The scenario has become so short-term that writing a monthly report has become an impossible mission. The argument of the milestones based on the electoral calendar to try to put numbers to the macroeconomic path we had been working with until the end of the year, began to crumble after the March inflation figure was released.
The 7.7% rise in the CPI, the Economy MInister’s return from Washington “empty-handed” after encouraging press operations regarding the dollars he was going to get and the idea that the “soybean dollar III” (the program that should extend the horizon until June 24th, when the party tickets should be submitted) has been stumbling. The landscape has been altered and a new jump in the nominal value of the economy changed, which makes the first landmark on June 24th and increases the risks of not reaching the Primaries on August 13th with the current scheme.
Once again, the million-dollar question is whether the Government can continue to keep the crawling peg until then or whether it will be forced to raise the official dollar in a discreet jump as a “medium of exchange” to get some leeway in the schedule of net payment to the IMF that might alleviate the dollar shortage a little bit. Meantime, the crossed press operations responding to a Central Bank (BCRA) that, after having eased import payments in March, is now going ahead with new quantitative measures to manage the shortage of dollars. However, what he obtained through this – purchases for USD395 MM (half the soybean dollar), would return to square one when the floodgates are reopened (last Friday it sold USD49 MM).
Meanwhile, on Friday, Alberto Fernández stepped down from his candidacy, allowing the Frente de Todos to go with a single ticket headed by a Sergio Massa as candidate and minister. To continue in the race, Massa needs to continue kicking the devaluation down the road since, without a horizon or a program, a discreet jump to reduce the lag generated since 2020, will only serve to ensure inflation in double digits the following month and will not reduce the demand for dollars if the exchange rate gap is sustained or magnified in the face of the switch in voting preferences resulting from higher inflation towards extreme proposals.
Proposals that, over and above what they eventually might do in December, ensure a collapse in the demand for pesos if they become plausible. Gone are JxC’s announcements warning about the bomb, today the questions are moving towards to what is behind Milei’s great headlines and his dollarization proposal. All in a context where the infighting within JXC is peaking with an angry Macri complimenting Milei and who, simultaneously, suggests an in-fight with Patricia Bullrich, while Larreta keeps distributing spaces, trying to increase consensus on a candidacy that does not pick up.
Three weeks in, our April retail price survey points to 7,1% and the data is likely to end up higher when it starts to factor in mark-ups triggered by the new financial dollar echelon which will, in turn, leave a high statistical drag for May. Additionally, the BCRA accelerated the crawling peg rate on the last days of the week to 9% monthly (7.2% on April’s average) and raised the interest rate to the area of 6.75% effective monthly. The BCRA began to intervene in futures markets, extending sales to May simultaneously with a deep intervention in the Treasury’s exchange rate gap by auctioning off bonds in dollars and some repurchases by using dollars from agencies.
Again, the question: Can the BCRA win the battle? It could in the very short term if, with a higher financial dollar and some moves to unlock the settlement of dollars, it manages to buy dollars in the next few days while the Treasury continues to intervene in the exchange gap. But the timeframe is getting shorter and shorter; crossed controls between the MULC and the MEP/Blue Chip swap dollar are beginning to crack together with the price agreements subject to the access to the MULC as there are not enough dollars to keep them going while inflation virtually doubles the level promised for these months.
The short blanket shrunk again and over and above the Minister’s magic tricks, the rabbits seem to have turned into weasels. As we add more nominality to the scenarios, what we called in December “rabbits are enough” looks more and more like “rabbits are not enough”, while a disruptive scenario is starting to be written about which we have been warning if the cooperation in the transition does not take place, but which we still prefer not to rate with numbers.
As we have been stating, politics affects the economy, and the economy affects politics. The drop in demand for pesos in a context of a sharp dollar shortage will be a full blown if the odds of a candidate whose idea is to dynamite the BCRA sneaking into the runoff comes true, and if this takes place, chances of this dystopia happening begin to soar.
