Monday, July 15, 2024

OP-ED | 21-01-2023 05:53

For a few dollars less

Sergio Massa looks no closer to gaining market confidence nor Cristina Fernández de Kirchner to advancing the impeachment of the Supreme Court beyond committee stage in Congress.

Economy Minister Sergio Massa may have been seeking a low-budget confidence shock in announcing the repurchase of a 10-digit volume of dollar debt but the messages are mixed at best – at the same time black-shirted teamsters are being deployed for the most primitive price controls imaginable while next week will see the start of the impeachment assault against the Supreme Court (of which Washington has taken note, its State Department was at pains to point out) and Venezuela’s Bolivarian President Nicolás Maduro in town for the summit of a hemispheric grouping explicitly excluding the two North American giants.

Yet the messages remain mixed despite this backdrop – Kirchnerism cannot be said to be calling all the shots while Massa is left unchallenged to divert scant reserves for the enrichment of such loathed antagonists of national and popular ideology as the farming sector and financial speculators (not once but twice). These mixed messages seem to be cancelling each other out – Massa looks no closer to gaining market confidence nor Vice-President Cristina Fernández de Kirchner to advancing the impeachment of the Supreme Court beyond committee stage in Congress.

Yet that impeachment drive will only begin in earnest next week while Massa’s latest move was the outstanding innovation of this week’s news so today’s editorial will concentrate its analysis there. This surprise initiative of gratuitously expending scant reserves to cancel future debt within an economy panting for dollars in the present has been widely appraised as a typically short-term gamble by a minister whose middle name is “ventajita” (petty opportunist). Yet “short-term” is not necessarily a dirty word within a context so heavily conditioned by the electoral calendar – narrowing the gap between exchange rates and knocking several dozen points off country risk definitely has its virtues when it comes to attempting a momentum swing.

But the short term also includes an ongoing drought which stands to ravage this year’s greenback inflow, thus making the move even more of a gamble. A gamble perhaps counting on chickens yet to be hatched – President Alberto Fernández has expressed optimism in interviews published in this newspaper as to Argentina receiving as much as US$50-plus billion this year via the tax information exchange agreement with the United States, dipping into the vast Brazilian and Chinese reserves with friendly governments in both capitals and special drawing rights from the International Monetary Fund (IMF) but it remains to be seen whether or not this is wishful thinking.

The move remains a surprise because it came with zero danger of default in any near future. In mid-2022 in the month of three economy ministers the Central Bank bought up peso bonds heavily in order to meet the payments on short-term and thus avoid a rescheduling which would have destroyed bondholder confidence and sparked a market collapse but today is an entirely different kettle of fish with no major payments up in the next two years. It might be argued that the repurchased dollar debt is a bargain at current levels but it would have been much more of a bargain at the other end of the bond surge of almost 70 percent in the last three months (thanks in part to Massa but considerably more in anticipation of bonds soaring in value with a new government).

Beyond the highly specialised world of bond markets, far more people are going to be questioning the wisdom of thus lowering net reserves by 15 to 20 percent when the obstruction of imports for lack of hard currency is causing growth to stutter, thus jeopardising the premature presidential boast of three years running of economic growth. This especially clashes with the Kirchnerite economic vision whereby a protected industry often functioning as mere assembly plants for imported inputs maintains a steady flow of products for consumer-led growth.

At this stage the jury must remain out as to whether this was a smart move as a low-cost game-changer or a waste of the dollars needed for imports which will only accelerate the flight from the peso – a point demanding clarification amid all the marketing is that this repurchase is a change of creditor rather than an actual reduction of debt. Professional economists will bemoan the lack of any integral plan but perhaps Massa’s strategy of constantly working out of the box with short-term surprises is all that is possible or even necessary with only a few months of pre-electoral uncertainty remaining. Or perhaps not but everything will come out in the wash at the other end of this year.

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