Despite president-elect Javier Milei seemingly abandoning his plan to dollarize the economy, at least for now, certain sectors are bracing themselves for a strong devaluation of the peso. Argentina’s Central Bank discontinued a financial insurance policy on Thursday — designed to protect certain companies from the effects of a devaluation — after its total stock soared to an estimated value of US$6 billion in pesos over the last week.
The instruments, called LEDIV, could be used by certain importers, mass consumer companies subscribed to the Fair Prices price control program, and financial institutions that financed energy imports. The LEDIVs, paid in pesos, were pegged to the official U.S. dollar exchange rate (AR$360.53 at the time of writing), and the return is whatever the rate is when the bill is collected.
“In the last few days there was an avalanche of subscriptions to this instrument due to the expectation that the official exchange rate was going to have a significant adjustment,” Gustavo Quintana, an analyst and broker for PR Corredores de Cambio, told the Herald. “It is a free exchange insurance — you do not pay any interest rate.”
According to Quintana, the fact that the LEDIV stock increased so much “surely raised a commotion” that forced the Central Bank to cancel them. The move was announced via an official communiqué “A” 7898 published on Thursday, although the financial entity had already published a regulation on Monday restricting access to LEDIVs.
A source from the Central Bank told the Herald that the LEDIVs were a temporary measure that allowed the government to keep the economic activity stable following a historic drought which slashed exports by nearly US$21 billion.
“As the national government will discontinue the programs in force, the Central Bank considers it unnecessary to keep this program open,” the source said.
Pablo Repetto, head of research of the Aurum Valores broker, told the Herald that the LEDIV will be “a problem” for the next administration. Most analysts are convinced that a steep devaluation is in store — one that could close the country’s large exchange rate gap known as the brecha. While the official rate is at AR$360.5, the informal “blue” dollar is at AR$905 while the financial MEP and blue-chip swap rates closed at AR$858.8 and AR$836.8 respectively on Thursday.
“We will have to see how they deal with it — starting out by defaulting the [LEDIV] contracts doesn’t send a good sign and going through with it would imply excessive [monetary] emission if they devalue to improve the exchange rate,” Repetto said.
In a Wednesday report, consulting firm 1816 calculated that if the official exchange rate increased to AR$800 — as December future contracts indicate — the president-elect Javier Milei’s administration would have to print AR$4.1 trillion to repay the current LEDIV stock.
The new dollar dampener?
“Lediv” even trended on X (formerly Twitter), with some analysts pinning this week’s relative stabilization and lower parallel exchange rates on those bills. The theory was that investors had used their MEP or blue-chip swap dollars, traditionally used as a shield against the depreciation of the peso, to buy LEDIV.
However, 1816 had a different take, saying that if they had any impact whatsoever it was “marginal.”
“Adding [the] last week and this Monday (latest available data) the LEDIV stock rose by US$327 million,” the 1816 report said. Comparatively, exporters are liquidating US$150 million a day in the blue-chip swap market.
“If there is any government measure that is influencing the recent [financial dollar] movement, it is the one that allows settling 50% of exports to be liquidated in the blue-chip swap rate, not the LEDIV offer,” the report said referring to the so-called “50/50 dollar” implemented on November 20, which allows exporters to split their dollar sales between the official and financial exchange markets. The new scheme gives exporters a dollar rate close to AR$650 and increases the greenback supply in the financial markets, thus reducing its price.
1816 said there was another decisive factor for the “recent strengthening of the peso” — the market’s expectation that, for the time being, Milei will not dollarize the economy.
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