The GDP measured in annual value will be about 550,000 million US dollars, the current reserves are equivalent to 6.7% of the GDP, a real tear, at least we should have reserves equal to 20% of the GDP, that means reserves for 110 billion dollars.
The GDP of Brazil is about 1.5 trillion US dollars, which is almost 3 times the GDP of Argentina. Brazil’s reserve balance is 339 billion US dollars, which is equivalent to 22.6% of GDP.
Argentina has no external financing and, in the best-case scenario, would have a primary deficit of 2.5% of GDP, to which should be added interest payments of at least 1.6% of GDP. This means a deficit of 4.1% of GDP, which would be about 22.5 billion USD.
The country’s problems are this growing deficit and the lack of funding in sight. The results are clear, 7.0% inflation in August, which is 78.5% in the past 12 months, and if we view it in the future, it gives us 125.2% annually.
The central bank raised the interest rate from 69.5% annually to 75.0% annually, three percentage points lower than the inflation rate in the past 12 months. It will also tell us that the actual rate for the nominal rate is around 110.0%. Herein lies a grave error. The government compares the effective interest rate with the nominal rate of 78.5% of the inflation rate for the last 12 months.
If the government wants the interest rate to start capping inflation, it must seek a rate higher than the current rate. For example, a nominal minimum rate of 100% per year, which is measured as the effective rate, would give us 161.3% per year. In this way, there will be many speculators who will switch from dollars to peso, the gap will narrow and this will give the economy more predictability. This monetary measure must be complemented by other measures in the areas of exchange, productivity and finance to ensure that this is a solution and price escalation.
How is the movie?
We believe that the government will continue its policy of running behind inflation, and therefore, it will proceed with a timid rate hike, which will encourage economic agents to seek refuge in the dollar.
The government made a mistake by offering special exchange rates to exportersas was the case with Soybean Dollar at $200. Now businessmen are queuing up to apply for Malbec dollar, lemon, oil, cheese, meat and whatever product you can think of.
The government had to come up with soybean dollars to close out the targets it had committed to with the International Monetary Fund from September 30th. The market will now look at what will happen in December, when it has to close the next targets. As Argentina lags sequentially, in December the government will have to invent some dollars to get out of trouble and comply with the organism.
A country with meager reserves and overweight pesos is in trouble. In this context, the only thing that comes to the mind of the Central Bank is offering more shares and intervening in the foreign exchange market so that the alternative dollar does not rise. If there are two labels that have not been given, they have been named recently.
The government, like the fanatics of the Formula One race, took pictures with everyone in the United States, the picture is nothing more than a picture in a newspaper, what is important is the policies they bring from the northern countries, because money, what they say money, they did not get, and they will not get. Possibly also political.
Argentina continues in an economic scenario that weakens, we will not see an explosion, it is a permanent and continuous decline. Economic variables do not rise or fall, some occasional moves exceed, financial assets are permanently skewed, economic agents are waiting for a signal from the opposition, but the presidential election is far and the opposition does not give a signal and even less. An idea of what can be achieved.
In this context, all roads lead to the dollar, and inflation dominates the general scene. The banks have banded together and only allowed inflation-adjusted term deposits of up to $3 million per account, in violation of what central bank rules suggest, but since there is no control, anything goes in Argentina. Inflation-adjusted peso bonds have strong negative short-term rates that discourage investment.
Buying replacement dollars for less than $300 is a real deal, with a government that has an exchange policy that depends on its need and a monetary policy that makes monetary obligations grow under the protection of a higher interest rate every day. Cheer up, September inflation may be the same as August inflation, in my case I’m going to push for a dollar in advance, in one of those it’s my turn.