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It doesn't matter if the rabbit is black or white as long as it saves time.


The economic scenario conditions the political one and vice versa. The shortage of dollars will impact the level of activity and without a statistical carryover for this year, a drop in activity is almost inevitable.

"The end of the story has not yet been written:

the political scenario is going to define the economic one and simultaneously the economic scenario is going to define the political

one. The numbers of the economy in 2023 and in 2024 will depend on how this situation unfolds. iteration that will also be influenced by the international context and the drought; luck is also evaluated", indicates the introduction, or executive summary, of the latest work by Eco Go Consulting.

The rabbits in the title, of course, have to do with the ability of the Minister of Economy, Sergio Massa, to find mechanisms that allow a certain order to face the political transition. 

Here are some of the highlights of the work done a few days ago.

January ended and like all odd years, this coincides with

the start of the election year and the seasonal drop in demand for pesos


The words used by Together for Change in last week's statement affirm that the government

is "lengthening the fuse at the cost of enlarging the pump"

in an economy where inflation runs at almost triple digits, the exchange rate gap is around 100 %, debt maturities in pesos are concentrated in April-July and the distortion of relative prices tends to increase with salaries and pensions destroyed.

This distortion occurs not only between the prices of ridiculously expensive goods and ridiculously cheap regulated services, but the growing segmentation and cross-subsidies in the latter is

ending up destroying the price system


It not only breaks the scheme of signals behind, but also the balance sheets of many companies, mainly exporters that as a defensive mechanism increase the black and/or triangulate the operation.

Borrowing the allegory of the "long fuse", the question is

whether the bomb of cornered pesos explodes before, explodes after, or does not explode and is feasible to be defused


"Several months ago, when we began to talk about the

transition risk implicit in a broken bond market in pesos

, we put together a double-entry matrix to think about the scenarios. In one of the axes we included the availability of dollars: the government get the dollars or not.In the other axes we include the political transition scheme: there is or is not cooperation in the transition (cooperates or does not cooperate; read by cooperation the expectation of respect for the contracts in pesos of a new administration) .

Obviously the optimal cooperation was the one that started with the pending corrections framed in a stabilization program, not the one that

increasingly accumulated distortions trying to kick the ball for the next administration


But caught in this trap, the hard wing of the opposition today finds itself with a complicated speech to enter into an electoral campaign.

The promise of "chaos and sacrifice" contrasts with Sergio Massa's promise of "order and hope."

Again, for Massa's message to be sustained over time,

"the rabbits" have to keep working


For now,

the management of scarcity through the administration of commerce in the hands of the Ministry of Economy

(through the SIRA) is, in the words of Massa himself (interviewed by Horacio Verbitsky in Cohete a la Luna) "what explains why that the price controls that failed Roberto Feletti and Paula Español, do work for him".

But what seemed to "work" in November and December when inflation fell to 5% monthly on average (80% annualized) in contrast to 7.4% in July (135% annualized), begins to leak at the beginning

of 2023


Inflation for January, according to our survey of retail prices, amounted to 5.9% (almost 100% annualized).

Four factors

would explain the rise in prices

: a) The price agreements that worked at the end of the year are beginning to crack.

b) The spike in the wholesale price of meat between 20% and 30% since mid-January.

c) The increases in regulated prices, several indexed monthly, even with low weightings in the index, affect.

d) The marginal dollars began to warm up in mid-January.

Far from being paralyzed,

Massa acts


she invents a debt repurchase with reserves that she does not have to circumvent the IMF and intervene in the gap and seeks to leverage the operation with a repo with banks using the repurchased bonds as collateral.

On the other hand

, she relaunched the fair prices agreement, while actively seeking sources of dollars

including the rain dance to moderate the costs of the drought.

It is clear that in any case (with more or less nominality)

the program in 2024 should start correcting relative prices

, and this includes a discrete exchange jump in December 2023 and/or January 2024, a response regarding the maintenance of the contracts in pesos, and a definition on the disarmament of the stocks.

If the program goes well, in the best of cases,

inflation in the last months of 2024 could return to below 2% per month

(25% annualized), but inflation in 2024 will hardly be below the level of 2023. (even if the devaluation occurs in December 2023).

The coverage schemes of the private sector during 2023, compared to the visualization of what can come in 2024, are the ones that will define that the nominality in this fourth year repeats 100% of 2022 (data as of November in the "reach the rabbits") and/or jump a step again like in 2022. 130/150%?

(scenario where rabbits are not enough and where the spiraling of the gap and inflation complicate the transition).

In any case, with neutral statistical drag, with the direct impact of the drought and indirectly through the contraction of imports in the face of the dollar restriction,

the economy would fall between 2% and 3%


In 2023, the presidential elections and the regime change incorporated into the range of opposition proposals, mounted on a scheme of financial repression that faces a growing shortage of dollars due to the drought and exacerbates the issuance of pesos to try to keep the wheel running.

it continues to make it difficult to build non-disruptive scenarios


to stand out

*In other words, even with not too pessimistic assumptions regarding the harvest and financing/use of own dollars,

there is no margin to raise the foot of imports, much less if dollars are used to contain the gap


*Without statistical carryover from 2022, with the direct negative impact caused by the drought and indirectly caused by the shortage of dollars,

all paths lead to a drop in the level of activity in 2023


*The greater the participation of the fixed-rate debt in remunerated debt,

the chances increase that the liquefaction does not require reprofiling of the Treasury peso debt

, but in the middle with matched bank balances, liquefies assets, liabilities and also his net worth.

The search for coverage with instruments that cover you against inflation, devaluation and/or both like the dual, can end up leading you to the wrong corner solution.

*The Treasury's stock of debt in pesos amounts to almost $19.9 trillion, of which 35% ($7 trillion is in the hands of the market, the rest is in the hands of intra-public sector organizations).

* Of the stock held by the Treasury, one third corresponds to fixed rate instruments and two thirds to variable rate instruments.

Of the total stock of dual bonds, only 20% is in the hands of the market ($0.8 trillion of the $4.6 trillion).

* When the debt in pesos per holder is broken down, $2.2 trillion is in the hands of the banks (mainly fixed-rate LEDs), $1.2 trillion in the hands of the FCIs (a third of the funds), $1 trillion is in the hands of insurance companies and $2.5 trillion in the hands of the rest, which includes public banks without Banco Nación, which is considered at the opening as public intrasector debt.

*The concentration of market debt maturities before STEPs amounts to $5.5 trillion (includes the corresponding indexation according to our baseline scenario).

*Of these, the bulk is concentrated in the four-month period April-July $4.3 trillion.

Marina Dal Poggetto, Sebastián Menescaldi and Lucio Guberman are economists at Eco Go Consulting

look too

The heavy inheritance strikes again

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Source: clarin

All business articles on 2023-02-11

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