In May, the Central Bank bought 25% fewer dollars than in April. In the City, net reserves are estimated to remain close to negative US$3 billion. The government will have to pay US$ 4.9 billion if it does not reach an agreement on the China swap.
The Central Bank’s reserves have returned to the forefront of market analysis given two months with high debt maturities in dollars and new uncertainty about when the Government will finally decide to lift the exchange restrictions. Negotiations with China for the payment of the swap are key: US$ 2.9 billion are due this month and another US$ 1.9 billion will be added in July.
Without official definitions of what the arrangement with the People’s Bank of China will be, the expectation is that if this due date cannot be postponed, the Government will have to pay, at least in part, with dollars from its coffers, which will further compromise the level of its reserves.
“At the end of the spectrum, failure to reach an agreement would mean paying out US$4.9 billion between June and July for the swap. Added to this is the fact that US$2.6 billion must be paid in July in capital and interest on Globales and Bonares. The July payment to the IMF would be covered by the disbursement that would arrive this month. Therefore, US$7.5 billion would have to be paid in these two months if an agreement is not reached on the Chinese swap,” they indicated at PPI.
This Monday, the Central Bank began the sixth month of the year with purchases of USD 59 million in the foreign exchange market. On Friday, it had US$ 52 million and raised alarms in the City about the capacity of the monetary authority to rebuild its net reserves in a positive direction, even in a period where there are seasonally higher liquidations in the export sector and lower import demand due to the drop in activity.
So far this year, the BCRA has accumulated purchases for less than US$ 16.5 billion and in the last two months it has slowed down the pace of purchases: it went from accumulating US$ 3.348 billion in April to US$ 2.522 billion in May.
Martín Polo, from Cohen, explained: “This slowdown occurred even though agricultural settlements increased by 40% compared to April, totaling US$ 2.9 billion (about US$ 3.6 billion if the 20% that is settled via CCL is included), in line with the average settlements for this time of year. The lower purchases are due to the greater net demand for foreign currency by importers, due to the gradual normalization of payments for imports.”
“By paying 25% of each month, a normal month of payments has already been accumulated, which would have exceeded US$ 4.4 billion in the month, which would imply almost 90% of imports,” Polo added.
Import pressure could be added to the pressure of Argentine spending abroad. In this regard, the consulting firm Outlier pointed out: “It is also possible that there will be greater demand associated with spending abroad with cards due to the recovery of income in dollars and the lower interest rate differential.”
Getting net reserves back into positive territory is key to being able to start thinking about a scenario of lifting foreign exchange restrictions. The consulting firm Aurum estimated that the stock would total a negative US$ 2,811 million. “From a historical perspective, it is at levels similar to those of March 2016 and leaves the BCRA in an extremely vulnerable situation if the restriction were to be lifted prematurely. We estimate that by the end of the year, they would close at levels similar to those observed at the beginning of 2022,” they said.
In Outlier, they estimated that net reserves remain at a negative balance of US$3 billion, using the methodology used by the International Monetary Fund. “If government deposits in foreign currency are not subtracted, they would still be negative by around US$2 billion. And if, in turn, the maturities of BOPREAL series 2 within one year are not subtracted, they would still be negative by several hundred million,” they said.
“It is unlikely that net reserves will increase enough during the second half of 2024 to meet the minimum liquidity requirements to exit the corralito, which the Milei Administration has referred to on other occasions (US$ 15 billion). Therefore, attention is once again focused on the ability to articulate net financing in foreign currency with the IMF and others, changes in the current scheme that accelerate accumulation,n and/or its pragmatism to design other exit schemes that require lower levels of liquidity,” Outier noted.
However, if the Government finally reaches an agreement with China, much of the uncertainty for the market these days would be cleared up, which translates into a new and persistent rise in the financial dollar, which found a new “floor” in the $1,200 area.
