September 29, 2023

Brighton Journal

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Provinces’ stocks and the exchange rate gap: why there is already talk of a “Fernet dollar”.

Provinces’ stocks and the exchange rate gap: why there is already talk of a “Fernet dollar”.
Salta’s governor Gustavo Sass and Juan Schieretti will not be able to pay 60% by the June 10 due date.

A group of provincial lawyers continued to exchange views on WhatsApp groups and evaluate measures to shield their administration from the central bank’s recent decision to extend exchange restrictions to “subnational” jurisdictions from Thursday. Provinces can only purchase interest in dollars in the official market and more than 40% of principal maturities (net) in foreign currency, the remaining 60% must be purchased (if necessary) from their own foreign currency accounts or refinancing maturities, mandated from the national level.

The move equalizes the transactional treatment to provinces that private companies already receive. “Most provinces, having restructured their debt in 2020 and now, in some cases, have begun to face capital maturities, must decide to seek new financing in hard currency for not less than 60% of the capital maturing. Or carry out a loan exchange for an amount equal to the indicated parameter, or – indirectly – the official exchange market. Get or use foreign currency to meet balances without access,” says a statement from consultancy Quantum. Economist Daniel Marks.

For the remaining seven months until the end of this year, the capital maturities for the issued bonds will reach USD 443 million (net of the capital charge of Salta, administered by the recently re-elected governor), the report notes. Gustavo Sanz, which matured on Thursday 1), through which provinces will have to purchase US$ 266 million. Interest payments on these instruments totaled USD 505 million (net of Salda maturity). In addition, there are other obligations under loans abroad.

Maturity of provincial debt in dollars is given in quantum statement

The provinces with the highest maturities later in the year are Buenos Aires and Córdoba. The province of the Mediterranean decided to file an ambaro before the Department of Justice, more concrete in terms of time, Quantum warns, because on June 10 it must pay a debt of 120.3 million dollars. Mendoza also announced that he would seek justice, and Neuquen also expressed his displeasure with the official action, although it was not certain that he would interfere with some form of action.

In fact, Mendoza was one of the most critical of the official action formalized in Central Bank communication A7782. The aggressive Rodolfo Suarez’s administration must keep US$27 million, and the nation will sell US$18 million first at the official exchange rate, and a maturity amount of US$45 million will expire. September 19. . You should look for them with an exchange gap of more than 100%, which means an increase in spending of more than $6,000 million in pesos, although it is less compared to previous calculations – they say – “there is money.”. The dollars available in the province are mostly funds for the “Portezuelo del Viento” work, which the national government stopped.

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He took the political voice of the province in this issue Lisandro water, former Minister of Finance and current National Deputy Minister of Mendoza, he recalled in a speech that, in addition, “due to the extraordinary will of the opposition” (of the Frente de Todos) he had no legal authorization to write his papers. debt. However, he clarified that “Mendoza’s debt is completely stable” and since 2015, when the UCR took over the provincial government, it has been reduced by more than 30%, from USD 1,487 million in March of this year to USD 976 million. “The sustainability of the debt does not present any problem and this is clearly reflected in the price of the bonds,” stressed Neary, who cast doubt on the “successes” of Minister Masa’s administration in China due to the untimeliness of the move. “If what they say is the exchange of billions of yuan has been reached, does this outrage for 300 million make sense?

In addition, Neeri raised the question of discrimination and anti-federalism when the national treasury would access the official exchange rate denying BCRA provinces to pay its maturities. The new 40/60 measure established by BCRA for provincial payments can be called “Fernet Dollar” and Coldplay, Qatar, Netflix, Techno, Soy, Malbec, Crypto, Luxury, In addition to the usual CCL, MEP and “Blue”. And everything, closes the legislator and former finance minister from Mendoza, “This exchange mamarracho did not start to crash at will.”

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On Thursday, when BCRA announced the move, prices in Buenos Aires province and Córdoba fell 1 percent, with the most affected provincial papers falling 2.6 percent. “The rest of the jurisdictions did not show significant variations, which may be due to low liquidity in their operations,” explains the Quantum report.

The official move seeks to force provinces to use hoarded dollars and official sources put the figure at some USD 1,400 million.

Details of maturities, district-wise, up to the end of the year

According to Quantum, “Most of these savings are today deposited in central bank accounts in local banks and are therefore counted in total reserves. Its use for the provision of services will not result in changes reflected in the definition of net international reserves appearing in the memorandum signed with the IMF and will have the same effect on gross reserves as access to the Single Free Exchange Market.

The central bank’s pressing dollar shortage is the backdrop for talks in China led by Massa’s large entourage. The economy is seeking to consolidate loans from the BRICS group’s “new growth bank” comprising Brazil, Russia, India, China and South Africa, which will mature in August, the same month, in the best cases. of STEP. A goal was reached to expand the use of currency swaps with China’s central bank ahead of the final phase of negotiations with the IMF to reshape the existing leaky agreement and achieve a disbursement of US$10.8 billion from the agency. One time. June, September and December and not in the 3 installments contemplated in the original letter. Too late for the government’s financial and electoral calculations.

“We do not rule out widening the executive official exchange market or demand that private sector own dollars be used for some payments. However, widening the gap in the short term seems inevitable” (Equilibrium)

In further evidence of the scarcity of dollars, the PCRA’s decision not to intervene in the bond market on Thursday allowed the prices of fiscal dollars to climb around $40, near the blue dollar to $480.

Miguel Pesce, head of the BCRA, between his Chinese counterpart Yi Gang and Minister Sergio Massa, signed the extension of the use of currency swaps with China.

Keeping fund dollars “artificially low”, Equilibra noted, cost the central USD 800 million of net reserves at a rate of USD 50 million per business day between April 25 and May 17.

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“We believe the central government will continue to intervene in financial prices. But with net international reserves (NIR) low, we do not rule out that the executive may continue to double the official exchange market or demand the use of the private sector’s own dollars for some payments. However, a widening of the gap seems inevitable in the short term”, predicts Equilibra.

An economist pointed out something similar on Twitter Fernando MarulHe pointed out the irony that the cap on official dollars for provinces is helping BCRA save just US$260 million by the end of the year.

“The government spent USD 900 million in one month to subsidize 455 to the MEP dollar. It spent USD 825 million in “3 years” to pay pesos and the IMF. On top of these dollars, he received them. Not to mention the mango. Total Kirchnerism,” asserted Marul. .

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