Red-hot dollar: Central Bank reserves would fall to historic lows after payment to the IMF

Despite having suffered a defeat in the general elections, Sergio Massa faces a major macroeconomic challenge: containing the dollar bleeding that accelerated in recent weeks and prevent the level of international reserves from reaching a 17-year low again after payment to the International Monetary Fund (IMF).

He Central Bank sacrificed USD 2,084 million so far in October and the gross holding closed at USD 24,551 million in the last day, close to the annual floor of USD 23,612 million that it reached in mid-August.

With the IMF maturities for USD 2.6 billion on the immediate horizonreserves could deepen their decline and equal 2006 figures. Attentive to this negative mark, Massa chose to expand the Export Increase Program (PIE) to all goods and services, modify the settlement percentages of dollars and extend it for 30 days.

Massa’s unexpected triumph caused bonds to fall and country risk to rise

Starting this Monday, exporters will be able to settle 70% through the Single and Free Exchange Market (MULC) and the Remaining 30% through cash settlement (CCL), the stock price that arises from the purchase and sale of sovereign bonds. Thus, the presidential candidate of Unión por la Patria seeks decompress the dollarizing appetite with a view to the runoff with Javier Milei.

Why the Central Bank’s reserves fall

Consulted by PERFIL, the director of Economics at Fundar, Guido Zackthe shortage of foreign currency responds to the fact that The exchange rate regime “has completely expired” and “whoever becomes government as of December 10, is going to have to make profound changes.”

From his perspective, the gap between the official exchange rate and the financial ones, which today reaches 167%, discourages the liquidation of exports and, at the same time, boosts the import of goods and services, despite the current restrictions.

In this sense, Zack believed that the Government lacks tools to contain the drain of currency although it appeals to finance it through extraordinary income such as international loans with the aim of keeping the price of the greenback at bay.

For his part, the economic analyst Salvador Vitelli stressed that the erosion of the BCRA coffers was due to the official intervention in financial dollars and the Single and Free Exchange Market (MULC)where it exceeds USD 800 million in net sales in the tenth month of 2023.

At the same time, Vitelli raised a second problem for the head of the Treasury Palace: “We are at negative levels of USD 7.7 billion in net reserves and we are probably heading towards USD 11 billion being a new record in the last 20 years”.

For the CEO of Analytica, Claudio Capraruloconsidered that Sergio Massa’s “ace up his sleeve” is the increase in external financing through the expansion of the swap with China for USD 6.5 billionannounced by President Alberto Fernández last week.

However, Caprarulo stressed that the Government “faces payments with the IMF for USD 3.3 billion“and anticipated that “the pressure on parallel dollars will be sustained” in the face of the second round between Massa and Milei that will take place on November 19.

Moody’s gloomy economic forecast for runoff winner

His colleague agreed. Santiago Manoukian by maintaining that the exchange of currencies with the Asian giant will help cover the maturity schedule established with the multilateral organization and will give “firepower” to the central bank “to intervene in the markets and preserve the level of imports that helps sustain the level of economic activity.”

Regarding the factors that explain the hemorrhage of reserves, Manoukian explained that “the expectations of devaluation and the historical record of the exchange gap generate a perverse scheme that discourages the settlement of exports at the official exchange rate“.

“That is why the Government is forced to deepen the exchange rate splitting scheme. With the payment to the IMF that would be made this week, net reserves would be drilling the USD 10 billion zone again“, he noted.

Reservations in red: the outlook for the runoff


The next few weeks will be decisive for the ruling party as they will define the future of its presidential candidate. In order to strengthen the position of the Central Bank in the face of possible exchange tensions, the Minister of Economy highlighted the swap with China by stating that “it increases the capacity for intervention and guarantees that the commercial and financial obligations that Argentina has can be met from now to the end.” of the year without major difficulties”.

From Guido Zack’s point of view, it is “probable” that even the runoff there is a downward trend in international reserves. “Whether it goes deeper or not will depend on how the probability of victory for Massa or Milei is perceived by savers. The more calm the candidates try to convey, the better,” he judged.

According to Salvador Vitellithe panorama will be dominated again by uncertainty regarding what is coming and “The drop in reserves will be due to the fact that we have payments to make to the Fund“. “The great supplier of foreign currency that is agriculture for now is not going to be greatly encouraged to change,” he said.

In the opinion of Claudio Caprarulo“although who wins the runoff modifies the what and the how, a change in economic policy is discounted as of December 10, which among others should begin a path of correction in the exchange rate delay.”

Finally, Santiago Manoukian anticipated that the Minister of Economy will implement “a defensive exchange rate strategy “which will consist of a sharpening of the administration of the exchange market, a deepening of the splitting schemes, the use of reserves and the imposition of new regulatory restrictions to anesthetize financiers and intervention in the future dollar.”


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