Economists and businesses see a dollar drought on the horizon

“With this level of liquidations, we cannot even go around the corner. I hope that the government is aware of what’s going on,” said former Finance secretary Miguel Kiguel. It was October 27 and earlier that day, just US$18 million in export dollars had been cashed in. Argentina’s Central Bank could purchase just US$1 million for its reserves, a meagre boost.

Back in September, farmers cashed in almost US$8.2 billion worth of soy at a rate of 200 pesos per dollar. After that, the sector’s sales plunged brusquely.

The government’s “soy dollar” permitted the government to close September with a primary fiscal surplus of 80.624 billion pesos and a modest gain of US$414 million for the balance of trade, cutting three consecutive months of deficit.

Economy Minister Sergio Massa managed to meet the objectives for the third quarter in the agreement signed with the International Monetary Fund (IMF), but now he faces a lack of new dollar inflows as demanded by industry.

“The government has an important desert [in terms of hard currency] until March at least,” said former Central Bank governor Martín Redrado in a recent television interview.

Economist Juan Garzón of the IERAL think-tank agrees. He told Perfil that “an optimistic estimate would place liquidation at around US$1.25 billion each, both for this and last month.”

The scenario “would again improve in December with the entry of winter crops into the market,” especially wheat, which would be bringing in between US$2 billion and US$2.5 billion, said the expert.

But these US$5 billion in three months, “which is the product of an optimistic estimate,” underlined Garzón, do not even pay for a month of imports, which totalled US$7 billion in September.

In this context “the government prefers to restrict the dollars for companies, which will affect [economic] activity, so that businessmen will either lay off or buy dollars” at parallel exchange rates like the CCL (contado con liquidación) or the blue, which increases prices, Redrado told the Todo Noticias news channel.

Redrado, a former Central Bank governor during the Kirchner presidencies, pointed to the challenge facing Massa’s economic team as akin to “walking a tightrope with currency risk on one side and inflation on the other with no measures to resolve the exchange rate component.”

Furthermore, as from the application of the new SIRA system for purchases abroad, “all imports have been halted – any businessman who uses dollars to buy inputs no longer has them and only the Central Bank can buy hard currency in these times.”

The Argentine Industrial Union (UIA, in its Spanish acronym), headed by Daniel Funes de Rioja, recently rejected the new import system, calling for more “predictable mechanisms.” The manufacturing lobby also requested that the “discretionary” release of dollars be avoided with a system permitting production to be planned.

In the midst of this panorama, Redrado throws in another alarming figure: “We’re underestimating a phenomenal drought and that doesn’t help [bring in dollars],” he said.

“Furthermore, the shortage of wheat (whose harvest begins in December) has an impact on the prices of bread and flour, unlike soy,” warned the head of the Fundación Capital think tank.

Who’s asking now? In July the Central Bank tightened currency controls, telling companies that they would have to borrow abroad to finance their imports and that, after three months, they would sell them dollars at the official exchange rate. In September they decided to extend the measure for a further three months.

Those six months are now going by and companies will be presenting their numbers as of January. The fear of a dollar drought on the horizon is a clear and present danger.