Economic consultants have focused their latest weekly reports on the staff-level agreement between Argentina and the International Monetary Fund (IMF). Despite a modification in the annual target for bank reserves accumulation, not a single analysis claims that the goal will actually be met. Meanwhile, the Central Bank (BCRA) could “regain ammunition” from the US$7.5 billion disbursement the IMF Board would approve in August, and therefore maintain its intervention in the currency exchange market, although subject to certain conditions.
The focus of Anker Latin America is whether or not China and international credit organizations providing short-term “financial bridges” for Argentina to pay the IMF US$3.5 billion this week will demand payback in August, once the Fund’s Special Drawing Rights (SDRs) are cashed in. Between Monday and Tuesday, payments will be made using a CAF (Development Bank of Latin America and the Caribbean) loan of US$1 billion and yuan from the China swap.
According to Anker, if those bridge loans don’t demand payback as soon as the SDRs come in, “the Central Bank could regain ammunition to maintain its intervention in the currency exchange market during the elections period, although that will depend on whether it’s possible to turn the SDRs into liquid dollars.”
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In the staff-level agreement, the IMF states that the Central Bank will be allowed to intervene in the market, something it wasn’t allowed to do earlier this year.
“If that is the case, it would be a positive scenario in the short term, but since all liquid reserves are borrowed (loans, China swap, and IMF once the disbursements are confirmed), using them more to intervene would continue damaging the Central Bank,” said Anker’s report. “This option would help clear away any devaluation expectations in the short term, at the price of deteriorating the next administration’s starting point even more.”
The case would be different if those “bridge loans” must be paid back in the short term, which would reduce the Central Bank’s leverage since it would have fewer tools. FMyA consultant agency estimates that there is US$6.2 billion in yuan that will be used to make the IMF payments, with US$2.7 billion due on July 31 and another US$700 million in interest.
In any case, Anker estimates there is some room for market intervention until the primary elections (PASO for their Spanish acronym).
“Given the announcement of the staff level agreement and the rebuilding of liquid reserves thanks to the ‘corn dollar’ (a liquidation of US$855 million this week), we believe that up until the PASO primaries, the government will have room to keep intervening on the financial dollar rates. Afterward, the dynamics will depend on several factors, including the market’s reaction to the PASO results and how fluid the Board’s approval process is.”
A survey conducted by economists Arnaldo Bocco and Pablo Wahren states that the new IMF agreement challenges non-intervention restrictions. In the face of the elections, the report says: “It’s great news for the government that the IMF delivers the pending disbursement from the fifth review and brought forward the one from the sixth (it was supposed to happen in September) in order to reduce tensions in the face of the general elections in October”.
New reserves target
The reserves target was modified because of the drought. However — even with the IMF disbursements in August and November, and including net financing — consulting firms believe the target “seems impossible to reach.
1816 agency highlighted this in their weekly report: “The new reserve target is US$3.2 billion for December 2023 and compares with the US$10.2 billion that were required up to now. But even this lowered target seems impossible: today there are negative US$7.7 billion in net reserves and the Fund could provide around US$2 billion in net financing in the remainder of the year. The Central Bank would have to buy US$9 billion between the official exchange market and the blue-chip swap rate in order to meet the goal”. 1816 adds context to illustrate how difficult that is: “Between January and July, the BCRA sold US$5.5 billion, between both markets and the worst part of the year in seasonal terms is yet to come.”