Deputy Economy Minister Gabriel Rubinstein and Leonardo Madcurd, the official in charge of Argentina’s never-ending debt negotiations, returned from Washington in mid-March with a bitter taste in their mouths. After days of negotiations, they had not fully managed to convince the International Monetary Fund (IMF) as far as they wanted to. Officials from the multilateral lender only agreed to lower the country’s Central Bank reserve accumulation targets for the whole year by US$2 billion to around US$7 billion, while maintaining the fiscal deficit goal at 1.9 percent of GDP by December, compared to 2.3 percent last year.
It wasn’t enough, not in a year in which, due to a punishing drought, it is estimated that agricultural exports and their derivatives will bring in only US$21.74 billion in exports, some US$14 billion less than the previous season, according to estimates by the Rosario Stock Exchange.
As a consequence of the situation, there will also be a negative effect on tax collection. In this sense, their numbers project a drop of more than US$2.314 billion in revenues from export duties compared to expectations at the beginning of the season, and a further US$3.742 billion will be lost in other taxes, including income tax. Hence the impact of the drought is an erosion of estimated tax revenues for the season by US$6.056 billion.
In the midst of this panorama, of a severe lack of foreign currency, Argentina’s Central Bank (BCRA) continues to sell off dollars. Last week, just 48 hours after the Economy Ministry's decision to sell dollar bonds held by government agencies (mainly ANSES), and give them others in pesos, the entity sold US$88 million in the market.
From the portfolio’s perspective, this is not the case because Argentina is “faced with the creation of a relatively complex mechanism, but we are confident that it will be very useful to prevent and act in the face of disruptive situations in the foreign exchange market." This was emphasised by Rubinstein in an exclusive newspaper column last week.
The Ministry launched this "internal exchange," in which it sells some US$4 billion in dollar bonds, both under local and foreign jurisdiction, held by the Sustainability Guarantee Fund (FGS) and gives this ANSES-dependent body new bonds in pesos.
In doing so, it fulfils a dual role: on the one hand, it puts pressure on dollar prices on the financial market tied to these bonds, but also provides the state with the "pesos" it needs to cope with the lack of income due to lower exports.
The swap, announced in the Official Gazette, had an immediate effect on bond prices. Dollar-denominated securities fell and Argentina’s country risk surpassed 2,500 points, a level not seen since the beginning of last November.
On the other hand, the measure served to "deflate," in part, the financial quotations of the dollar: the Contado Con Liquidación (CCL) rate dropped, as did the MEP dollar.
"How long will this last? I don't know… less than a month ago they announced the repurchase of one-billion dollars of bonds, they bought less than US$500 million, and now they are selling them," former Central Bank governor Martin Redrado told the TN news channel.
"We don't know at what price they are going to sell them, how many... it's another 'patch' that doesn't attack the underlying reasons for this crisis, which is the lack of confidence in this government," said Redrado, who is now advising opposition presidential candidate Horacio Rodríguez Larreta.
In the same vein, the former head of ANSES, Diego Bossio, said that the government "is in great need of funding" and that the measure "is a shortcut, but does not solve the underlying situation. The banks told them that they had no more to lend. The Treasury cannot issue bonds with a country risk [rate] at 2,400 points and that is why the idea of selling the ANSES bonds appeared.”
Bossio, in statements to Radio Mitre, explained that the ANSES "is going to be given dual bonds to 2036, which adjust for inflation. We do not know how much they are worth; it is a tactical measure.”
"We are issuing debt at values three times higher than what Argentina did with Venezuela, at 15 percent. The AL30 (dollar bond) is worth US$25 and would pay US$104; evidently the dollar bonds are better" than those denominated in pesos, which will be handed over to the ANSES, he added.
In defence of the measure, the head of the lower house Chamber of Deputies, Cecilia Moreau, came out and warned via Twitter: "Let the precocious commentators on the Sustainability Guarantee Fund and retirees know that I recommend reading about the mechanism of the exchange with ANSES.”
The IERAL Fundación Mediterránea think-tank warned that "beyond the onerousness of getting rid of securities that yield 45 percent annually in dollars and the legal questions of the measure, we must emphasise the limited power of the instrument.”
If a little more than one trillion pesos were to be raised from the sale of these securities, "that figure [does not] compare with the maturity of securities held by the private sector estimated at 6.2 trillion pesos for April-September.”
Fundación Mediterránea pointed out that "everything indicates that the Central Bank's participation in the secondary market for peso securities will continue to be necessary, so inflationary pressures and the exchange rate gap will continue to be the order of the day.”
by Fabián Quintá, Perfil