After the government announcement, country risk returned to 1,500 points, and the free dollar exceeded $1,400.

Market reacts to president’s plan with decline Javier Miley stabilize the economy “Phase 2” At the exchange level, bonds and stocks on Wall Street.

Last Friday, the Minister of Economy Louis Caputoand the President of the Central Bank, Santiago Bausiliannounced that the economic stabilization program launched by Miley last December is entering a second phase with a focus on the final cleanup of the BCRA balance sheet after having succeeded in restoring the budget balance in the first phase through a strong “shock” adjustment.

On Wall Street Shares and ADRs of Argentine companies traded in dollars fell to 7%led by bank papers. Dollar bonds are losing more than 1%, and Argentina’s country risk has once again exceeded 1,500 points fundamentals, the highest since June 11. Alternative dollars also rose about 2%, with record prices in all their quotations and a market gap above 50 percent.

1) Lack of definition of “traps”. Following the approval of the Basic Law and the fiscal policy package, definitions in this regard were expected. There were only general statements, but without precision, which increased operators’ doubts in the short term.

2) Increase in Treasury debt. When moving debt accumulated in the form of remunerative liabilities from the BCRA to the Treasury, it will be important to deepen the budget surplus path to meet maturity dates. Such a deep fiscal adjustment during a period of economic contraction and poverty of more than 50% foresee unfavorable results for the balance sheets of companies whose profits are tied to the economic cycle. Bond prices in dollar terms also decline and therefore country risk increases because as government liabilities increase, it is expected to work harder to meet maturities.

3) Why are bank shares falling? Bank papers are the ones that suffer the greatest impact. The decline reaches 7%, led by Supervielle bank. This is because at this new stage it was announced that the Central Bank would stop issuing money to finance its remunerative obligations and that transfer of obligations to the Treasury with a new letter on monetary regulation. Given that banks place the money they receive from their fixed-term clients into BCRA remunerative obligations, Treasury’s new strategy increases financial institutions’ exposure to sovereign debt securities of lower credit quality than BCRA letters. that is why the former pay a higher rate than the latter.

“On the one hand, there are two central elements: economic fundamentals and expectations. In the economic fundamentals, Argentina has achieved very good results in the last four or five days: on the one hand, the authorization of the long-awaited fundamental law, which it was not sure would come out, and it is coming out, and these are very market-oriented, very professional companies. On the other hand, despite the fact that the interest rate was low, the President of the Central Bank and the Minister of Economy both said that they were looking for a positive real interest rate,” he said. Christian Gardelfounder of Gardel Trading.

Gardel also highlighted the bullish reaction of alternative dollars, despite the fact that Louis Caputo rejected any possibility of devaluation official exchange rate: “To mention that drivers Judging by the dynamics of expectations, over the past days on Wednesday, Thursday and Friday, the Argentine Central Bank sold $200 million. This is generally unusual for this time of year. Naturally, in the agricultural sector there is an accumulation or accumulation or storage of export products, which raises certain doubts. “Doubt breeds uncertainty, and uncertainty prevents the price of the dollar from falling or rising.”

Among the stated points The Central Bank will stop issuing money to finance interest paid on its obligations The remuneration, the second-largest bond issue after this one, is intended to finance the Treasury deficit, which the government sees as the main reason for high inflation, which reached 276.4% year-on-year in May and 4.2% on the month.

For this purpose, the remunerated obligations of the Central Bank will be replaced by treasury debt: Banks will no longer place their excess liquidity in passive passes—the type of instrument issued by the BCRA—but in monetary control bills issued by the Treasury.

“In turn, the Treasury will increase its floating rate market debt and pay more interest, requiring a larger primary surplus to maintain a fiscal surplus,” the firm noted. Delphos Investment in the report.

Former Central Bank President Martin Redrado explained that this is a voluntary exchange of passive BCRA passes owned by banks for US$15 trillion, equivalent at official exchange rates to approximately US$16.4 billion.-. The point is, Redrado explained, that banks will be asked to “lower quality” debt — The Treasury, unlike the BCRA, has a history of defaults, so in order for banks to voluntarily accept it, it recommended “creating incentives” for institutions to convert that debt into new credit.

How the government will do to prolong the strong fiscal adjustment in the face of a still economic downturn and rising poverty levels remains one of the biggest unknowns, beyond the political momentum it believes it has achieved with Congress’s recent approval of a reform package economics proposed by Miley.

After this process The only source of money emission will be the purchase of dollars. The Central Bank, in order to restore its weak monetary reserves. And it remains The solution to the million-volume “put” problem is still not solveda type of liquidity insurance for debt securities provided by the BCRA that will require an agreement with the banks.

The announcement of “phase 2” comes amid growing doubts among investors who are beginning to view changes in monetary policy as necessary to achieve unification of many co-existing exchange rates and the opening of so-called “exchange stocks.”

Mariano Marco del Pontpartner at Silver Cloud Advisors, explained that “The market expected them to talk about exiting shares and they ended up talking about a switch from BCRA risk to the Treasury, the implementation of which was also not well explained. I don’t like anything. The government is blinded by the destruction of inflation and zero emissions regardless of other variables.”

But on Friday the government announced that the long-awaited lifting of foreign exchange restrictions, one of the main promises of the campaign that carried Miley to election victory in 2023, would be left for the third stage of the program without a specific deadline. and subject to certain “parameters”.

For Consultant for LCH“The government continues to send confusing signson the future of currency and monetary management, a path that is not clear, “based on vague messages from officials and the president himself, who have consistently mentioned various alternatives such as dollarization, currency competition – without defining what this would be – endogenous dollarization, freeing up shares, etc.

The conditions for the rise in stocks set out on Friday by the economic team on Friday are also not very precise: “macroeconomic order”, “economic recovery” and “deepening the disinflation process”, but without indicating what the quantitative “parameters” are.

For now, Stocks are maintained, as well as a devaluation level of 2%. monthly, set by the government, despite the pressure of further devaluation implied by alternative exchange rates.

This could lead to a widening gap between the official and parallel exchange rates, increasing the magnitude of the potential devaluation that the announced “phase 3” exit and subsequent inflationary spike would entail.

“The dilemma is adjustment today and more adjustment in the future. This combination is unattractive from a political point of view, especially ahead of the 2025 legislative elections,” the company said. Financial Services Consulting in the report.