Business leaders concerned about lack of dollars despite new bank reserves goal

Industrialists desperate for currency look to China and Brazil as drought hammers reserve outlook

The International Monetary Fund’s (IMF) decision to make Argentina’s international reserves goal more flexible was interpreted as “good news” by business chambers, according to private sector sources. However, with foreign currency losses on the cards as a product of the drought, they are not expecting much “relief” in terms of access to dollars at the official exchange rate for the imports they need.

For now, companies have access to some US$ 10 billion in Central Bank dollars for imports scheduled between now and the end of the year. Companies in the Precios Justos (Fair Prices) price agreement scheme have the green light for immediate access. Consultors say that at least another US$ 8 billion is needed to avoid a decline in economic activity, in addition to financing from a roll-over of commercial debt.

Business expectations

Sources within the Argentine Industrial Union said: “No-one thinks this will improve, because the IMF’s flexibility and lower energy prices will be outweighed by the drought losses.” Business owners are closely following data from the Rosario Grains Exchange, which estimated that losses could surpass US$ 14 billion in wheat, corn and soybeans.  

Sources from the Economy Ministry led by Sergio Massa say they don’t know the final figure for the losses because it depends on the weather. “Some people estimate losses for US$ 9 billion, others for US$ 20 billion, whoever says they have the right number is lying, because it will depend on the rain, we won’t know for sure until 20 days from now,” said a top ministry source. 

A businessman in the chamber of food companies (COPAL) thought it unlikely that the change in the IMF agreement would make it easier to import: “What could actually help would be agreements with other countries for swaps or bilateral loans,” he said. “We know there are ongoing conversations with Brazil, China, Uruguay, India and Japan, and we hope more will join.”

While announcements that could improve imports from Brazil were made during the visit of president Luiz Inácio Lula da Silva, they have yet to be implemented. “The negotiations are ongoing,” said sources from the Argentine embassy in Brazil. 

The issue was present during Commerce Secretary Matías Tombolini’s trip last year with his Industry counterpart José Ignacion de Mendiguren, to relaunch a Production and Trade Commission alongside business owners and government officials from Argentina and Brazil. “There will be positive news,” said sources from Commerce. 

De todos modos, en la UIA ven muy lejos el financiamiento de Brasil a más de un año, con garantías, y ampliación del sistema de pagos en moneda local

Nonetheless, UIA sources believe Brazilian financing is at least a year away, and is likely to involve negotiating guarantees and an expansion of the payment system in local currency.

“We acknowledge there is political will, but Massa will have to pull some sort of rabbit from his hat to define the guarantees, the documents and the collaterals, since he is blocked by banking bureaucracy,” the sources said. 

An expansion of the yuan swap with China is seen as more “viable”. “It’s already being used, and it works,” said an industrialist. 

“US$ 3 billion were made available out of the US$ 5 billion they announced, and another US$ 2 billion may be available in the upcoming months,” said Argentine ambassador to China Sabino Vaca Narvaja. Massa will travel to China in May, and there could be progress on Argentina joining the New Development Bank of BRICS, formed by China, Brazil, Russia, India and South Africa.     

With no additional dollars, consultant agency Invecq estimates that importers will have to roll over commercial debt accumulated in 2022, which they estimate at US$ 10 billion, and they also state that additional financing to the tune of US$ 8 billion will be needed. “Even in this scenario, in order for the currency exchange balance to fit, the accrued import amounts would need to be between 9% and 11% with regards to 2022 levels,” they estimated. In order to get there, sources at Invecq believe this could materialize either through a recession or greater import restrictions.  

In a similar vein, Emmanuel Álvarez Agis’ consulting firm PxQ estimates that if exports are affected by the drought, it would cause a 7.5% contraction in imports compared with 2022, which, due to the elasticity of imports against the GDP, “would be consistent with a drop in activity of around 3%”.

On this topic, sources in the Economy ministry assure: “Measures will be taken in the second trimester to compensate for the reduced entry of dollars with other instruments, so there is no drop in activity.”  

SIRA system landscape

With the new SIRA import system, the government authorized imports for US$ 27.3 billion between October and February of this year. Apart from areas like healthcare and energy, the most favored sectors were companies in the Fair Prices program, who had access to imports for US$ 3.5 billion with “immediate” approval. However, according to daily customs data from last week, for 2023 there is currently US$9.2 million “scheduled” –that is, the amount of dollars companies will obtain on predetermined dates. 

Originally published on Á / Translation by Agustín Mango


All Right Reserved.  Buenos Aires Herald