Another jump of the dollar and inflation, now with worn tools

We know it in May, but it happened in April. The jump of the dollar determined a new inflationary jump in Argentina of the repeated scripts.

President Alberto Fernández commented, hours before the April cost of living increase was released, that he had told Economy Minister Sergio Massa, "we have to stop it," referring to the episode unleashed by a free dollar that had risen last month to touch $ 500 generating another bad news regarding the increase in the cost of living.

Implicitly acknowledging that the "King is naked", the President elaborated on the stampede of the dollar (he never referred to the official exchange rate but to the free one) and its impact on price formation, commenting on one of the worst economic results of his administration.

While he said he told Massa that they have to stop the dollar-price run, he did not advance on the policy to follow or the instruments they could be working on.

In this field the Government has only one goal, which is not to devalue, and believes that it has only one bullet left in the magazine, since the rest of the instruments have already been put into practice and have worn out.

Minister Massa's silver bullet is well known: that the International Monetary Fund advances the equivalent of the US $ 10,000 million that matures this year or, at least, half in the first week of June.

The date becomes relevant, not only because the Central Bank's reserves have already crossed a sensitive limit (the "net" reserves would be in the negative plane) but also because of the political needs of the minister.

June 24 is the deadline to register the candidacies for the August primary elections and Massa aspires to be the candidate for president for the ruling party, putting as a condition that the Frente de Todos go with a single list and aligned with Vice President Cristina Kirchner.

If Massa's candidacy depends on IMF dollars after the meager result of the agricultural dollar of $ 300 in terms of currency settlement, another unknown remains what level of devaluation the IMF will ask him.

Will the Fund give the government US$ 10,000 million to strengthen the reserves so that it can sell them at the wholesale price of $ 229 when the dollar counted with liquidation is at $ 431?

Politics can make it possible. The government has the argument of the loss of foreign currency due to the drought and the ally Brazil goes through international forums asking for help for Argentina "for humanitarian reasons." All for a dollar that allows to stabilize something a very serious situation.

A recent analysis by the consulting firm ABECEB deals with the wear and tear of the tools to which Economy Ministry has already appealed. Neither the devaluations in quotas (soybean dollar 1 and 2 and agro dollar) nor the acceleration of devaluations against the official dollar nor the sharp rise in the interest rate managed to turn around the negative expectation about what is to come.

Equilibra, by Diego Bossio and Martín Rapetti, argues in its latest report that "there is no margin to avoid a deterioration in economic activity this year. To the negative drag of -03% of 2022 will be added the impact of drought, the shortage of dollars and an inflationary acceleration that will reduce domestic demand.

And he concludes: "Thus, we expect a fall in GDP in 2023 of at least 3%."

The economic scenario for the remainder of the year is defined in terms of indicators and among the great doubts is whether the march towards the elections will be able to modify expectations for 2024.

The shortage of dollars held by the Government prevents optimism in terms of level of activity.

The tightening of the exchange rate trap to curb the payment of imports and debts abroad is part of this gloomy picture and, as ABECEB argues, the key is if Massa's plan to "arrive" until the elections does not arrive.

In recent days, the Government managed to reduce the exchange rate gap between the wholesale dollar and the spot with settlement to 88% and, in another context, perhaps it would have been a sign of détente, since a couple of weeks ago it comfortably exceeded 100%, which is considered a limit to measure distrust.

The point to consider is that the decline in financial dollars is being achieved at the expense of a government selling, in an increasing and pronounced way, dollarized bonds at auction prices, which is equivalent to borrowing at rates in sidereal dollars.

See also

Lula's minister asked U.S. Treasury for help for Argentina: "It's a humanitarian issue"

Andrés Rodríguez, leader of the state said that the rise in inflation does not harm a candidacy of Sergio Massa: "Quite the opposite"