Dollar: Consulting firm warns that $8 of every $10 trade surplus is being used to contain the gap

Although under the new government the Central Bank is not directly intervening in the currency gap, according to a private report, a scheme has been formulated whereby a significant amount of dollars will be transferred to parallel markets, more than under the previous government.

The report warns that the amount of foreign exchange the government is releasing to cover the deficit will be equivalent to 80% of the trade surplus projected for this year. According to the consulting company Centro Periferia, prices for parallel dollars thus remained stable and “the gap was narrowing.”

This happened on the basis of foreign exchange surpluses from both the harvest of rough harvests, a reversal in the energy balance, and on the basis of a recession that reduces demand for imports and increases export balances.

Mechanisms were mainly used Program for Export Enhancement (PIE)which allowed the calculation of 20% of exports in the financial market and 80% in the official market, also known as “dollar mix”; and maintaining liquidation dollars from tourist expenses and foreigners’ cards in the country on the financial market.

On the first point, the report said: “Following a change in management, the scheme has been restructured, given its size, as a mechanism to contain the currency gap rather than as a reward for exporters. Thus, with exports averaging US$5.4 billion between December and February, about US$1.08 billion per month flowed into financial markets.

In turn, the authorities maintained the effect of Message “A” 7630 of November 2022, which exempts foreign exchange earnings from tourist expenses and card payments of non-residents from the obligation to settle on the official foreign exchange market.

This measure means that dollars received from inbound tourism (through travel packages, tickets and card payments from foreign banks) are settled in the financial dollar market (favoring the formalization of transactions) and have generated an average of US$212 million per month in recent months. which is used to contain the financial dollar.

“An association These two mechanisms (PIE + tourist dollar) provide parallel dollar markets with a dollar supply of approximately US$1.3 billion per month.. It is estimated that, given the continued operational restrictions of the National Securities Commission (CNV), these markets previously channeled demand of between US$900 million and US$1,200 million per month,” the economist consulting firm said. Pablo Moldovan.

“Thus, the supply provided by the government more than exceeds normal market demand. These circumstances explain the “oversupply” and explain why, even in situations that could mean failure for the government (withdrawal of the consolidated law or rejection of the DNU in the Senate), the price of the financial dollar remained calm. “, he added.

Thus, the amount of dollars that the government is pouring into the financial market exceeds the direct interventions of former economic ministers. Martin Guzman And Sergio Massa.

During the Guzmán era, BCRA’s direct dollar sales averaged US$192 million per month (with a peak of US$400 million between 2020 and 2021), and during the Massa era, the consulting firm estimated an average of US$667 million per month (with peaking at US$1.8 billion in the 2023 election period). The current average is estimated at US$1.19 billion, which is significantly higher than previous averages.

For the Center and Periphery, the significant amount of dollars flowing into financial markets raises two questions for the future. First, its scale calls into question its sustainability beyond a period in which a large surplus of dollars will be guaranteed by a push into forced commercial debt.

“Sacrificing about US$1,200 million per month to contain the deficit will undermine the accumulation process when there will no longer be a contribution of nearly US$2,750 million on average that commercial debt contributed, despite the appearance of liquidating agricultural dollars,” they support.

In second place, When annualizing the dollars that will be transferred to parallel markets, this figure will rise to US$16,422 million. This value represents 80% of the trade surplus projected for 2024.. In this sense, the Central Bank predicts that this year will end with a surplus of $22.4 billion.

At the same time, this value exceeds the average level of formation of foreign assets for the period 2003-2011 and 2016-2019, when there were no reserves.

In this regard, Moldovan believes: “More or less the same amount is spent to satisfy private demand for dollars as would be spent if stocks were raised. The point is that the current arrangement gives the government the advantage that it has complete discretion and can withdraw it whenever it wants without affecting the official exchange rate. On the other hand, if he simply issues shares, it will be a very difficult decision, and in the face of an election year like 2025, it may require many more dollars that are not available.

Juan Truffa, an economist at Outlier, said: “It is very difficult to build reserves using stocks. So the government has to balance what it wants. Do you want a breakthrough, a build-up of reserves, or both? So it balances and manages in this way, creating a mixture that I don’t know if tomorrow will change, whether the gap will stabilize or continue to widen. It wouldn’t look like that today. But here’s how it works. “We need to find some balance, what in English is called a compromise.”

Federico Glustein He argued that “the mechanisms used by the government, such as the mixed dollar and the PAIS tax, achieve, on the one hand, greater tax collection and, at the same time, allow us to avoid a new depreciation of the currency.” a strong official dollar, which could have a greater impact. If this happens, it will lead to inflation, at the same time causing greater demand for foreign exchange.”

“These measures, which do not reflect the capitalist market as the government expects, give it flexibility on issues such as inflation, exchange rates and tax collection. Since Miley took office, the BCRA has been observed to acquire $17 billion, turning net reserves of $11 billion from negative to positive, and this is mainly due to the existence of the exchange rate and in turn the recession “

“If equities were opened today without settlement of paid repo transactions, commercial dollar debt and direction of external balance, instability would arise due to exchange rate shock, which would make the achievement very fragile in macroeconomic terms,” he concluded. .