The International Monetary Fund (IMF) put its foot down on the government: it disagreed with the dollar at $350 and prevented the fund from intervening in the dollar and futures market.
This week will be intense in terms of portfolio dollarization. The IMF imposed limits on central bank intervention in the financial dollar market and the futures market, where it reduced the intervention quota from US$9,000 million to US$8 billion.
That’s why the futures market had a strong reaction, recovering almost everything it lost on Thursday. The dollar is now trading at $680 at the end of the year – a high of $7 – meaning a 282% depreciation through 2023.
All terms rose in September and October with strong trading volumes as investors did not think the $350 dollar would be firm until October with double-digit inflation starting in August. No inflation-fighting rate above 11% per month, as the adjustment to imports to build up dollar reserves will be stronger than anything known.
Coverage is very good, with the linked dollar TV24 bond, fixed exchange rate and 0.40% per annum, trading at par. On Friday it rose 2.45% to settle at 107.40%, representing a negative return of 13.50%. The bond’s gain so far this month is 31.50 percent.
According to Ecolatina advice, “September presents some doubts and in October they discount a new exchange rate hike: the implied monthly devaluation for October is more than 15%, which indicates that the market is trying to hide itself from a possible new development. The next exchange rate for the elections. November (+24 %) and the implied movements of December (+27%) are also higher”.
What they do agree is that the central bank has little more to intervene. In the Adcap Grupo Financiero webinar, Anker Latin America economist Federico Furiase estimated that AL30 – the bond used to intervene in the financial dollar market – has USD 1,500 to 2,000 nominal million and other dollar bonds remain, but are less liquid.
Consultancy firm Econviews said, “In providing 7,500 million USD, there will be nothing in reality. You have to pay CAF, Qatar, China and 4.250 million USD to the IMF for capital and interest from September to November. The balance is negative at 175 million USD, according to the cold account.
Consulting firm Econviews said there would be virtually nothing in the US$7.5 billion offering.
“The IMF said it would need to spend less on public salaries, pensions and subsidies and prevent the exchange rate from falling behind,” he added.
The IMF’s idea that there is no fixed exchange rate is a threat that has reached investors who are doubling down on their bets on the currency’s future value.
On Friday, reserves fell by USD 1,048 million to USD 27,944 million due to China’s proposed yuan payment to the IMF.
According to consultancy firm Equilibra, the government will not be able to meet the USD 3.3 billion accumulation target. “The main problem we found is that it creates a barrier before presidential elections, because all economic agents know that after general elections and/or polls, the executive must adjust to reduce the exchange rate lag. The growing gap created by a fixed official exchange rate and from the IMF Unlocks new distributions.
Trapped. If Sergio Massa uses money from the IMF to stem the rise of fiscal dollars, he may have to seek new bridging loans to meet payments to the agency in the future.
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