollar, will continue over the next few weeks, as admitted to PERFIL by Government sources. There will also be a focus on the reports of transactions with the bond-based CCL (contado con Liquidación) exchange rate, used by companies for foreign trade, and the MEP electronic rate. There is a recent precedent in the suspension of Santander Valores, which “violated the statute (General Resolution 981) setting limits on large capital operations”.

“With order on the financial front, then the political authority granted by votes will be enough”, said a stock exchange trader who still clarified that the victory in the general election must be ratified in the runoff.

Even though no specific measures were anticipated, sources from the fifth floor of the Ministry of Economy admitted that there is a draft with initiatives to foster consumption and sustain economic activity. Those variables are debated in a worktable and different production sectors are intended to be included. New benefits for both formal and informal workers are not ruled out, neither is more financing for households.

One of the problems facing Massa will be the claim by industrial sectors due to the expansion of the trading debt. An economist linked to the Radicals (UCR) stated off the record that frozen imports could be a variable to prevent the Central Bank from bleeding out dollars. The corporate world could have bad news there: there is a group of companies on the verge of a production halt due to lack of supplies which can only be found abroad. There is also a multinational company which is even assessing the suspension of part of its staff.

The Government is already analysing alternatives to decompress this scenario. The activation of the second section of the swap with China would be key: to pay for more imports in yuan, and even to convert it into US dollars for payments in that currency.

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Ariel Maciel

Ariel Maciel

Editor de Economía Política en Perfil.com - Mail: [email protected]

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