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Dedolarizing, another ambitious goal for Martín Guzmán in the midst of the coronavirus crisis

2020-04-25T19:59:28.712Z


The external panorama does not help. The dollar continues to strengthen in the world and the main Argentine trading partner cannot stop the devaluation.


Daniel Fernández Canedo

04/25/2020 - 15:55

  • Clarín.com
  • Economy
  • Economy

The economy minister, Martin Guzmán,  told the governors that "it is essential to create conditions to end the dollarization logic "

It was in the middle of a report on the debt swap plan that Argentina proposed to avoid falling into default again in light of the evidence, highlighted by the Minister, that the Treasury does not have the funds to pay the commitments that the country has ahead .

The objective of " de-dollarizing" the economy is common to administrations for at least the past 40 years. But the peso is an accepted currency to trade and with cancellation power to carry out some daily operations (buying food) but it has no power to be a store of value.

In the midst of the coronavirus crisis and with the drop in activity caused by the forced isolation policy, the Government is concentrating on addressing the health problem and injecting pesos to put money in the pockets of the neediest sectors and in the attempt of overcoming one of the sensitive concerns: assisting private companies that cannot work to pay April wages.

Among the edges of the crisis that require the generation of exit routes are the renegotiation of the debt so as not to fall into default and the instability of the dollar.

Regarding the exchange plan, a recent report by the consulting firm Research For Traders puts the focus on legal issues and an important point: "The government does not want to declare the offer vacant if it fails to meet the minimum requirements set by the collective action clauses. of the K Bonds (2005) and the M Bonds (2016) ".

And he adds that "for this reason it introduces the concept of ' carryover'  so that those who do not accept the offer are forcibly included in the restructuring if the collective action clauses of their bonds are activated." In other words, if a bondholder does not accept the swap and the government manages to get 66% of the bondholders in that series of securities to accept the proposal, they will add it directly.

Guzmán, on the one hand, tries to close the paths to the bondholders in case of doubts in what appears as a double discourse. On the one hand, to maintain that nothing is going to change from the proposal because Argentina does not have the dollars to pay.

But, on the other hand, it establishes that the government may modify clauses and conditions if it deems it appropriate. A transparent door to open the final negotiation that has a deadline of next May 22 when Argentina will have to decide whether to pay US $ 503 million or to be openly in default .

The other issue is the rise in free dollars on Thursday, April 23, which lit the red lights on the Central Bank dashboard and led its president, Miguel Angel Pesce, to begin retracing part of the monetary expansion plan that had begun to mid March.

When the dollar "counted with liquidation" (it is obtained through the purchase and sale of securities and is for wholesalers) touched $ 114 and 70% distanced itself from the wholesale officer, the nerves of the officials shot up. They know that a "gap" of that level sooner or later is reflected in the amount of liquidation of exports and in inflation.

The Central Bank raised the pass rate from 11.4% to 15.2% per year to capture liquid surpluses from banks and asked the Securities Commission to limit the trends in dollars in mutual funds in the attempt to remove silver from the market and take pressure off cash settlement operations. It paid off on Friday and free dollars loosened a bit but the situation remains threatening.

The external panorama does not help either. The dollar continues to strengthen in the world and the main Argentine trading partner cannot stop the devaluation.

In the month, the Brazilian real rose 35%, while the wholesale dollar rose 11% here. The issue of the relative backwardness of the official dollar that governs exports and imports is gaining space beyond the internal race with inflation.

The crisis hits all four sides and there is no evidence of unified driving . Some say that it is necessary to expand, others that they contract, and the needs of health care and assistance to the most unprotected sectors are a priority. The official decision is to solve them one by one, but the moment requires a much more comprehensive program to avoid a greater gap of the main economic variables.

Source: clarin

All business articles on 2020-04-25

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